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Brexit endgame looms against a backdrop of COVID-19 and economic turbulence

Joanna Morris

20 Aug 2020

REUTERS/Stringer (Photo)

Though clearly overtaken by COVID-19 and the state of the economy as the most pressing issues for the United Kingdom (UK) government, Brexit is making its way back into the headlines. As confirmed on 1 July 2020, the transition period will end on 31 December 2020. After this point, the UK will no longer effectively operate as a European Union (EU) member state under the aegis of the UK-EU Withdrawal Agreement, and much will depend on the nature of its future relationship with the EU. The very real deadline has led to the UK and EU conducting additional ’restricted rounds’ of negotiations over the summer to focus on the more difficult aspects of their future relationship, as well as full negotiating rounds, to try to achieve some sort of deal in the few remaining months.

The current main areas of difference are fishing rights; level playing field provisions (the EU wants the UK to maintain the common standards that will apply at the end of the transition period on aspects of employment, tax, the environment, and climate change; and to continue to apply specified EU rules on state aid in relation to matters affecting UK-EU trade); and, the format of the agreement (the EU wants a closer association agreement; the UK wants a more distant set of arrangements). Either way, the UK will leave the customs union and single market and there will be significant change—not least because the future relationship cannot replicate the UK’s status as a member state.

Some commentators think there is a reasonable possibility of a bare bones free trade agreement (FTA), allowing for tariff free trade (though not frictionless as before) being concluded at a political level by, say, the end of November, though it will still need to be fully ratified. And this means that the shape and scope of such an FTA must be determined in a very short timescale indeed.

The impact for businesses will depend on a number of factors, including how much their sector is currently governed by EU law, how much their trading relationships involve the EU, whether there are any relevant Withdrawal Agreement terms that will apply post-transition, the outcome of future relationship negotiations with the EU (and any unilateral measures taken by each side), and how much the respective rules diverge in practice—all leading to operational and legal impact.

In terms of the future UK-EU relationship, if a particular area is not covered by the ongoing negotiations, then the default assumption is that there will be no future relationship agreement on that area at the end of the transition period. So, if businesses currently engage with EU member states, they need to ask if they are ready to operate on third country terms with those countries, potentially on WTO terms.

The impact also depends on the outcome of the UK’s negotiations with non-EU countries, and whether the UK can replicate the terms of the EU’s international agreements, as these will no longer apply after end of transition. For example, the current negotiations with Japan, which are reportedly due to conclude at the end of August, are broadly based on the EU-Japan trade agreement.

In legislation terms, at the end of transition, most EU law will no longer apply, so a new body of law will be created to allow for legal continuity. It is referred to as ‘retained EU law’ and is based on EU law that will apply to the UK immediately before the end of the transition period. Following the end of transition, retained EU law can then be adapted to work in a UK legal context by a combination of primary and secondary legislation (for example, the Brexit statutory instruments that are currently being published). To the extent consistent with the terms of the withdrawal agreement (and any UK-EU relationship agreements, and the UK’s international agreements with other countries), the UK will be free to decide the extent of changes to retained EU law, for example, to introduce new UK policies, or to mirror post-transition developments in EU law.

In fact, legislation is already being passed to introduce new UK policies in areas such as agriculture, customs, the environment, fisheries, nuclear safeguards, and sanctions. There will be much more of this to come as the UK begins to diverge from the EU’s legal regime.

Note that this won’t be over by 31 December 2020 even if some sort of deal is agreed, and negotiations with the EU (and other countries) are likely to continue well into 2021 and beyond for areas not already covered in any deal achieved by then.

All of this creates uncertainty but also potential opportunities for business as new policy areas and other third country relationships develop. Lobbying will be key both in the UK and in Brussels, as well as in other jurisdictions. In practical terms, businesses will most likely have no-deal plans already in place for when there was previously a possibility of crashing out without a transition period. These will need to be updated in line with the progress of the negotiations. In addition, practitioners will need to rigorously track relevant legislation, check that contracts are fit for purpose, and keep an eye on the scope of the new international trade agreements. And all this is against a backdrop of COVID-19 and recession consequences.

For more information on navigating legislative changes and brought about by Brexit, read our Special Reports Getting Ahead and Information on Demand.

Key Brexit resources (licence required):

Brexit essentials: Q&As on agreements, timeframes and no deal

This note gives short answers to common questions about Brexit withdrawal matters, the transition period and the future UK-EU relationship.

Practical Law’s Brexit summary: a watching brief

Practical Law editors consider the implications of Brexit for their respective practice areas.

Guide to assessing legal change after end of post-Brexit transition period

This covers general issues relevant to a range of UK legal practice areas and sectors. It lays the groundwork common to many Brexit-related queries, includes worked examples and frequently asked questions, and explains how to locate and identify relevant information. It accompanies our note on UK law after the end of the transition period sets out the legal rules in more detail.

 

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