Brexit Business Brief newsletter | The transition period is green for go

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It looks like the terms of the Brexit transition period have been settled between the EU and the UK. This political agreement was announced on Monday 19 March by the lead negotiators for each team, David Davis and Michel Barnier, following weeks of pretty low-key negotiations.

Why have a transition period?

The transition period will follow the UK’s exit from the Union on 29 March 2019 and is scheduled to end on 31 December 2020. It will be a “status quo” or “standstill” transition period, which means that the UK will, in effect, continue to be part of the Single Market (with its free movement of services, goods, capital and people within the EU) and the Customs Union until the end of 2020. Citizens’ rights will remain largely unchanged until the end of 2020.

EU law will continue to apply in and to the UK during the transition in the same way that it will apply in and to EU Member States.

This should give business greater certainty as to what will follow after 29 March 2019. Although as I discuss below, the transition period is not yet a legal certainty.

The purpose of the transition period is to give business, government and wider society time to prepare for the future, post-transition, relationship between the EU and the UK that should follow after 31 December 2020.

So is this it: the transition period is definitely agreed?

The transition period is part of the overall Withdrawal Agreement, which remains in negotiation. Both sides have been clear throughout the Brexit process that “nothing is agreed until everything is agreed”. That includes agreement on the Northern Ireland / Republic of Ireland border – certainly the main outstanding issue with regard to the UK’s exit from the EU – and also on the framework for the future relationship which is to follow after the transition period.

The Withdrawal Agreement won’t be ratified by the EU (meaning approval by both the European Parliament and, by qualified majority voting, the European Council) and the UK until around the end of 2018, possibly early 2019. The UK Parliament must pass primary legislation to approve the Withdrawal Agreement.

So the transition period is not legally certain until that approval and ratification has taken place. But with that chunky caveat, the mood music yesterday between the EU and the UK teams was positive with regard to the agreement reached on the transition period. The European Council has to approve the transition deal at its meeting at the end of this week, but barring any last minute hiccups that seems certain to happen.

Will this be enough for businesses to stop preparations for a “cliff edge” Brexit on 29 March 2019?

For many businesses, this political agreement on the transition is likely to provide enough certainty that there will be a status quo transition period.

But the Withdrawal Agreement, and so the transition period, will not be legally certain until the end of 2018 and possibly later. Some businesses may conclude that – given that “nothing is agreed until everything is agreed” – they should continue with contingency planning in some form for a “cliff edge” Brexit, even if only for critical operations. That decision will be fact- and context-specific for any business.

And some businesses have already, of course, taken the decision to relocate or reconfigure parts of their operations as a wider response to Brexit. This political agreement on the transition is unlikely to stop that work.

Where is the agreement on the transition period set out?

In the latest draft of the EU-UK Withdrawal Agreement that was published on Monday 19 March. Part Four deals with the transition period.

This latest draft, which also deals with the key withdrawal issues of citizens’ rights, the financial settlement and the border between Northern Ireland and the Republic of Ireland, as well as many other separation issues, is usefully colour-coded:

• Green: agreed at negotiators’ level, and will only be subject to technical legal revisions in the coming weeks.
• Yellow: negotiators agreed on the policy objective; drafting changes or clarifications are still required.
• White: text proposed by the EU on which discussions are ongoing.

All of Part Four (the Transition) is coloured green. As are the provisions on citizens’ rights (Part Two).

FAQs on the transition

Is this transition period going to be long enough?

Good question. On the governmental side, there is some scepticism that the UK will, for example, have new customs infrastructure and IT systems in place by the end of 2020. There’s a widespread belief that negotiating a comprehensive free trade agreement for the future relationship between the UK and the EU may run beyond 2020, although the UK government correctly points that there’s never been a trade agreement that starts from a position of complete alignment.

Once that future relationship is agreed, businesses will then need time to adapt…which has led the Institute of Directors to suggest that there may need to be a “finite adjustment period” after the end of the transition period, “as many businesses will only be able to sufficiently plan and prepare for Brexit once the precise details of the future relationship are known”.

Can the transition period be extended beyond 31 December 2020?

There is no provision in the current draft of the Withdrawal Agreement that would enable the transition period to be extended. That doesn’t mean one couldn’t be inserted later in the negotiation process. Ultimately, however, the UK actually has to leave the EU.

Does anything change at all during the transition period?

Yes. The UK will no longer be represented in the EU institutions. There will no UK Commissioner and no UK MEPs.

Can the UK negotiate and ratify free trade deals with non-EU countries during the transition?

Yes. But those countries are likely to want to know what the future relationship between the UK and the EU looks like before signing up to free trade agreements.

And when will we know about that future relationship between the EU and the UK?

A “political declaration” on the future relationship will accompany the Withdrawal Agreement. The European Council is expected to sign off on its negotiating guidelines for that future relationship at its meeting at the end of this week. The period between the end of March and October 2018 should then see the UK and EU negotiate that political declaration, although the UK still hopes to have the terms of the future relationship fleshed out in detail by October.