The Key Information on Brexit
Barclays is preparing for Brexit in whatever shape it comes. Read more about how we are supporting clients through this period of uncertainty.
When is Brexit?
The UK is due to leave the European Union by 31 January 2020 but could leave sooner.
If a deal is approved by Parliament before January, then the UK would leave at the end of the month in which it is ratified. A transition period would then last until the end of 2020.
Draft Withdrawal Agreement
A favourite phrase of the European Union is that nothing is agreed until everything is agreed. Therefore, until a deal is ratified by both the UK and European Parliaments, no agreement is in place. Following the rejection of the original draft deal, the UK Government reached a revised agreement with the EU on 17 October 2019.
The draft agreement now comes in three parts:
- The original draft agreement available to read in full here^
- Revised text^ that notably replaces the previous insurance policy, commonly referred to as the Irish Backstop
- A revised Political Declaration setting out the ambitions for a “comprehensive and balanced” Free Trade Agreement^.
Included in the agreement is everything from an agreement on citizens’ rights, the financial settlement – estimated to be in the region of £33bn – data protection agreements and the length of a proposed transition period.
Under the terms of the draft agreement, a transition or implementation period would begin after the UK leaves the EU and would end on 31 December 2020.
The idea is that this would give the UK time to introduce a new immigration system and mean that businesses would only have to plan for one set of changes in the nature of the relationship between the UK and the EU. However, with uncertainty over whether a deal will be approved by the UK’s parliament, it is prudent to also prepare for a ‘no deal’ scenario.
The implementation period would see trade continue on “current terms” – in other words the UK would not leave the Single Market or Customs Union until the end of this period. But, the UK will be able to sign and ratify its own trade deals – including the future trade agreement with the EU.
The EU explained^ PDF† that the UK will have to continue to adhere to all existing EU regulations during this period, including the “four freedoms” of movement of goods, capital, services and people, but they will not have any representation in the EU’s political institutions, including the Parliament, Council or Commission.
There is provision in the Agreement to extend this transition period, which would require the consent of both the UK and EU.
The unique status of the UK’s only land border with the European Union has throughout Brexit been one of the defining debates. The EU and the UK have been seeking to find a solution that respects both the peace process and the integrity of the EU’s Single Market.
The draft agreement introduces the Protocol on Ireland/Northern Ireland. There are three key points to the protocol:
- Northern Ireland will continue to align itself to the EU’s Single Market rules for certain sectors including manufacturing and agricultural standards;
- Northern Ireland will leave the EU’s Customs Union alongside the rest of the UK and will be able to participate in future trade negotiations. However, some new customs checks will be implemented between Great Britain and Northern Ireland;
- The Northern Irish Assembly at Stormont will maintain the right to self-determination by voting every 4 years after the transition period has ended on whether to continue with the protocol.
This will mean that goods that are “at risk” of entering the EU Single Market will have EU tariffs applied when they enter Northern Ireland from Great Britain. The list of at risk products will be drawn up in the next phase of negotiations.
If the goods are not sent on to the Republic of Ireland, the UK government would be responsible for refunding these tariffs.
It also means that goods would have to be checked as they pass from Northern Irish to GB ports and vice versa, as Northern Ireland will remain part of the EU’s Single Market for goods. This crucially avoids the need for any checks at the border between Northern Ireland and the Republic.
It’s important to note that this protocol would only come into force after the transition period and only in the event that the UK fails to negotiate a future trading relationship by that time.
What happens on Brexit day?
If the current deal is approved, technically... not a lot. The UK will however cease to be members of the European Council and the European Commission. The UK’s 73 MEP’s will return home from Brussels and the UK will officially be allowed to negotiate new trade arrangements with both the EU and the rest of the world.
The transition period would mean that trade with the EU, freedom of movement of people and goods would remain unaffected until at least January 2021.
However, should the Withdrawal Agreement fail to be approved and the EU refuse an extension to the Article 50 period then the UK would leave, with the immediate next steps unclear. In the event of a no-deal exit the UK will introduce a temporary tariffs regime^ that would eliminate tariffs on many imports to the UK.
Any future relationship between the UK and the EU cannot be formally agreed until the UK ceases to be a member of the Union, when it will become a third country.
The two sides have published a political declaration on the future relationship which states, among other things:
- The goal of agreeing a comprehensive Free Trade Agreement with no tariffs across all goods sectors and a liberalisation in the trade in services “well beyond the Parties’ World Trade Organization commitments”;
- An aim to ensure fair competition after Brexit, by maintaining common standards on areas like state aid, competition and employment rights;
- A plan to fully assess equivalence frameworks in respect to financial services by the end of June 2020, with the aim of preserving financial stability;
- A commitment to form a broad partnership in the area of security, including physical and digital security.
Trade agreements after Brexit
The UK cannot formally agree new trade agreements while still a member of the EU, but has been taking steps to agree a series of continuity agreements with certain countries who already have agreements with the EU.
At date of publication, 17 agreements have been signed^ covering around 45 nations, these agreements will take effect when the UK leaves the EU. In addition, the Department for International Trade is in discussions with around 30 other nations, including Canada and Mexico, to put in place similar agreements. These countries are collectively referred to as TAC countries (Trade Agreement Continuity countries).
10.7% of the UK’s total trade is covered by TAC countries. In addition to this, mutual recognition agreements have been signed with Australia, New Zealand and the US. This means that the countries recognise certain product conformity assessments that each are applying, covering products such as machinery and automotive parts.