Brexit Business Brief | Only one question

Welcome to Brexit Business Brief, our regular newsletter looking at Brexit developments in a legal and business context.

Only one question: will the transition period be extended?

Brexit is hardly on the agenda at the moment, but I thought it useful in this newsletter to address the only Brexit question which currently matters: will the transition period be extended?

The transition period is due to end on 31 December 2020. That date is stipulated in the EU-UK Withdrawal Agreement, and is set out in UK law in the European Union (Withdrawal Act) 2020.

On exiting the transition period, the UK will leave the Single Market and the Customs Union. Trade with the EU in goods and services will be governed by whatever agreements the UK and the Union negotiate in the coming months. If none, then trade will be on basic World Trade Organization terms.

The plan

The plan for the negotiations had been, broadly, to have EU and UK teams meet for multiple rounds between March and June. There would then be a high-level review meeting, as required by the Withdrawal Agreement, to assess progress at the end of June.

The first round of negotiations was indeed held in the first days of March, with the two sides using those meetings to set out their positions. We summarised those positions in this edition of Brexit Business Brief.

And then came the coronavirus pandemic.

Negotiations halted

Despite some talk of videoconferencing, the second round of negotiations, due in the week of 16 March, were not held. This week there was a meeting of the EU-UK Joint Committee, which must oversee the implementation of the Withdrawal Agreement, but that Committee does not deal with future trade issues. (The EU take on that meeting is here; the UK take is here.)

No date has been set for the resumption of the trade negotiations. The EU's chief negotiator, Michel Barnier, was diagnosed with Covid-19 and happily appears to be recovering. The UK negotiator, David Frost, is reportedly self-isolating.

The UK government's stance on extending the transition period

Businesses, to the extent they are paying attention to Brexit, are overwhelmingly likely to want the transition period extended. For the obvious reason that companies cannot be expected to prepare for and deal with what could be a fundamental change to their trading relationships in the midst of, or immediately after, the terrible shock of the coronavirus.

The UK government has repeated this week that it expects the transition period to end on 31 December 2020 as scheduled. It points to that date being set out in statute, which could be seen as a little disingenuous given that the date can be changed by a minister's pen. The overwhelming majority of opinion, outside the UK government, is that the transition period will have to be extended.

What is the mechanism for extending the transition period?

Article 132 of the Withdrawal Agreement says that:

"…the Joint Committee may, before 1 July 2020, adopt a single decision extending the transition period for up to 1 or 2 years."

So the EU and the UK must - before 1 July 2020 - agree to extend the transition. If they agree to do so, they must decide at the same time whether to extend for one or two years (there is no provision to decide in, say, June 2021, to extend again for another year.)

Of course, the Withdrawal Agreement is a treaty, and treaties like contracts can be changed, so it is conceivable that an extension to the transition period could be agreed later in 2020. But that feels unlikely, as the EU has been adamant that the only way to extend the period is through the Article 132 procedure described above.

So an agreement to extend the transition period has to be made by the EU and the UK by 1 July 2020. If and once the UK government accepts that the changed and tragic situation requires an extension, the question will then become: when will the two sides agree this?

Businesses will be hoping an extension is agreed sooner than June, so that they can set aside immediate Brexit planning considerations to focus on more pressing matters.