Global Britain 2020 and a new UK Trade policy

What lies ahead for the UK's future trading relationship with the EU and the U.S.?

Following the Conservative Party's landslide victory in the UK general election, which Boris Johnson won on a promise to "get Brexit done", we can now expect Boris Johnson's withdrawal deal to be passed by 31 January 2020 with 100% backing from the new Tory MPs.

This means that, three and a half years after the referendum, the UK will no longer be a member of the EU by the end of January 2020. This is an historic moment, and one that marks the beginning of the second stage of the Brexit journey, in which the country is embarking into an era of sophisticated and complex trade negotiations, where new trading relationships will have to be forged, and existing ones revisited along the way.

Although the path to the formal ratification of the Withdrawal Agreement is almost certain, the Government is now tasked with the mammoth challenge of negotiating the UK's future trade relationship with the EU bloc, with the U.S., and with the rest of the world.

What does this mean for your trading relationships, in the EU and beyond?

Boris Johnson's significant majority in Parliament means that EU leaders are optimistic that the Withdrawal Agreement between the UK and the EU will be ratified before 31 January 2020. From that date, the UK will be trading with the EU under the terms of the "transition period" which will expire on 31 December 2020.

During the transition period, much of what we know today from a trade law perspective will remain the same. Article 127 of the Withdrawal Agreement is clear "Union law shall be applicable to and in the United Kingdom during the transition period".

This means that the UK will continue applying and implementing EU law that falls within the scope of the Withdrawal Agreement – no customs checks imposed or quotas or duties applied for EU/UK trade. Most goods that are already in the UK or the EU market at the end of the transition period will be allowed to continue to move freely between the UK and the EU after the end of transition. Furthermore, businesses will be able to trade goods on the same terms as now and will not need to take any action in order to continue placing their goods on the EU market or the UK market. This includes the ability of public and non-public bodies in the UK (such as Notified Bodies) to assess products against EU regulatory requirements.

But what happens next - is there enough time to negotiate a trade deal with the EU?

In the "Boris"' version of the Withdrawal Agreement, which would come into effect at 11pm on 31 January 2020, the UK has opted for a model based on a Free Trade Agreement (FTA) as a basis for its future trading relationship with the EU.

The Political Declaration accompanying the Withdrawal Agreement provides for an ambitious FTA with zero tariffs and quotas between the EU and the UK, alongside commitments to level playing field provisions to prevent distortions of trade and unfair competitive advantages.

In a nutshell, the goal for both the UK and the EU 27 when entering into those FTA talks will be to aim at "zero tariffs, zero quotas, zero dumping".

The ambition is welcome but is the timing realistic? 

The withdrawal deal provides for a deadline to agree a trade agreement with the EU by the end of December 2020. This would be the fastest trade negotiation the EU would ever have concluded. This deadline leaves the parties very little time to agree a deal considering that earlier this week, the UK Government added a clause to the Withdrawal Agreement Bill that will prohibit the extension of the transition period beyond December 2020.  

The 27 EU Member States through the Council of the EU ("the Council") will need to authorize the European Commission to negotiate the trade agreement with the UK. The "negotiating mandate" will provide directives which include the objectives and scope of the negotiations. President Van der Leyen has confirmed that the European Commission was working on a draft negotiating mandate, with the objective to start negotiations on 1 February 2020.    

The European Commission will negotiate on behalf of the EU, in close cooperation with the Council and the European Parliament. The European Commission will provide regular updates to the 27 EU Member States through the Trade Policy Committee of the Council. The European Parliament will hold regular discussions on the negotiations in its International Trade Committee ("INTA").

Even if the text of the trade agreement would be finalized by the end of 2020, the European Commission would need to conduct a legal revision to ensure that the text is consistent. This is the so-called "legal scrubbing". Furthermore, the text will have to be translated into the other 23 official languages of the European Union. The European Commission will then submit the trade agreement for signature and provisional application to the Council. Once the Council signs the trade agreement on behalf of the EU, it will transmit it to the European Parliament for consent. After the European Parliament gives its consent, the Council will adopt the decision to conclude the trade agreement.  

The trade agreement between the EU and the UK would most likely be a "mixed agreement" because it will cover areas that fall under the sole responsibility of the EU as well as parts for which the EU and the Member States share responsibility. If the EU-UK agreement would be a "mixed" agreement, the 27 EU Member States would also need to ratify it following their national procedures. These would involve national and regional parliament approval.  

The areas of the agreement for which the EU has exclusive responsibility would be able to enter into force once the Council concludes the trade agreement ("provisional application"). Therefore, the shape of the future relationship between the UK and the EU past 2020 is still very much an unknown at this stage, and the possibility of a no-deal Brexit should not be discarded in the context of this challenging timetable. If the EU and the UK cannot agree to a deal by December 2020, the default position will remain a no-deal expiry of the transitional period and therefore resorting to the Northern Ireland protocol of two borders, and WTO terms for the trading relationship with the EU. See our previous blogpost on this.

Does this affect the UK's ambitions to secure a trade deal with the U.S.?

U.S. President Donald Trump was one of the first to congratulate Boris Johnson following his election win, tweeting that "Britain and the U.S. will now be free to strike a massive new Trade Deal after Brexit." Indeed, the UK-U.S. FTA remains one of the top priorities for the UK Department for International Trade.

During the transition period, the UK is able to negotiate, sign and ratify international agreements with third countries, including a UK-U.S. FTA, provided those agreements do not enter into force or apply until the end of the transition period on 31 December 2020, unless authorised by the EU.

However, if the UK negotiates an FTA with the EU, it will likely prove more difficult for the UK to simultaneously negotiate an FTA with the U.S., due to, inter alia, the historic divergences in product regulations and food standards (remember the failed TTIP?). Any trade agreement especially if "comprehensive and ambitious" will have to extend well beyond tariffs and customs checks, and the UK will have to decide what it wants to agree with regards to health and safety, employment rights, competition policy, government procurement, etc.

What does this mean for businesses with operations in the UK and the EU?

Assess, anticipate, monitor, and engage - Now more than ever, it will be crucial for businesses to be fully ready to work with key stakeholders to anticipate any potential changes and apprehend the impact of the trade talks with the EU whilst also engaging with the UK Government through consultations on trade negotiations with the EU and the U.S.

As Boris Johnson works towards his ambition of "getting Brexit done", we can expect the UK, U.S. and EU decision-making processes to progress in parallel – any concessions done on the one hand, will have repercussions on the other.

The Hogan Lovells International  Trade team operates seamlessly across jurisdictions and industries to provide comprehensive and practical advice on the ever evolving international trade landscape.

We advise on the full range of international trade law and policy issues, including assisting in all areas of trade negotiations, and advising on export control, sanctions, anti-money laundering, customs, trade compliance, trade remedies, and anti-corruption.

Please get in touch with one of our team if you would like any further information.


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