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Philip Costigan

Philip Costigan

Partner - Commercial Property

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TICKING CLOCKS, BORDERS AND TRANSITION PERIODS – BREXIT, WHERE ARE WE NOW?  

It has been quite a while since our last Brexit blog, so in case anyone feels starved of Brexit news and comment (from us!), we thought it was time to put that right…

The reason for the delay is very simple – we want to concentrate on the hard facts of what changes are being made and the actual consequences those changes may have.  Alas, amidst the crystal-ball gazing and the clamour of political opinions (some of which lack very little real substance), hard facts have been few and far between.

So, what do we know?

What we do know is that the United Kingdom (UK) government has served formal notice under Article 50 the of Treaty of Lisbon on the European Union (EU) that the UK will cease to be a member of the EU on 29th March 2019.

We also know that any existing legislation which derives from the EU (whether in the form of directly-binding EU Regulations or UK statutes enacted to implement EU Directives – for the distinction between Regulations and Directives please see our Brexit blog of 8th March 2017 will continue to apply post 29th March 2019, and that anything which the UK government then wants to change will be done on a case-by-case basis.

What are the current negotiations about?

The current negotiations are over the terms on which the UK will leave the EU.  In theory, (and perhaps in the view of the more extreme protagonists of Brexit), no such negotiations are necessary, because after the 29th March 2019 the UK will no longer be a member of the EU and its future trading within the EU can be conducted on what are referred to as World Trade Organisation (WTO) rules.

However, it is generally accepted that, whilst perfectly possible, there would be disadvantageous consequences to this “no deal” scenario, such as financial tariffs and non-tariff barriers (e.g. customs delays, increased bureaucracy), and no resolution of the position of UK nationals living in the EU and vice versa.

What has been agreed so far?

The strict answer to that question is nothing, because nothing is agreed until everything has been agreed.  However, what is envisaged is a 2-stage arrangement, by which first the terms of the UK’s departure from the EU (often referred to as the divorce settlement) will be agreed, followed in due course by a new trading arrangement.  It is only the divorce settlement which, officially, is currently being negotiated, and this will include a “transitional period” (also referred to as an “implementation period”) between 30th March 2019 and 31st December 2020, during which the future trading relationship will be negotiated.

During this transitional period, although the UK will no longer be a member of the EU (after 29th March 2019), for all practicable purposes very little will change, we will remain part of the Single Market and Customs Union, be bound by EU rules including free movement of goods, services and workers, and continue to contribute to EU funds.  The UK will be free, after 29th March 2019, to negotiate its own trade agreements with other non-EU countries, but these cannot become effective until the end of the transitional period.

What is standing in the way of finalising the divorce settlement?

We hear references to “sticking points”, i.e. plural, but it seems that very much the main sticking point concerns just one issue – the land border between Northern Ireland and the Republic of Ireland.  In 1998 the UK and the Republic of Ireland signed the “Good Friday Agreement” which contains an obligation on both governments to maintain an open border between Northern Ireland and the Republic, without physical barriers, check-points or customs controls.  That works whilst both countries remain in the EU Single Market and Customs Union, but if either ceases to do so, then it seemingly follows that customs checks become necessary.

What is the Single Market?

The Single Market requires free movement of goods, services, money and people within the EU, as if it was a single country. It is possible to set up a business or take a job anywhere within it.  It requires common law – making to ensure products are made to the same technical standards.  Critics of the Single Market consider that it creates too many petty regulations and denies members control of their own affairs.

And the Customs Union?

This is where it begins to get complicated. The Customs Union doesn’t address technical standards, nor clear the way for freedom of movement or establishment of a business, but does require members to charge the same import duties to countries outside the EU, and allows free trade within member countries without customs checks at borders.

The downside, in the eyes of those who do not favour a Customs Union, is that because members have to charge the same import duties to those outside the EU, it prevents the UK from entering into meaningful free-trade agreements with non-EU countries.

The UK’s preferred outcome

If the UK is successful in achieving its preferred outcome to the current negotiations, a fairly wide ranging divorce settlement agreement will put in place before the UK leaves the EU on 29th March, providing for the UK to continue to be part of the Single Market and Customs Union during the transitional period until 31st December 2020. During that period, for practical purposes very little would change, although the UK will not be a member of the EU as such after 29th March 2019.

During the transitional period, the UK hopes to be able to finalise a full free trade agreement with the EU, to enable tariff free trade to continue as previously, with minimal increase in bureaucracy.   Crucially, however, if this scenario is achieved, the UK will then cease to be part of the Customs Union with the EU at the end of the transitional period, and will be free to enter into its own trading agreements with non-EU countries.

The alternative (no deal) scenario?

If no divorce settlement agreement can be reached before 29th March 2019, then to use some of the language of the news media, the UK would leave the EU with no deal, which would mean that any trading arrangements with EU countries would be on WTO rules, and there will be no agreement reached on such matters as UK residents living in other EU countries and vice versa, travel to EU countries etc.

How does this impact on your business?

This will depend on many factors, including whether you export to or import from the EU, whether you employ staff from other EU countries, and most importantly whether or not a divorce settlement is reached.

If you do trade with businesses from EU countries, then the impact could be very significant in terms of tariff barriers and on tariff barriers, and you may need to review any commercial agreements which you have with those EU-based businesses. Certainly, if you are considering entering into new commercial agreements, the alternative possible scenarios should be taken into account, otherwise you may find you face financial consequences which were not anticipated at the time your agreement was negotiated.

Other considerations will include employment of EU nationals, having a business base in the UK and the EU, the impact on agricultural businesses when the Common Agricultural Policy doesn’t affect the UK any more, the availability of scientific grant funding through the EU, to name just a few, as well as the impact of currency fluctuations.

We have set up a team at Band Hatton Button to assist with our business clients’ Brexit related issues, and for further information please contact any of Philip Costigan, Sean Byrne or Jonathan Wilby.