Brexit Business Brief | Back for the Countdown

State of play

There are just over five months until the Brexit transition period ends. On 31 December 2020 the United Kingdom will finally leave the Single Market and the Customs Union.

What rules will then govern trade in goods and services between the EU and the UK?

We don’t know (although see below, 'What we do know is changing'). Last week the sixth round of negotiations on the 'new partnership' ended with the teams still divided by two central issues.

On the EU's insistence that the UK provide guarantees on maintaining a 'level playing field' across State aid, competition, labour and environmental regulation there was, in the words of Michel Barnier, the EU chief negotiator, "no progress". The EU sees it as essential that the UK cannot gain a competitive advantage by undercutting EU standards.

Similarly, there was "no progress" on the EU's wish for a "balanced, sustainable and long-term solution for fisheries".

There were advances on other issues, although details are scanty. The UK appears to have given ground on the governance mechanism that should apply across the future relationship. (In short, the UK wants different mechanisms specific to each area; the EU wants a single framework.) The EU has acknowledged the UK's resistance to the Court of Justice of the EU having a visible role in the future partnership.

On transport and energy, there were what the EU described as "intense and useful discussions" and, more generally, the UK said that there were "constructive discussions on trade in goods and services".

There is an informal round of talks this week, and the seventh formal round is scheduled for mid-August. It is unlikely that we will see much substantive detail coming out of these talks until much before…

Two days in October

From here, the countdown to the end of the transition period hinges around the days of 15 and 16 October, when the European Council will meet to consider what, if anything, has been agreed by way of a draft trade agreement between the EU and the UK.

If the Council approves the draft agreement, the text goes forward to the European Parliament for approval, which - if given - is expected in December. From October, the text needs translating into the EU's languages and also 'legal scrubbing' to ensure that whatever the negotiators have agreed works at a technical legal level.

European Parliament approval has to be given ahead of the ending of the transition period on 31 December 2020.

The upshot of this process – a characteristically EU mix of technocracy and democracy – is that the deal between the negotiating teams must be done by early October to allow for Council and Parliament approval. Though it's quite possible that the Council meeting on 15 and 16 October may see the usual Brexit drama of prime ministerial dashes to Brussels to close the deal.

In essence, the teams have little more than August and September left to agree the text which will set the course of the future relationship between the UK and the EU.

What we do know is changing

Whatever happens in the negotiations, we do have some 'known knowns': things that will definitely change on 1 January 2021. The European Commission has handily summarised these definite changes in this 35-page Communication, covering:

• Data, digital and IP rights
• Trade in services: financial, transport, audiovisual and the recognition of professional qualifications
• Trade in goods: customs formalities, checks and controls, taxation, certifications and authorisations of products, establishment requirements, and labelling
• Energy
• Travelling and tourism
• Company and civil law.

It is big picture stuff but a useful summary. A reminder that the Commission continues to update its dozens of 'readiness notices' explaining the consequences of Brexit across many sectors. The UK recently relaunched its analogous 'Check, change, go' website.

How the EU-GB border will work for the import and export of goods from January 2021

Earlier this month, the UK government issued its much-anticipated 'Border Operating Model' detailing the processes for moving goods between the European Union and Great Britain from 1 January 2021.

As the Border Operating Model document disarmingly states, "customs declarations are complicated", and the same can be said for many, if not all, of the processes contained in the model. Full border controls on goods movement will be imposed immediately on goods moving from GB into the EU. Similarly, full border controls will be imposed on goods moving from the EU to GB, but those will be implemented in three stages up to 1 July 2021.

This Osborne Clarke note gives a very high-level summary of the Border Operating Model and also contains links to other UK government and HMRC documents on the export and import of goods after the end of the transition period.

The UK is leaving the Single Market… and so will have to legislate for its own Internal Market

EU membership has made us forget that the UK has had its own 'Internal Market' since the Acts of Union in the early eighteenth century. Since 1707, goods and services have been able to move freely between the constituent parts of the Union without restriction – and the UK was one of the first European entities to achieve this complete internal market.

This Internal Market has operated throughout the UK's membership of the EU, but with many of the rules being made in Brussels. At the end of the transition period, the UK devolved administrations will take over some of those rule-making powers. That in turn risks different laws and regulations being made in the constituent parts of the UK, which would disrupt the efficient operation of the UK's Internal Market.

To avoid this risk, the UK government intends to legislate to "protect the flow of goods and services" in the UK's Internal Market, and issued on a consultation paper last week with a bill to follow in the autumn.

A "Market Access Commitment" to "mutual recognition" and "non-discrimination" across the UK is at the heart of these proposals, which I discuss in more detail in this note.