On 15 June 2020, the United Kingdom’s Prime Minister, Boris Johnson, and European Commission’s President, Ursula von der Leyen, agreed to rule out an extension to the transition period for the UK leaving the European Union (EU). The UK will be trading with the EU under new arrangements after 31 December 2020. Due to the real possibility that a UK-EU trade deal will not be reached before the 26 November 2020 deadline, the UK may be trading on World Trade Organization (WTO) terms next year.
Despite COVID-19 restrictions preventing face-to-face negotiations, as well as the EU’s Chief Negotiator Michel Barnier testing positive for the virus, and the Chancellor of the Duchy of Lancaster Michael Gove self-isolating, negotiations have continued online with minimal setbacks.
Though the decision to not extend the transition period beyond December 2020 provides businesses with some level of certainty, the ‘cliff-edge’ surrounding the future of trade between the UK and the EU coupled with the unrest caused by COVID-19 still looms large. In this document, we answer some of the most frequently asked Brexit-related questions.
Has COVID-19 impacted the Brexit negotiations?
David Frost, the UK’s Chief Negotiator, estimated that COVID-19 pushed back the progress of the UK-EU talks by “a week or two”. That said, COVID-19 has had minimal impact on the UK-EU Brexit talks, thanks to virtual technology. COVID-19 reduced the number of face-to-face negotiations, which has meant that so-far two UK-EU Joint Committee sessions have been held remotely due to COVID-19 restrictions.
Will the transition period be extended?
Currently, the Brexit transition period is due to last until 31st December 2020. The UK-EU Joint Committee can extend this period “for up to two years”, however, both the UK and the EU formally confirmed on 15th June 2020 that they would not be seeking an extension.
Will a UK-EU trade deal be struck in time?
At the moment, negotiating red lines on each side have resulted in a deadlock. The deadline is 26th November 2020, as this is the final date that the European Parliament can ratify a UK agreement.
What is the impact on trade if the UK and the EU cannot reach an agreement before the deadline?
Without an agreement, the UK will be legally considered a “third country” by the EU. This is expected to create significant challenges to trade, businesses and movement of people. The UK and the EU have signed various assurances on future trade competition and other matters including a commitment to a “level playing field” for issues such as state aid, competition, social and workers' rights, the environment and climate change. These assurances are a part of the revised Political Declaration signed by the UK and the EU. This document consists of a framework for a future trade agreement. However, the declaration is legally non-binding.
How will the UK trade without a UK-EU trade agreement?
The UK and the EU will trade on World Trade Organization (WTO) terms, with some legal framework needing to be amended. Controls and import duties will apply on goods and services between the UK and EU, as well as between the UK and the rest of the world – until individual trade agreements are agreed upon.
Will the UK be ready if it has to trade on WTO terms?
Preparations for no trade agreement being reached have been ongoing. The UK will have one eye on the absolute possibility of WTO trading terms. However, countries do not typically trade on these terms alone. So, the UK will have to seek bespoke trade agreements with countries in the EU bloc after the transition period.
Are fisheries still a point of contention in the negotiations?
Fisheries are a principal obstacle in the negotiations between the UK and the EU. Well over half of the tonnage of fish caught in the UK’s waters is by foreign-registered boats. This is roughly eight times the quantity caught by British boats in EU waters. However, in an interview on 24 June, Michel Barnier indicated that both the UK and the EU would have to be willing to find a compromise on this issue to achieve an agreement.
Why are EU subsidies for farmers a problem?
The EU heavily subsidises farmers via a €70bn scheme. As a result, EU farmers will be able to export goods at a cheaper rate than UK farmers post-Brexit. The EU’s negotiating team now wants the British government to commit to not raising tariffs in response to protect British farmers. This would be an unprecedented move and one that would greatly benefit EU farmers, allowing them to significantly undercut their British counterparts. This issue is causing further contention during the negotiations.
Will there be “financial equivalence”?
The UK Treasury released details about how it intends on regulating banks, asset managers and derivatives traders after the end of the transition period. Now, the EU must decide if the UK’s domestic legislation will deliver equivalent outcomes to allow the UK to continue to access the EU’s financial market. This is especially important as the UK’s financial services exports to the EU were worth £26.1bn in 2018, compared to the EU’s £6.1bn of services to the UK. It is quite likely that UK legislation will diverge from EU directives, so it remains to be seen whether the EU will agree to “financial equivalence”.
Will there be post-Brexit border controls?
If the UK and the EU do not finalise a deal, there will be post-Brexit border controls on goods entering from the EU. However, the UK government confirmed that these controls would not be implemented in full until July 2021.
Will there be an Irish backstop?
The Irish backstop is no more. It was replaced by a separate, permanent arrangement for Northern Ireland, effectively treating Britain as a separate trading entity to protect the border between Ireland and Northern Ireland. No problems are predicted to arise so long as the UK continues to adopt the same standards as the EU. However, the UK may need to change these to facilitate trade deals with other countries, which may result in Northern Ireland being left out or a hard border between Northern Ireland and Ireland arising.
What role does the UK-EU Withdrawal Agreement Joint Committee have?
The Withdrawal Agreement Joint Committee is the only forum for consultation on the Withdrawal Agreement between the UK and EU. It is supposed to dispel misunderstanding between either side, thereby ensuring that both the UK and EU meet their treaty obligations. The Committee is also responsible for resolving disputes over the interpretation or application of the Withdrawal Agreement.
Who chairs the Withdrawal Agreement Joint Committee?
The Committee is co-chaired by the UK and the EU. On the UK side, the Chancellor of the Duchy of Lancaster Michael Gove. The EU co-chair is European Commission Vice-President Maros Sefcovic. Six to Ten senior officials accompany each Co-Chair.
Notable dates in 2020:
- 19 June: EU Council Summit to discuss 2021-2027 Multiannual Financial Framework (MFF), as well as the Next Generation EU recovery plan
- 29 June: UK-EU weekly talks commence, to last until the week commencing 27th July 2020
- 1 July: Legal deadline for a transition period extension in the Withdrawal Agreement
- 17 August: Further UK-EU week of negotiations
- September: Third Meeting of the UK-EU Joint Committee
- 15 October: European Council Summit
- 26 November: Final date that the European Parliament can ratify a UK agreement
- 31 December: End of the transition period
Leon Cook is Founder and Managing Director at Atticus Communications