Boardroom Brexit - 15 June 2020

Boardroom Brexit

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Britain rules out extension

With a little over 200 days to go until the transition period expires, senior UK and EU figures are meeting today, 15 June 2020, for a “stock-take” summit. UK Prime Minister, Boris Johnson, will join – virtually, of course – the Presidents of the EU’s Commission, Council and Parliament, Ursula von der Leyen, Charles Michel and David Sassoli, for a high-level assessment of the state of the trade talks. For his part, the Prime Minister is expected to tell his European colleagues that he wants a deal concluded “by autumn at the latest”.

The summit comes on the back of last Friday’s news that Britain has formally said it will not seek an extension to the transition period, which expires on 31 December this year. Commission Vice President Maroš Šefčovič said that, while the EU “remains open” to an extension, he has noted the UK’s decision “as a definitive one”. The official deadline, as provided by the Withdrawal Agreement, for the EU and UK Joint Committee (JC) to agree to an extension is 1 July 2020, but with no further meetings of the JC scheduled until the autumn the decision is as good as official.

Of course, the saying goes that where there’s a political will there’s a legal way. Views are divided but, in our opinion, it would still be possible for the EU and UK to agree to amend the Withdrawal Agreement before the end of the year to allow for an extension to the transition period. Given the UK’s political stance, however, this is perhaps academic; but it is certainly something to bear in mind.

There’s a growing feeling in Brussels that the UK is perhaps not seeking a comprehensive trade agreement for the future. This would certainly explain the lack of progress in many areas, and the posturing. Both sides seem to be working towards a different result at times.

Clock ticking

We have now had four rounds of talks, but there remains little to show for them. The UK’s Chief Negotiator, Sir David Frost, conceded last week that progress “remains limited” while his EU counterpart, Michel Barnier, lamented that “there has been no substantial progress since the beginning of these negotiations”, bemoaning the UK’s “continued refusal to extend the transition period”.

Time is certainly of the essence, if that wasn’t already the case before. If we’re to see a deal at the end of the transition period, a significant breakthrough is required in the upcoming rounds, the dates of which have been scheduled by the EU. The schedule provides for “intensified” talks, combining formal rounds of negotiation with more informal meetings of smaller working groups on a weekly basis. Where possible, these talks will be held face-to-face. It was felt that coronavirus-enforced videoconferences made meaningful progress even harder.

The Prime Minister’s demand for an autumn deal is a rare point of agreement between London and Brussels. Michel Barnier has said several times that a deal will need to be agreed by 31 October 2020 if there’s to be any time for ratification by the end of the transition period. EU officials think September will be the “crunch time” in the talks if this is to happen.

Familiar stumbling blocks

It is the usual suspects that are to blame for the slow progress. The sides are struggling to agree on four main issues:

  1. EU fishing fleet access to UK waters;
  2. UK compliance with EU state aid, social and environmental rules – known as “Level Playing Field” requirements;
  3. UK implementation of the Northern Ireland Protocol, which keeps Northern Ireland in the EU’s customs union and means checks on goods going from the rest of the UK to Northern Ireland; and
  4. Law-enforcement and security cooperation.

A number of Members of Parliament (MEP) say they would veto any trade deal between the UK and EU that doesn’t have sufficiently “robust” measures to protect the level playing field. On fisheries, there’s still no sign that either side will make the move necessary to reach a compromise, nor is there an understanding of the basis of an agreement. The EU maintains that agreement here is a pre-requisite for subsequent talks on financial services, themselves far more important to the UK economy. France’s Assemblée Nationale last week urged President Macron not to allow the EU to soften its approach on fishing negotiations. The upcoming negotiations will home in specifically on these deal-breakers to try and unlock the path to an agreement.

Both the UK’s and EU’s negotiating papers are available online.

Britain backtracks on border checks

In light of the disruption caused to businesses by the coronavirus pandemic, the government has signalled that it will operate only light-touch border controls when the transition period ends. Instead of comprehensive border checks, only controlled goods will undergo immediate checks and a more flexible approach to customs declarations will be taken. Importers will be given up to six months after importation to complete declarations, with tariffs not required to be paid until the declaration is finally submitted. Note, however, that this development will delay, rather than remove, customs obligations and tariff payments.

Meanwhile, the EU has confirmed that reciprocal measures will not be taken across the Channel for goods going from the UK to the EU. EC member, Maroš Šefčovič, last week said that the bloc “will continue to fully protect the integrity of the single market and customs union”, meaning customs procedures and product compliance rules will be applied to goods being imported into the EU from the UK.

As for trade between Great Britain and Northern Ireland, Whitehall has now provided further detail on how the so-called “Irish protocol” will work in practice, with promises of more detail to come. Lorries travelling to Northern Ireland will need clearance from HMRC before they depart on ferries. During the crossing, HMRC will review electronic documentation submitted by the ferry operator to determine which lorries will require physical inspection on docking.

UK-US trade negotiations

At the same time of course the UK is negotiating a free trade agreement with the United States. The UK’s Trade Commissioner for North America, Antony Phillipson, has said that the target remains to agree a deal with the U.S. before November’s Presidential election. Look out for a client alert from us on the U.S. talks later this week.

What should you be doing to prepare?

The confirmation that there will be no extension of the transition period is hugely significant for Brexit planning. We now have certainty that the changes from EU membership to WTO terms, or to a limited trade deal, will come into force on 1 January 2021. Our advice is to:

  • prepare your business for WTO terms at the beginning of next year, with the ability to make the necessary adjustments to contingency plans if a deal is reached beforehand; and
  • step up any lobbying of the UK and EU governments, and EU institutions, to influence the outcome of negotiations, on the assumption that both sides seek to respect the withdrawal agreement and negotiate in the spirt of the political declaration. If this is no longer the case, tactics will need to change.

DLA Piper’s team of lawyers and trade and government affairs professionals are here to assist you to prepare for the end of the transition period.