Brexit Update: Draft Negotiation Directives from the EU Commission
The European Commission has published its draft negotiating directives that outline the stands it will take in the upcoming negotiations between the United Kingdom and the European Union.
Next to a lot of items on which there will be a difference of opinion, there is also the timeline. Boris Johnson has already been very clear about what he wants. He wants the agreement to be finalized in 2020. European Union representatives have already said that it will be very challenging to finalize everything before the end of this year.
The outline is clear on this point:
The Commission intends to achieve as much as possible during the transition period. We are ready to work 24/7 to make the best out of the negotiations. It is possible to extend the transition period by 1 to 2 years. This decision must be taken jointly by the EU and the UK before 1 July.
The Joint Committee, which consists of both the EU and the UK needs to decide on an extension before that time, otherwise, there’s no legal basis for such an extension.
Whatever the outcome of this negotiation is, businesses are strongly advised to prepare now for the end of the transition period, as the UK will neither be in the Single Market nor in the European Customs Union after that.
Let’s look at some of the trade and economics-related issues and how the EU is planning to handle them:
The envisaged partnership should contain comprehensive arrangements including a free trade area, with customs and regulatory cooperation, underpinned by robust commitments ensuring a level playing field for open and fair competition, as well as by effective management and supervision, dispute settlement and enforcement arrangements, including appropriate remedies.
Within the framework of the EU's Customs Code, including customs checks and controls and all other controls such as systematic sanitary and phytosanitary controls at the border, the envisaged partnership should aim at facilitating legitimate trade by making use of available facilitative arrangements and technologies and, while ensuring proper implementation of the Union Customs Code, where justified.
Goods Not Exchanged as Today
Trading under FTA terms, even a so-called “best in class” FTA, will be of a very different nature compared to the frictionless trade enabled by the EU's Customs Union and Single Market. In an FTA context, rules of origin and customs formalities will apply; all imports will need to comply with the rules of the importing party and will be subject to regulatory checks and controls for safety, health and other public policy purposes.
Without an FTA in place by the end of transition, tariffs and quotas will apply to all trade in goods between the EU and the UK. In this scenario, we must apply what is known as “MFN tariffs” to the UK. Indeed, under the WTO Most Favoured Nation (MFN) principle, benefits given to one trading partner need to be extended also to others and only a trade agreement or Customs Union can be an exception to that rule. Therefore, without an FTA in place as of 1 January 2021, economic operators and consumers should not expect privileged treatment when dealing with the UK.
Mutual Recognition of Rules and Standards
By choosing to leave the Single Market, the UK has opted to have the status of a third country regarding EU law. The EU and UK will therefore form separate markets and distinct legal orders, after the end of the transition period. The future relationship will therefore result in a lower level of integration than is the case today. The future economic partnership on goods will seek to facilitate trade as far as possible but this cannot be expected to replicate the same frictionless conditions of trade that exist between EU Member States.
Hello from the Other Side
In the meantime the United Kingdom is communicating the first steps it is taking in preparation for the upcoming negotiations in March. The UK will reverse the plans they had to slash the import tariffs.
The government is preparing to reverse plans put forward last year to cut import tariffs on most goods coming to the UK under proposals for post-Brexit trade agreements.
The Department for International Trade has opted to simplify the current regime rather than abolish large parts of it, as Theresa May’s government planned under a temporary scheme to follow a no-deal Brexit.
The Department for International Trade wants to radically simplify the tariff system inherited from the EU, which has mushroomed over the past 50 years.
The UK is party to approximately 40 free trade agreements that the EU has with about 70 countries, which together account for more than 14% of UK trade.
If these are not replicated as deals with the UK by the time Brexit occurs, their benefits will cease to apply to UK businesses. So far, 20 rollover agreements have been signed with 48 countries, accounting for about 8.5% of UK trade.
In a separate written statement to the Commons, Truss said the UK would “drive a hard bargain” in its trade negotiations and was “prepared to walk away if that is in the national interest”.
Read the full story in the Guardian here.
Michael Gove has told businesses that nearly all EU imports will be subject to checks next year.
Michael Gove has told businesses that trade with Europe they need to prepare for “significant change” with “inevitable” border checks for “almost everybody” who imports from the EU from next year.
In the first official confirmation that the government is going to impose trade barriers post-Brexit, he warned there would be checks on food and goods of animal origin, plus customs declarations and mandatory safety and security certificates required for all imports.
Echoing Boris Johnson’s comments in a speech last week, Gove spoke of pursuing a Canada or Australian-type deal, which EU trade commissioner Phil Hogan has said was “code for no deal” as the bloc does not have a deal with Australia.
Elizabeth de Jong, the Freight Transportation Association’s UK Policy Director has expressed concerns about frictionless trade after the Transition Period.
“We are naturally disappointed that the promise of frictionless trade has been replaced with a promise that trade will be as seamless as possible but not until 2025, with a more realistic but costly ‘make do and mend’ approach to be employed until then.”
Read the full article here.
The official Press Release by the UK Government reads:
There are a number of reasons for implementing import controls:
- to keep our borders safe and secure so we know who’s coming in and how often, what they are bringing in, and why
- to ensure we treat all partners equally as we begin to negotiate our own trading arrangements with countries around the world
- to collect the right customs, VAT and excise duties
- the EU has said it will enforce checks on our goods entering the Eurozone. We will likewise enforce our own rules for goods entering the UK
Business can prepare for border controls by making sure they have an Economic Operator Registration and Identification (EORI) number, and also looking into how they want to make declarations such as using a customs agent. We will ensure facilitations currently available to rest of the world traders will also be open to those trading between GB and EU.
Read the full press release here.
Be in the Know
If you have any questions about importing from the UK or exporting to the UK, please contact one of our experts. We are prepared to take the load off your mind.