For the time being, nothing much changes. While the UK is no longer a member of the EU, it must still operate under EU rules and procedures until the end of the transition phase, and remains subject to the EU VAT regime, other EU tax directives, the customs union and the single market. It is also still bound by the free movement of people. In other words, goods and services may continue to flow without tariffs, checks, or regulatory restrictions.
That said, there could be some (minor) difficulties with the application of certain EU tax directives, some US double tax treaties, and the so-called rollover of the current EU negotiated trade deals by third countries towards the UK (which is, strictly speaking, now also a third country) during the transition period.
However, the spotlight is now shifting to focus on the future (trade) relationship, which up until now has only been slightly touched upon by the non-binding text of the Political Declaration. It is already very clear that the UK government is no longer aiming at a fully comprehensive deal, as was foreseen in Prime Minister May’s Chequers plan.
Instead, the focus is on a Free Trade Agreement (CETA style) which must be signed by the end of the transition period to avoid basic World Trade Organization terms from being enforced. This would also imply that a full customs regime will come into play at the UK and EU borders for trade; meaning customs declarations (and potential tariffs) for the first time, in addition to the imposition of import VAT and increased compliance.
It is already clear from the latest press conference from both Mr. Barnier, as well as Prime Minister Johnson, that the focus moving forward will be around the UK’s continued free access to the EU market versus its ongoing alignment with EU single market rules, including on state aid, food safety, and a level playing field, to name a few. The UK will most certainly reject the principle of dynamic alignment, given its rhetoric of “taking back control” and not being a “rule-taker”. In addition, this would also impact the UK’s negotiations with other countries such as the US.