UK: Global Britain 2020 And A New UK Trade Policy

Following the Conservative Party's landslide victory in the UK general election, which Boris Johnson won on a promise to "get Brexit done", we can now expect Boris Johnson's withdrawal deal to be passed by 31 January 2020 with 100% backing from the new Tory MPs.

This means that, three years and a half after the referendum, the UK will no longer be a member of the EU by the end of January 2020.

This is an historic moment, and one that marks the beginning of the second stage the Brexit journey, in which the country is embarking into an era of sophisticated and complex trade negotiations, where new trading relationships will have to be forged, and existing ones revisited along the way.

Although the path to the formal ratification of the Withdrawal Agreement is almost certain, the Government is now tasked with the mammoth challenge of negotiating the UK's future trade relationship with the EU bloc, with the US, and with the rest of the world.

What does this mean for your trading relationships, in the EU and beyond?

Boris Johnson's significant majority in Parliament means that EU leaders are optimistic that the Withdrawal Agreement between the UK and the EU will be ratified before 31 January 2020. From that date, the UK will be trading with the EU under the terms of the "transition period" which will expire on December 31, 2020.

During the transition period, much of what we know today from a trade law perspective will remain the same. Article 127 of the Withdrawal Agreement is clear "Union law shall be applicable to and in the United Kingdom during the transition period".

This means that the UK will continue applying and implementing EU law that falls within the scope of the withdrawal agreement – no customs checks imposed or quotas or duties applied for EU/UK trade. Most goods that are already in the UK or the EU market at the end of the transition period will be allowed to continue to move freely between the UK and the EU after the end of transition. Furthermore, businesses will be able to trade goods on the same terms as now and will not need to take any action in order to continue placing their goods on the EU market or the UK market. This includes the ability of public and non-public bodies in the UK (such as Notified Bodies) to assess products against EU regulatory requirements.

But what happens next - is there enough time to negotiate a trade deal with the EU?

In the "Boris"' version of the Withdrawal Agreement, which would come into effect at 11pm on 31 January 2020, the UK has opted for a model based on a Free Trade Agreement (FTA) as a basis for its future trading relationship with the EU.

The Political Declaration accompanying the Withdrawal Agreement provides for an ambitious FTA with zero tariffs and quotas between the EU and the UK, alongside commitments to level playing field provisions to prevent distortions of trade and unfair competitive advantages.

In a nutshell, the goal for both the UK? and the EU 27 when entering into those FTA talks will be to aim at "zero tariffs, zero quotas, zero dumping".

The ambition is welcomed but is the timing realistic?

The withdrawal deal provides for a deadline to agree a trade agreement between with the EU by the end of December 2020, which would be the fastest negotiations the EU would ever have concluded. This deadline leaves the parties very little time to agree a deal or to agree an extension to the transitional period. The agreement does allow for an extension of the transition period but that decision would have to be made by July 1.

And it is worth remembering that the new Commission does not yet have the mandate from the 27 Member states to start negotiating with the UK. Commission President Van der Leyen earlier today confirmed that the commission was working on a draft negotiating mandate, with the objective to start negotiations on February 1st.

Therefore, the shape of the future relationship between the UK and the EU past 2020 is still very much an unknown at this stage, and the possibility of a no-deal Brexit should not be discarded in the context of this challenging timetable. Indeed, if the EU and the UK cannot agree to a deal or an extension by the end of the 11-month window, the default position will remain a no-deal expiry of the transitional period and therefore resorting to the Northern Ireland protocol of two borders, and WTO terms for the trading relationship with the EU. See our previous blogposts on this.

Does this affect the UK's ambitions to secure a trade deal with the US?

U.S. President Donald Trump was one of the first to congratulate Boris Johnson following his election win, tweeting that "Britain and the U.S. will now be free to strike a massive new Trade Deal after Brexit." Indeed, the UK-US FTA remains one of the top priorities for the UK's Department for International Trade.

During the transition period, the UK is able to negotiate, sign and ratify international agreements with third countries, including a UK-US FTA, provided those agreements do not enter into force or apply until the end of the transition period on 31 December 2020 (or later if the transition period is extended), unless authorised by the EU.

However, if the UK negotiates an FTA with the EU, it will likely prove more difficult for the UK to simultaneously negotiate an FTA with the U.S., due to, inter alia, the historic divergences in product regulations and food standards (remember the failed TTIP?!). Any trade agreement especially if "comprehensive and ambitious" will have to extend well beyond tariffs and customs checks, and decide what the UK will want to agree with regards to health and safety, employment rights, competition policy, government procurement, etc.

What does this means for businesses with operations in the UK and the EU?

Assess, anticipate, monitor, and engage - Now more than ever, it will be crucial for businesses to be fully ready to work with key stakeholders to anticipate any potential changes and apprehend the impact of the trade talks with the EU whilst also engaging with the UK Government through consultations on trade negotiations with the EU and the U.S.

As Boris Johnson works towards his ambition of "getting Brexit done", we can expect the UK, US and EU decision-making processes to progress in parallel – any concessions done on the one side will have repercussions on the other.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.