Brexit Business Brief newsletter | The transition period

What’s happening?

After the EU27 and the UK reached outline agreement on the terms of the UK’s withdrawal just before Christmas, we now await negotiations on the terms of the transition period that – on current plans! – will start after the UK formally leaves the Union on 29 March 2019.

What do we know about the possible terms of the transition? The Prime Minister said in her Florence speech of September 2017 that she would like the transition period to be ‘around two years’ and that the UK would want to access the Single Market and the Customs Union ‘on current terms’.

The EU27 has been much more explicit. In its December 2017 guidelines, the European Council’s stance is that during the transition period:

  • the whole of the European ‘acquis’ (the body of law) governing the Single Market and the Customs Union will apply to the UK;
  • the UK will no longer participate in EU institutions or in decision-making in EU bodies, offices or agencies;
  • changes to EU law will apply in the UK;
  • all EU ‘regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures’ will apply to the UK – including the continuing jurisdiction of the Court of Justice of the European Union; and
  • the UK will have to comply with EU trade policy, apply EU customs tariffs and ensure EU border checks are being performed.

The EU has also mooted that the transition period should end on 31 December 2020, to align with its budget cycle.

In short, little would change for business, except that the UK would no longer participate in EU institutions and agencies. And so it follows that UK businesses would not be able to lobby those bodies about, for example, proposed legislation or regulation.

This is all for negotiation. Though, with business extremely keen to know the terms of the transition by the end of March 2018 at the latest, it is hard to see the transition terms being radically different from those set out in the Council guidelines.

Here’s our timeline of how the Brexit negotiations may play out in 2018, including when there may be some clarity on the terms of the future, post-transition, relationship between the EU and the UK.

General developments

Business, be prepared’: The European Commission and some EU regulatory agencies have published a number of ‘be prepared’ notices aimed particularly at business, making the (perhaps obvious!) point that from 29 March 2019 the UK will be a ‘third country’ in EU terms, and describing some consequences for business that flow from that status. A peculiarity of these notices is that they make practically no reference to the possibility of a transition period, so are to some extent aimed at a ‘no deal’ scenario.

That said, the notices – which cover chemicals, civil justice and private international law, company law, data protection, IP, medicines, pharma and transport – are worth a read. Links to all the notices are in our article here.

Regulatory agencies that matter: A short-ish paper from the CBI on ‘The room where it happens: A guide to the EU bodies and regulators that matter to business in the Brexit negotiations’. This identifies 39 EU regulatory agencies relevant to UK business and breaks them down into three categories, based on whether (paraphrasing):

  • the UK’s continued involvement is crucial (for example, the Article 29 WP, EASA, the Chemicals Agency, the Food Standards Agency, the Medicines Agency and the Payments Council);
  • UK involvement is important to industry; and
  • the UK can knock up decent domestic replacements.

Of course the UK’s continued involvement in any EU agency is not in the UK’s gift!

Trade deals and the transition: Can the UK replicate the 40 or so free trade agreements that the EU has with other countries and blocs by 29 March 2019? At the moment, the UK is a party to these FTAs through its EU membership. That won’t be the case once…the UK is not an EU member!

The UK is aiming to enter into new bilateral FTAs that mirror the existing EU agreements. This useful paper from the Centre for European Reform explains the background, what has to happen, and why the UK is likely to need the EU’s help.

Sector developments

What are Rules of Origin, why do they matter to Brexit and how do exporters comply? An excellent primer from the UK Trade Policy Observatory…an update on exit preparations for pharma companies from the MHRA…five Brexit steps for companies in the aerospace, defence, security and space sectors from ADS

A report from the National Audit Office on the challenges facing DEFRA…and also on food and Brexit, Michael Gove’s speech to the Oxford Farming Conference is a pointer to Brexiteer thinking…

Brexit and the ISDA Master Agreement…the Bank of England’s approach to the authorisation and supervision of international banks, insurers and central counterparties…and ‘Dear CEO’ planning assumptions letter for banks, insurers and designated investment firms undertaking cross-border activities…HM Treasury statement on the ‘temporary permissions’ regime for EEA firms and funds operating in the UK and related Financial Conduct Authority statement…

…and finally a note from the IP Federation on where UK government action is needed to ‘ensure continuity and certainty of IP law’ after Brexit.

Legal developments

Putting EU law into UK domestic law: The European Union (Withdrawal) Bill, which will transpose all ‘EU law’ into UK domestic law at the date of Brexit, has completed this part of its passage through the House of Commons and now heads off to the House of Lords.

The Withdrawal Bill is one of the most important pieces of legislation to go through Parliament since the European Communities Act 1972. It will result in an enormous expansion of the UK statute book, importing around 12,000 EU regulations into UK law, with an estimated supporting cast of around 800 to 1,000 new statutory instruments to make sure that this ‘retained EU law’ works properly the day after Brexit. We’ll be discussing the Withdrawal Bill at our Brexit seminars in LondonReading and Bristol in April.

The Customs Bill: Or by its official name, the Taxation (Cross-border Trade) Bill, is one of the principal pieces of primary Brexit legislation. The Bill had its second reading in the House of Commons earlier in January. It will:

  • enable the government to create a functioning customs, VAT and excise regime for the UK after Brexit;
  • put in place a UK trade remedies system to carry out investigations into allegations of dumping and subsidy and to propose remedies; and
  • allow the UK to put in place its own system of trade preferences for developing countries.

The Bill was published in November 2017. The House of Commons Library has published one of its excellent briefing papers on the Bill here. The Explanatory Notes to the Bill are here.

The Trade Bill: The Trade Bill is also going through Parliament. In the words of the Department for International Trade, the Trade Bill will:

  • ‘create the necessary powers for the UK to transition trade agreements that currently exist between the EU and other countries (and which we are party to through our EU membership);
  • enable the UK to have continued access to £1.3 trillion worth of government contracts and procurement opportunities in 47 countries;
  • allow the UK to implement the Agreement on Government Procurement as an independent member instead of as part of the EU; [and]
  • establish a new independent UK body, the Trade Remedies Authority, to defend UK businesses against unfair trade practices’.

A similarly-excellent House of Commons briefing paper on the Trade Bill is here and the Explanatory Notes to the Bill are here.

Nick Thody 

Head of Knowledge, UK