January 23, 2020

Brexit and the lawyer who cried wolf!

The wolf is here – so what changes now?

The Conservatives won last month’s election on the promise of getting Brexit done. So the Withdrawal Agreement is being processed through the House of Commons and the House of Lords, and the UK is firmly on course to leave the EU by next Friday (31 January 2020).

A transition period until the end of December 2020 will then follow. During this transition, the UK will continue to be bound by the EU rules and entitled to the rights under the EU membership. Broadly speaking, until the end of December 2020, the UK can continue to trade goods and services as if it was still an EU member state. So in that sense you could argue that it is business as usual.

The four freedoms – and the three options

However, from 1 January 2021 the UK will no longer be in the transition period. The UK will be treated as a ‘third country’ in relation to the EU, i.e. a country which is not a member of the EU, and which is therefore not be entitled to the rights of EU membership. This includes, famously, the four freedoms, i.e. the free movement of

  1. goods
  2. services
  3. capital, and
  4. persons

During the transition period, the UK and the EU will start the process of negotiating a Free Trade Agreement (“FTA”). The hope and ambition is to conclude these negotiations by the end of 2020; whether this happens or not remains to be seen. At the moment, on 1 January 2021 we are looking at three potential main scenarios UK businesses and individuals may need to consider in relation to their EU activities:

The UK may

  1. have agreed an FTA with the EU. UK businesses and individuals will need to study and align their activities with the content of the FTA.
  2. still be in the process of negotiating an FTA with the EU with the above transition period having been extended. I appreciate that the current message from UK politicians is that the transition period cannot be extended, and that this has been enshrined in law as well. However, politicians have a habit of changing their minds when it’s convenient for them, and any law ruling out an extension can be changed by another law.
  3. be trading with the EU on WTO terms, having failed to agree an FTA in the transition period. This does not prevent the EU and UK from continuing FTA talks, but it does mean that UK businesses and individuals cannot trade with the EU in the same way as they used to while the UK was in the EU.

So what can businesses and individuals do in the transition period?

What should you do?

If a new FTA is agreed during the transition period (Option 1), it will set out the rules under which trade will take place between the EU states and the UK. At the moment all that’s available to us are political statements about future ambitions, not concrete facts which businesses or individuals can rely on.

If we end in the Option 2 scenario, the status quo in terms of the UK/EU trade will continue during the in the extended transition period.

Under Option 3, businesses and individuals will need to adjust to a new reality, where they, amongst other things, can no longer rely on the four freedoms. This is also where the analogy with the fairy tale about the boy crying wolf comes into play. We have been here before: numerous advisers, consultants, commentators predict, project and speculate – and the situation ends up being status quo. However, this time around it is very likely that after 1 January 2021, the status quo won’t stand.

The legal default is that the UK will be trading on WTO rules, unless an FTA is agreed, or unless the transition period is extended. This will for some businesses mean a radical change to how they do business with the EU. Therefore, rather than thinking that another extension will happen and status quo will be preserved, I do think that UK businesses and individuals should take steps to prepare for life without an FTA or an extension from 1 January 2021. No longer a cry about a big grey wolf, this is merely a prudent precaution for what may happen next year.

Brexit will impact businesses and individuals differently. A good place to start preparing is to look at the four freedoms, and what would happen to your business if you could no longer make use of those in the same way you could when the UK was a member of the EU. In the coming weeks and months we will deal with Brexit and how it may affect you in more detail.

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