EU-UK relations in 2020 and 2021 post Brexit

Written by Arne Mielken, Vice President of the Institute of Export & International Trade

This post was originally posted on ‘Customs Manager – A global community of empowered customs managers’, where Arne regularly blogs about important developments in global trade.

The Withdrawal Agreement Bill has been given Royal Assent. This means that following the UK’s departure from the EU, from 31 January 2020, 11:01 pm, the EU-UK Withdrawal Agreement will come into force. But what customs and global trade rules apply under the new regulations?

What is the Withdrawal Agreement?

The Withdrawal Agreement sets out the terms of the UK’s exit from the European Union (and the European Atomic Energy Community). Its substantial elements were negotiated in an agreement reached on 14 November 2018.

It brings legal certainty where the UK's withdrawal from the EU created uncertainty: citizens' rights, the financial settlement, a transition period at least until the end of 2020, governance, Protocols on Gibraltar, and Cyprus, as well as a range of other separation issues.

On 17 October 2019, a revised Protocol on Ireland / Northern Ireland and a revised Political Declaration on the framework of the future EU-UK relationship was agreed. You can find the details of this here: https://www.gov.uk/government/publications/new-withdrawal-agreement-and-political-declaration

Provisions for Northern Ireland / Ireland

The movement of goods between Northern Ireland and Great Britain had been one of the most contentious issues dealt with in the Brexit negotiations. The Withdrawal Agreement creates a new and legally operative solution to avoid a hard border on the island of Ireland, protecting the all-island economy and the Good Friday (Belfast) Agreement in all its dimensions, while also safeguarding the integrity of the Single Market. This solution responds to the unique circumstances on the island of Ireland with the aim of protecting peace and stability.

In the case of a no-deal Brexit on 31 December 2020, the “Implementation of this [Northern Ireland] protocol foresees checks and controls for goods entering the island of Ireland,” Michel Barnier told the European Parliament on 14 January 2020.

“The only circumstances in which you could imagine the need for checks coming from GB to NI, as I’ve explained before, is if those goods were going on into Ireland and we had not secured, which I hope and I’m confident we will, a zero tariff, zero quota agreement with our friends and partners in the EU.”

Political Declaration

The new Political Declaration sets out the framework for the future relationship between the European Union and the United Kingdom. Both parties agree to conclude an ambitious, broad, deep and flexible partnership across trade and economic cooperation with the EU, with a free trade agreement with the EU at its core, alongside agreements on security and other areas of collaboration.

The situation from 1 February 2020

From 11.01 pm on 31 January 2020, the UK is no longer a member of the EU. The enablement legislation for that is the European Union (Withdrawal Agreement) Bill 2019-20. It is the bill that will implement the Withdrawal Agreement between the EU and the UK. This is NOT the EU-UK Withdrawal Agreement, but the act which implements this international treaty.

The bill contains the same conditions as the EU-UK Withdrawal Agreement does to the EU (logically, as it implements it) including financial contributions, citizens' rights, customs arrangements for Northern Ireland and the planned 11-month transition period, as set out in the Withdrawal Agreement.

It confirms that there will be an 11-month transition period after 31 January, in which the UK will cease to be an EU member but will continue to follow its rules and contribute to its budget but will not have any representation in the bloc's institutions. The purpose of the transition period is to give time for the UK and EU to negotiate their future relationship, including a trade deal. This period will come to an end on 31 December.

Will EU law still apply in the UK from 1 February 2020?

Purely legally speaking, the UK will no longer be bound by EU legislation directly. However, from 1 February 2020, the EU-UK Withdrawal Agreement and the UK Withdrawal Bill apply, which give effect to EU law in the UK for as long as it is in force.

So, for 1 February 2020, what do we actually change to mark the fact that the UK is no longer part of the EU?

I asked HMRC and they responded, "Once we leave the EU formally on 31 January 2020, we enter an implementation period, during which all trade continues in accordance with existing customs, excise and VAT rules and regulations".

What will happen in 2020?

During the transition period, the UK and the EU are scheduled to begin and conclude Free Trade Agreements talks.

EU-UK relationship post-Brexit

The UK and the EU will remain the "best of friends," but they will "not be as close as before" after Brexit, the new European Commission president has said. Non-membership has consequences, as no relationship can be as close as being a member of the EU, the EU itself said on 8 January 2020.

"We will go as far as we can, but the truth is that our partnership cannot and will not be the same as before, and it cannot and will not be as close as before because with every choice comes a consequence with every decision comes a trade-off." Ursula Von der Leyen, EU Commission President

A trade-off between regulatory divergence and access to the EU market

The EU Commission President made clear during her visit to London that there is a trade-off between any regulatory divergence and access to the EU market.

The key messages from the 8 January 2020 meeting were:

"Without the free movement of people, you cannot have the free flow of capital and services.
"The more divergence there is, the more distant the partnership will be."

EU -UK FTA

Timetable

EU law requires trade agreement negotiations to commence after the UK has legally left the EU. Then EU-27 countries will then approve a mandate for the EU Commission to negotiate a comprehensive trade agreement on their behalf. As a result, trade talks cannot start before March.

The EU Commission President stated on 8 January 2020 that it would be "impossible" to reach a comprehensive trade deal by the end of 2020. The UK prime minister has also said the process of negotiation will not be extended.

Objectives of the EU-UK FTA

The key messages from the 8 January 2020 meeting were:

The objective is to secure securing an ambitious, tariff-free trade agreement rather than continued regulatory alignment.
EU - UK FTA should be "zero tariffs, zero quotas, zero dumping".

From "comprehensive" to "basic" FTA agreement

The EU Commission has previously said that the EU and Britain will only be able to reach a “basic” agreement if the UK does not extend the Brexit transition period. They said:

Without an extension of the transition period beyond 2020, "you cannot expect to agree on every single aspect of our new partnership." (Ursula Von der Leyen).
We are ready to do our best to do the maximum in the 11 months to secure [a] basic agreement with the U.K., but we will need more time to agree on each and every point.” (Michael Barnier 9 January 2020).
“Never will it be the EU that will fail on common ambition. We will strive for a partnership that goes well beyond trade and that is unprecedented in scope, covering everything from services and fisheries to climate action, energy, transport, space, security, and defence. But that is a huge, very huge, agenda and we simply can’t expect to agree on every aspect of this new partnership within one year.” (Michael Barnier)

What is the content of a "basic" FTA?

According to Michael Barnier, the EU would need to select areas to address first, and this would be based on the likelihood of a crash-out Brexit by the end of the year. This could be trade in goods, fisheries and ensuring a level-playing field between the EU and the UK — meaning a commitment to EU environmental, social and competition standards,

Transport would be less urgent, due to existing international agreements or no-deal contingency plans, for example for aviation, which have been put in place.

What about trade in services?

It is unclear if trade in services are in scope for the deal

The situation from 1 January 2021

New rules and regulations will apply from 1 January 2021.

Sources