Brexit Update: Practical Considerations For Business As Rumors Of A Transition Agreement Swirl

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Editor’s Note: In previous issues, the Trade and Manufacturing Alert has covered important developments relating to Brexit. As the UK and the EU move closer and closer to Brexit, and the effects on the international business marketplace and international commerce due to Brexit are increasingly known, the Trade and Manufacturing Alert will keep our readers informed of ongoing developments with monthly articles on Brexit-related topics.

Reports are emerging that an agreement-in-principle has been reached on the Brexit Bill, in preparation for a meeting on Monday, December 4 between UK Prime Minister Theresa May and Jean-Claude Juncker, President of the European Commission. The final settlement total has been estimated between €45 billion to €55 billion, depending on the final methodology and timetable to be used to pay out the settlement.

Recent reports also indicate good progress on the second issue of the rights of EU and UK citizens currently living and working in the other jurisdiction. If these two reports are true then the focus will shift to resolution of the problem of the Irish border. Only with sufficient progress on all three issues will the EU agree to move to discussion of the broader trading relationship between the UK and the EU post-Brexit.

The Irish border issue foreshadows broader issues around the handling of the border between the EU and the UK. It has been given priority due to the importance of an open border to resolution of the violent dispute between republicans and unionists in Northern Ireland. As the UK continues to insist that it will not enter into either customs union or the single market with the EU, many observers in the business community are skeptical about the prospects for an open Irish border.

Business groups also are concerned about the disruption to supply chains from imposition of border controls in Northern Ireland. Supply chains of many industries move across the northern Irish border numerous times in the manufacture of goods and Irish products in EU supply chains typically transit the UK.

More broadly, this problem has raised the spectre of how to manage customs disruption between the UK and the entire EU following Brexit. Port authorities in the south of England are warning of massive queues of goods as the facilities for customs clearance in the UK and the continental EU ports are not ready for the imposition of customs controls on trade that currently flows without the need for customs clearance.

The EU and UK negotiators have targeted a summit of EU leaders on December 14 to approve the extension of negotiations into the terms of the future relationship. It is hoped that the Northern Ireland border issues have made enough progress by then, along with the reported progress on the rights of citizens in the respective jurisdictions and the financial settlement being reported, so that the EU Member States authorize negotiations on the future relationship.

UK and EU businesses are starting to prepare for the possibility that no trade deal is reached in time for Brexit while also advocating preferred approaches to the terms of the future relationship. Complex supply chains crossing the EU-UK borders are being examined in light of possible delays and other disruptions, including imposition of tariffs or import licenses or other customs and regulatory requirements on movements across the new border.

Businesses also are expressing views on the need for a transition period, while taking positions on the form and duration of such a transition. One approach many businesses are attracted to is an extension of the current negotiations on the basis of retaining the status quo for a period of two or more years. It is not clear, however, that this transition arrangement would be acceptable to either the UK or the EU.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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