EU Exit Perspectives: Meanwhile in Brussels

On 31 January 2020, the UK left the European Union, becoming a so-called third country. It no longer participates in the EU’s decision-making process, so we can say that Brexit has happened, at least at political and institutional levels. But the economic consequences of the UK exit – “the economic Brexit” – will only be felt once the transition period is over on 31 December 2020, when the UK leaves EU’s Single Market and the Customs Union.

In March this year, both parties started the negotiations to decide the terms and conditions of their future trade relationship. It was a challenging start, with the Covid-19 pandemic impacting what were already set to be delicate and difficult negotiations. Nonetheless, the negotiators managed to overcome these initial obstacles and after nine rounds of formal negotiations, substantial progress has been made in many areas, such as transport or the UK participation in flagship EU research and education funding programmes (including Horizon Europe and Erasmus+).

There remain, however, big gaps between both sides, which is important because the premise of “nothing is agreed until everything is agreed” is as valid as ever. The most contentious topics relate to the Level Playing Field (LPF) provisions, namely in the area of state aid, and fisheries. Lately, we have been increasingly hearing that these gaps are bridgeable and potential solutions have been floating about but they all require politically-difficult concessions, both by the UK and the EU.

The mood in Brussels about the prospects for a trade deal reached its lowest ebb in September, when the UK Government published the Internal Market Bill, acknowledging that some of the provisions are incompatible with the commitments agreed upon in the Withdrawal Agreement. The situation seems to have improved during the past few weeks though, as reflected by Michel Barnier’s statement in the European Parliament last week, when he said he believed “an agreement is within reach”. Still, there is no room for complacency, as the mood in the EU-27 capitals varies greatly and any future trade agreement will need the unanimous approval of all the EU Member States. This, in practice, means that any member would eventually have the power to veto it.

In his recent speech in the European Parliament, Barnier also said the EU’s door would remain open for negotiations “up to the last possible day”. Since then, both sides have agreed to intensify negotiations, with talks now taking place daily – weekends included. While it is impossible to predict what will happen next, we have clearly entered a decisive phase and the general feeling is we will know the outcome in two or three weeks. The earlier, the better though, as any potential trade deal will still need to go through the process of ratification to enter into force on 1 January, when the transition period ends. 

Reaching a deal with the EU is key to remain competitive in the EU market. It would mean, among other things, avoiding tariffs, allowing for customs cooperation and providing a positive platform to build the future relationship. But amid all the uncertainty, one thing is clear – change is coming. Regardless of the outcome of the negotiations, at the end of the year the UK will be out of the Single Market and the Customs Union. Whether it’s shipping products through the correct border inspection posts, providing the appropriate paperwork or shipments facing physical inspections at borders, there will be unavoidable changes in the way we trade with the EU. Getting ready for those changes is, indeed, crucial.