The risk of a no agreement ‘cliff-edge’ is growing and the prospects for a transitional agreement, while somewhat improved, remain uncertain. The groundwork in Whitehall and the negotiations in Brussels have made only limited progress. And the debates within the political parties do not point to any imminent progress in the weeks to come. The time available for companies to analyse the impact of the main scenarios on their business, to define priorities, to put plans in place and to engage with decision-makers in UK political parties and in the EU is running out.
Work towards Brexit is on five main tracks:
1) Withdrawal Agreement
The ongoing UK-EU negotiations are focused on citizens’ rights, the border in Ireland and the ‘divorce bill’. While the UK has provided some further detail in Position Papers published in August1, neither side was prepared to compromise on key issues in the latest round of talks. Further UK position papers are expected and the next negotiating rounds are due in the weeks of 18 September and 9 October, punctuated by the German Federal elections on 24 September and the UK party conferences.
2) UK-EU Future Relationship
The EU lead negotiator, Michel Barnier, must report to the European Council on 19 October on whether “sufficient progress” has been made on the Withdrawal Agreement for the EU to agree to begin parallel negotiations on the future relationship. He has indicated that, without more progress, this decision may have to be put back to December. To try to move the debate forward, the UK has published ‘Future Partnership Papers’2, on data protection, dispute resolution, judicial cooperation,3 customs, and foreign policy, defence and development, in part to reinforce its argument that progress on the withdrawal issues will ultimately depend on the shape of the future relationship. The UK has stated that it is working to secure the support of other Member States for an early start of talks in the mutual interests of all sides, while restating its readiness to exit with ‘no deal’ if a satisfactory agreement cannot be reached.
3) Interim/Transitional Agreement
The UK has indicated that an ‘interim’ transitional period will be required to allow the time necessary to prepare to implement the new agreements and to ensure that businesses and individuals only have to adjust once, in particular to a new customs relationship. The Government appears to be edging towards a position that would maintain the status quo of a UK-EU customs union for a time-limited period, whose length would be ‘linked to the speed at which the implementation of new arrangements could take place’4.
However, the details remain to be fleshed out and negotiated with the EU, particularly on the wider question of the UK’s relationship with the single market during a transitional period, affecting key areas including services, investment and public procurement. (The Labour Party now supports remaining in the single market and customs union for at least a transitional period lasting potentially until the next UK elections in 2022). In the continued absence of confirmation that there will be an transitional period, and greater clarity on how far and for how long it will maintain the status quo, businesses are increasingly likely to need to consider triggering contingency plans for a ‘cliff-edge’ scenario in March 2019.
4) Trade Deals With Other Countries
The UK has initiated ‘informal discussions’ with a range of countries (e.g. U.S., Japan, India, Australia and Canada) with a view to replicating or improving on their deals with the EU, where these exist, or striking new agreements. Concluding agreements with third countries is not permitted until the UK leaves the EU but the UK intends then to move ahead rapidly, including during any transitional period. But the challenges are becoming apparent, for example the Japanese recently indicating that their first priority is to finalise their agreement with the EU, and debate over whether UK food standards should diverge from those of the EU in the interests of striking a trade agreement with the U.S.
5) The Repeal Bill and Associated Legislation
Parliament has begun working on the Bill to withdraw the UK from the EU and to transpose EU law into UK law. The government will also be publishing White Papers and tabling Bills to establish necessary UK legal frameworks in areas including immigration, customs, trade and sanctions. The process will be highly political but the technical details will be crucial for giving businesses the greatest possible clarity, certainty and stability. In particular, companies will want to ensure that they have a say in the future on how the UK should and should not diverge from EU regulations.