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Chequers is chucked. Now what?

  • Jeroen Gobbin, Partner |

Last Friday, 31 January 2020, the UK officially left the EU. The “remain” and “leave” protesters already left their stands outside Westminster a few weeks ago. Now the last British MEPs and other officials have departed from the EU institutions, i.e. EU Council, EU Parliament, EU Commission and the Court of Justice of the EU.

From now until 31 December 2020, we have entered into a transition period which could – provided the UK makes a request to do so no later than 30 June 2020 - be extended by mutual agreement and by a maximum of two years until 31 December 2022. But the UK government has already announced that it will not invoke this possibility.

So what’s changing then?

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.

What does this actually mean for you?

While there are any number of possible outcomes, one thing for sure is that you cannot sit back, relax and expect to have plenty of time to figure things out. Negotiating a trade deal will take time and the UK government is determined not to ask for an extension of the transition period. While the UK government has stated that a trade deal with the EU will be in place by 1 January 2021, many consider this an ambitious objective.

Both sides will probably focus on some minimum goals such as tariff elimination, minimized border checks and paperwork, mutual recognition of professional and trade qualifications, ‘level playing field’ rules around basic labor, taxation, state aid or environmental standards, industry-specific access agreements on energy, aviation, security and defense, migration and movement of people agreements, among others.

However, there are several dangerous curves ahead, and if a trade deal (or any form of other deal) is not in place by the end of 2020 we are looking at a possible hard Brexit and a momentous shift in the way business is conducted between the UK and the EU.

To help you navigate the year ahead, here are a few key dates to keep an eye on in 2020:

25 February 2020 General Affairs Council meeting where it is expected that the EU27 ministers will sign off on the negotiating position allowing for the official opening of talks between the EU and the UK on their future relationship. Priority for both parties remains ironing-out a free trade agreement (FTA).
Early March 2020 Beginning of talks on future EU-UK relationship.
June 2020 A summit should take place with the aim of assessing how the talks are going. It’s also the last chance for the UK to ask for an extension of their transition period beyond 2020 (something the UK government has said it will not do). 
1 July 2020 According to the Political Declaration on future relations – the date by which both sides must agree on a new fisheries agreement giving European fishermen access to UK fishing waters. Also the point by which decisions on access to each other’s financial services, regulatory and supervisory regimes should be agreed.
End Nov 2020 According to EU officials, a trade deal needs to be presented to the European Parliament at their second-to-last plenary session with a view to ratification by the end of the year.
31 December 2020 Potential cliff edge, hard Brexit. If a trade deal has not been agreed by this date it is likely that basic World Trade Organization terms will be enforced unless other arrangements (e.g. the granting of temporary permissions to the UK) are agreed and in place.