Transition Period

The UK left the EU on 31 January 2020. However, for a further period scheduled to end on 31 December 2020, the so-called transition period, the EU UK Withdrawal Agreement provides that all European Union rules and rights continue to apply to and in the United Kingdom. During this period, the United Kingdom no longer participates in EU decision-making other than to a very limited degree. It will continue to contribute to EU budgets until the end of the period, which coincides with the end of the EU seven-year budgetary cycle.

The intention and objective are that a new EU UK relationship agreement will be negotiated during the transitional period. The Withdrawal Agreement between the EU and UK allows for an extension of the transitional period until the end of 2021 by the end of 2022. Because an extension involves the UK continuing to make budgetary contributions beyond the current budgetary period and for reasons of certainty and preparation, the extension is to be agreed between the EU and UK by 1 July 2020 at the latest.

The UK legislation giving effect to the EU UK Withdrawal Agreement provides that the transitional period shall not be extended. Of course, that legislation could itself be amended on the UK side, and the EU and UK might agree on an extension of the transitional period by 1 July 2020. However, the UK government appears determined to create a negotiation deadline with a hard or no deal exit being the alternative to an exit with a trade agreement. It is not difficult to foresee a scenario in the later part of 2020 where there is an impending cliff edge with the possibility of some kind of minimal trade agreement, or no deal exit as the alternative possibilities.

The question may arise in late 2020 as to whether the Withdrawal Agreement can be amended by the UK government and EU Council to allow for an extension, if the July 2020 date for an extension has passed. There are very significant arguments as to why this may not be permitted which are dealt with elsewhere in this website. Trade Commissioner Phil Hogan has indicated in a radio interview that his advice is that there is considerable doubt about this possibility.

Northern Ireland Protocol

The Northern Ireland Protocol is due to take effect at the end of the transitional period regardless of whether or not there is a trade agreement. There are certain risks concerning whether the Northern Ireland Protocol comes into effect, is fully implemented might be later disrupted. However, the working assumption is that it will come into effect and will at least remove the requirements for customs control on direct trade in goods North-South and South-North.

However, it is not a panacea for all businesses trade on an all-island basis. It is limited to trade in goods. Northern Ireland will leave the EU for all other purposes, and it is those other areas on which a trade agreement is least likely by December 2020. It will disrupt supply chains of North-South traders who in any way, rely on East-West trade for their ultimate supplier’s customers. It will disrupt logistics since a considerable amount of North-South movements also travel west-east or East-West, for example, leaving or coming to Northern Ireland through  Dublin by leaving or coming to the Republic of Ireland from GB through Northern Ireland or vice versa in both cases.

Unfortunately, from an Irish perspective, both a no-deal exit and a minimal, skinny or interim trade agreement are likely to be highly disruptive of the Republic of Ireland to Great Britain trade. The Boris Johnson government has committed to a relatively harder form of Brexit than that which Theresa May proposed, albeit out of necessity and reluctantly in order to minimise divergences between Great Britain and Northern Ireland.

Likely Future Relationship

The UK has ruled out membership of the EU customs union and the possibility of a customs union between Great Britain and the European Union. The necessary consequence of this position is that there will be full customs controls and possibly customs tariffs on all goods movements between Great Britain and Europe.

The UK has ruled out a membership or close alignment with the EU single market which would be similar to the relationship which EEA countries have with the EU EEA countries contribute to the budget and must align with all EU single market rules in goods, services, labour and capital. Because they are not in a customs union with the EU, there are still significant customs controls, the most prominent and commonly cited example being those between Norway (in the EEA) and Sweden (in the EU).

Therefore, even the maximum customs facilitation and cooperation and with zero tariffs on all or nearly all goods        that are likely to apply under an eventual EU UK free trade agreement, there are still going to be customs controls on every movement of goods between the UK and the EU

A specific granular description of every single item will require to be returned to both the Irish Revenue and UK revenue authority, HMRC approved before any movement can take place. There will need to be an importer and exporter established respectively in the country of import and country of export. All movements to the GB land bridge will be subject to transit procedures, which are effectively a form of customs procedure by which goods are moving under seal or guarantee.

It is, widely believed that there is no realistic possibility of a comprehensive or arguably any substantial trade agreement being entered between the EU and UK before the end of 2020. The time frame is even shorter than first appears. The new EU Commission takes office in February 2020, and nothing will occur until the Commission proposes and the EU Council adopts negotiation directives.

EU Competence in Trade

The European Union has exclusive competence in relation to most elements of trade. Most recent and comprehensive trade agreements involve matters which are partly within the competence of the member states are partly within the competence of the European Union. This implies that the agreement must be ratified by both the EU institutions and each of the 27 member states in accordance with their own constitutions. This has proved problematic and potentially prolonged in the past. The experience in ratifying the Withdrawal Agreement in the UK parliament illustrates the risks

The European Union could enter an agreement with the United Kingdom in relation to the more limited trade areas including in particular customs and the common commercial policy on goods which are within its exclusive powers, and which require only approval of the EU institutions themselves. This may even suit the EU as it has a surplus in goods trade with the United Kingdom.

Many key areas, including aspects of the internal market, social policy, environment, consumer protection many aspects of services are shared competences (between the states and the EU). Other areas, such as immigration are almost entirely within the remit of the member states. There is significant potential for disagreement in these areas.

WTO Issues

Important issues in the EU UK negotiations on trade are the existing commitments given by both the EU and UK as members of the World Trade Organisation. In the absence of an agreement that meets the criteria for a customs union (which is ruled out) or a free-trade agreement which is what is intended, any preferential arrangements negotiated between the EU and UK would have to be offered to all other WTO members on the same basis without discrimination.

The purpose of the WTO agreement clauses on free-trade agreements is to incentivise states to negotiate overall free-trade agreements rather than piecemeal sector by sector agreements. A free-trade area or an interim agreement for a free-trade area must provide that duties and other regulations affecting business maintained between the states concerned are not higher or more restrictive than those which applied before and that the duties are other restrictive regulations except certain limited categories are eliminated on substantially all the trade between the states concerned on products originating in those territories.

These critical provisions mean that in the absence of a concluded comprehensive agreement, piecemeal agreements would be counter-productive as they must be automatically opened by both sides unilaterally to all other WTO members which would destroy the ability of each of the EU and UK to extract preferential countermeasures from other WTO states.

The position in respect of the general WTO agreement on services which is itself much more restrictive and limited than that in goods is similar. States may enter an agreement liberalising trade in services between them provided that it has substantial sectoral coverage, provides for the elimination of substantially all discrimination in the sectors covered, the elimination of existing discriminatory measures or the prohibition of new discriminative measures.  Once again piecemeal agreement dealing with limited sectors is not a practical possibility as it would require each to open the same benefits a concession unilaterally to all other states without reciprocation from them.

Therefore, there is no question of a substantial preferential agreement being entered which falls short of what is required to meet the free-trade agreement test in relation to goods and the equivalent test in relation to services. There is either a free-trade agreement for trade, or there is trade on WTO terms. Trade on WTO terms is that on the same terms as that was member states with which there is no trade agreement, such as China or the United States.

The WTO agreements provide for the possibility of an interim agreement while a free-trade agreement is being negotiated. This must be notified to the WTO and must meet certain conditions. An interim agreement can be in force for a reasonable length of time which is accepted to be up to 10 years provided there is a planned schedule towards an end date. Such agreements can be challenged, and none has put in place in the last 25 years.

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