After three years of dense fog, there may be light at the end of the channel tunnel. Will it be the end of a long period of uncertainty, or should you still fear the worst? The only certainty today is that the UK will leave the EU on 31 January 2020, and that the Withdrawal Agreement will provide businesses an 11-month period to prepare for the UK to become a third country to the EU. So, you can’t afford to rest on your laurels.
Businesses need to be fully on top of (i) the key dates, (ii) the expected changes and (iii) the design and roll-out of a comprehensive implementation plan.
(i) Key dates
Further to his overwhelming victory at the 12 December 2019 election, UK Prime Minister Boris Johnson now has a comfortable majority to deliver the Brexit he promised to the UK population.
The Withdrawal Agreement, reached by Mr Johnson in October 2019 with the EU, will only have legal effect from the date the Withdrawal Agreement Bill (WAB) is passed. Acknowledging the current Conservative majority in the UK Parliament, the bill successively completed its passage through the House of Lords and received Royal assent. Following the ratification of the Withdrawal Agreement by the European Parliament on 29 January 2020, Brexit will happen on 31 January 2020. From that date, article 50 can no longer be re-invoked and hence the UK will leave the EU.
The Withdrawal Agreement provides for a transition period until 31 December 2020. This period will be used to secure a trade agreement and a new partnership with the EU. The Withdrawal Agreement allows the transition period to be extended for up to two years, but a sign-off on the length of the extension is to be made before 1 July 2020. Mr. Johnson has, however, already ruled out this option repeatedly. On the European Commission’s side, Mrs. Ursula Von der Leyen prefers keeping the door open for an extension. In this vein, the Head of the Commission considers that “it would be reasonable to take stock in the middle of the year and, if necessary, agree on an extension to the transition period.”
Hence the EU will in principle trade with the UK under the new rules as of 1 January 2021, which gives companies a period of 11 months to prepare for the upcoming changes.
(ii) What will change?
Following its departure, the UK will enter a transition period until 31 December 2020. During this period, the UK will remain within the Single Market and Customs Union. In other words, although no longer part of the EU, the UK’s trading relationship with the EU will remain the same.
What Brexit will look like after the transition period will depend on the outcome of the negotiations during the said period:
- The first potential outcome is that a Free Trade Agreement is reached during the transition period. EU-UK trade would subsequently be governed by these new rules as of 1 January 2021.
- On the UK side, Mr. Johnson is aiming for a “zero tariffs, zero quotas” trade deal under which the UK can diverge from the EU regulatory framework. Taking into account the “most favoured nation” clauses in the last trade deals concluded by the EU (e.g. with Canada and Japan), this may become difficult for the EU, as the foregoing would entail that a more advantageous offer made to the UK would automatically also apply to the existing deals.
- On the EU side, although it is also clearly the desire to reach an agreement with no quotas and no taxes, and with the minimum text and administration necessary, the European Commission’s President Mrs. Ursula Von der Leyen has already warned the UK that “without a level playing field on environment, labour, taxation and state aid, you cannot have the highest quality access to the world’s largest single market”. Furthermore, the time frame of 11 months available for negotiating, ratifying and implementing a trade deal seems unrealistic.
- The second potential outcome implies that the parties did not succeed in reaching a trade deal during the transition period. Although, should this be the case, the Withdrawal Agreement would still be in place and hence greater certainty would be provided than without a Withdrawal Agreement (e.g. citizen rights would still be protected), from a trade point of view, this scenario qualifies as a no-deal Brexit, with EU-UK trade being governed by the WTO rules as of 1 January 2021.
- The third scenario entails the extension of the transition period. This could happen under the provisions of the Withdrawal Agreement, but is unlikely, as the UK Government has already explicitly ruled out this option. However, there may be other ways to “buy” some time and avoid a no-trade-deal scenario through for example a new bilateral standstill agreement.
(iii) Design and roll-out of a comprehensive implementation plan
Although there is no doubt that the UK will leave the EU on 31 January 2020, uncertainty as regards the practical details remains, as nobody dares to and can predict the outcome of the negotiations between the UK and the EU. It is hence recommended for businesses to continue assessing options available and translate them into the design of effective implementation plans covering all relevant areas of impact. Businesses need to have such plans fully prepared and ready by the end of 2020.
This will be the only safeguard for businesses to anticipate and be fully ready for a successful roll-out, thus minimising the impact on their core business, as this business reality will become the new normal going forward.
Our multidisciplinary Brexit experts take a holistic approach to cover every facet of your organisation impacted by Brexit, wherever you’re doing business. We’re a global team of highly experienced tax, international trade, supply chain, legal and finance specialists that’s been helping organisations prepare for Brexit since it first made headlines in 2016. Using PwC’s proven, unique Brexit methodology, we’ll assess your readiness and provide your organisation with the resilience to navigate the uncharted waters of Brexit, from Strategy through Execution.
