76: Brexit – Start a new relationship

Aaron Nelson Legal Director

While it is always difficult for an outsider to know how negotiations are progressing, it seems particularly unclear whether the UK and EU will reach agreement on a future relationship by the Autumn.

A slow start

Progress in the early rounds of Brexit negotiations was certainly limited.

In May, after the third round of talks, the government published a set of 13 documents setting out the UK’s approach to the future relationship with the EU: a core free trade agreement modelled on the EU’s FTA with Canada and Japan, and separate agreements for certain areas, ie fisheries, air transport, aviation, energy, social security, law enforcement and judicial cooperation, asylum and migration, civil nuclear co-operation. The EU seeks a more comprehensive agreement under which the UK would continue to align itself with EU standards – dubbed ‘dynamic alignment’ – with EU institutions monitoring compliance.

After the 4th round of talks, UK Chief Negotiator David Frost admitted:

‘Progress remains limited but our talks have been positive in tone. Negotiations will continue and we remain committed to a successful outcome. We are now at an important moment for these talks. We are close to reaching the limits of what we can achieve through the format of remote formal Rounds. If we are to make progress, it is clear that we must intensify and accelerate our work.’

EU Chief Negotiator Michel Barnier gave an even more downbeat assessment:

‘We can only take note that there has been no substantial progress since the beginning of these negotiations, and that we cannot continue like this forever. Especially given the United Kingdom’s continued refusal to extend the transition period.’

But at least the key issues had been identified:

competition and the ‘level-playing field’, particularly how closely the UK will stay aligned to European rules on state aid;
governance questions, particularly the role the European Court of Justice would have in policing any agreement; and
fisheries, notably EU access to UK fishing waters.

After the 5th round (20-24 July), Barnier stated the UK ‘had not shown a ‘willingness to break the deadlock’ over fisheries and post-Brexit rules on competition.’ Frost said that fisheries and the rules on competition and state aid remained the ‘most difficult areas’ – the UK is determined to hold onto the power to invest in UK industry as it sees fit, while the EU continues to seek ‘dynamic alignment’ with EU rules – but added he believed a deal could be reached in September, while cautioning the government must ‘face the possibility’ of no deal. There was, perhaps, an indication of slight progress on governance: Frost acknowledged the EU had shown a ‘pragmatic approach’ to limiting the role of the European Court of Justice.

A further glimmer of hope that progress is being made lies in the fact that, when the UK government set out its mandate for the talks, it said that if the broad outline of a deal was not in place by June:

‘the government will need to decide whether the UK’s attention should move away from negotiations and focus solely on continuing domestic preparations to exit the transition period in an orderly fashion’.

No UK walk out took place, and one doesn’t currently appear to be on the cards. So, for now, the negotiations continue.

Further talks are planned for the weeks of 17 August, 7 September and 28 September, with the aim of reaching agreement by October. Doing so is necessary to allow the deal to be ratified by EU Member States in mid-November, signed in late November, and approved by the European Parliament in December, prior to the end of the transition period.

No extension of transition…

One thing we do know is that there will be no extension of the transition period under the Withdrawal Agreement. It provides that:

‘… the [Withdrawal Agreement] Joint Committee may, before 1 July 2020, adopt a single decision extending the transition period for up to 1 or 2 years.’

The UK government confirmed, at the meeting of the Joint Committee on 12 June, that it would not do so, such that the transition period would end on 31 December 2020. The EU initially said it nevertheless remained open to an extension but after the High Level Meeting between the UK and the EU on 15 June, the leaders released a joint statement which stated:

‘The Parties noted the UK’s decision not to request any extension to the transition period. The transition period will therefore end on 31 December 2020, in line with the provisions of the Withdrawal Agreement.’

Theoretically, an de facto extension of transition remains possible but (as discussed here) probably only if the parties agree, as part of any new relationship, an ‘implementation phase’ following on from the current transition period.

…but ‘phasing in’ new border arrangements

The government has announced, however, that it will phase in checks on goods from the EU being brought into Great Britain. A three-stage implementation will start at the end of the transition period and finish in July 2021:

from January 2021: Traders importing standard goods, covering everything from clothes to electronics, will need to prepare for basic customs requirements, such as keeping sufficient records of imported goods, and will have up to six months to complete customs declarations. While tariffs will need to be paid on all imports, payments can be deferred until the customs declaration has been made. There will be checks on controlled goods like alcohol and tobacco. Businesses will also need to consider how they account for VAT on imported goods. There will also be physical checks at the point of destination or other approved premises on all high risk live animals and plants;
from April 2021: All products of animal origin (POAO) – for example meat, pet food, honey, milk or egg products – and all regulated plants and plant products will also require pre-notification and the relevant health documentation; and
from July 2021: Traders moving all goods will have to make declarations at the point of importation and pay relevant tariffs. Full Safety and Security declarations will be required, while for SPS commodities there will be an increase in physical checks and the taking of samples: checks for animals, plants and their products will now take place at GB Border Control Posts.

This phased implementation will allow businesses more time to adapt to the measures at the border – which rather suggests businesses are not ready at present, despite last year’s ‘Get Ready for Brexit‘ campaign. The government has launched another public awareness campaign, this time under the slogan: ‘The UK’s new start: let’s get going‘, encouraging people and businesses to ‘Check, Change, Go‘.

The government is investing money to ease the burden of these new processes on businesses by further developing the UK’s customs intermediary sector, such as through the UK Customs Academy, and investing in new border infrastructure: £470 million for port infrastructure; £235 million for IT systems and staffing; additional funding for HMRC for the new customs checks; and, most strikingly, a new large-scale customs clearance centre in Kent to process lorries coming from the EU into Dover.

No border in the Irish Sea?

Of course, the above applies to trade between the EU and Great Britain, rather than to the whole of the UK. Trade between Northern Ireland and Ireland, and between Northern Ireland and Great Britain, is covered by the Northern Ireland Protocol in the Withdrawal Agreement which takes effect from the end of the transition period.

On 7 August, the government published guidance on how this will work in practice, which doesn’t quite tally with the Prime Minister’s assertion that there would be ‘no forms, no checks, no barriers of any kind‘ for NI businesses. Acknowledging the adverse impact on NI businesses, the government has announced a £355 million package to cushion Northern Ireland businesses from the costs of trading with the rest of the UK because of Brexit, including £200 million to be spent on a trader support service (TSS) to help firms handle new bureaucracy to move goods across the Irish Sea, turning the government into a de facto customs agent for traders. A further £155 million will be spent on digital technology to streamline processes required by the new internal border created by the Northern Irish Protocol.