As we flagged up in our post in December, there was a general expectation that the amended EU Withdrawal Agreement negotiated by Prime Minister Boris Johnson would be passed by the UK Parliament without amendment. While several amendments were attempted, none of them succeeded given the size of Johnson’s majority in the UK Parliament. The draft agreement received Royal Assent on 23 January and the European Parliament passed the agreement on 29 January.
As a consequence, the UK officially exited the EU at 11 pm on 31 January 2020 and is now in a transition period until 31 December 2020, at which point we expect that the transitional arrangement will come to an end and either a new UK-EU free trade agreement will take effect or the UK will commence trading with the EU on World Trade Organisation (WTO) terms.
Both the UK and the EU have been making various public statements to set out their starting positions for this next phase of negotiations. The EU proposed on 3 February specific negotiation directives to set out its position (see here for further information). For the UK, ministers have made various statements recently indicating that the UK will seek to diverge from EU rules and standards and would like to agree to the broad shape of an agreement around fishing rights and financial services by 1 July 2020.
While there is an existing revised political declaration that the UK and EU agreed to last year (see here), this declaration is not legally binding. However, it does contain a framework that could form the basis of a future free trade agreement. In return for zero tariffs and quotas, the UK made commitments on a level playing field to ensure open and fair competition, which is a theme the EU have already revisited. However, the UK’s approach to a level playing field and regulatory alignment is directed at an outcome-based approach whereas the EU prefers a specific rule-based regime.
At the same time, the UK is finalising trade deals with a number of other countries and hopes to also conclude participation in the Trans-Pacific Partnership agreement, a large 11-member trade deal that includes Japan, which is now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). In addition, the UK is hoping to make swift progress with a U.S. free trade agreement. If the UK can make progress with one or both of these, the UK’s negotiation position with the EU will be significantly strengthened.
Our current outlook is that some form of agreement will be reached with the EU prior to the end of the current transition period on 31 December of this year. That agreement may very well be light and not deep or comprehensive, but it will be enough to keep things moving with further detailed agreements to follow in 2021 and beyond.