This Friday is Brexit Day. In this QAD Precision Report we look at
the transition period and the future of the EU/UK trade relationship.
On Friday 31 January 2020 at 11pm in London — and midnight in
Brussels — the UK will officially no longer be part of the European
Union. While this date is undoubtedly important, in many ways it is
symbolic — business, travel and people’s daily lives will be largely unaffected.
Once the clock sounds the end of the UK’s 47 years of EU membership,
an 11-month transition period kicks in. During the transition period,
the UK will remain in the EU single market and customs union and must
contribute to the EU budget. Furthermore, the rights of British
citizens to live, work, study or retire in the EU will not yet change.
Likewise, citizens of the EU27 countries will continue to have
reciprocal rights in the UK.
Irish rock band U2 famously sang that “Nothing changes on New Year’s
Day.” That is unlikely to be the case on 1 January 2021. That day will
mark the UK’s first day outside of EU rules. British Prime Minister
Boris Johnson has the option to extend the transition period until
2022 or 2023. However, the PM has repeatedly stated his intention to
meet the 2021 deadline. That leaves the UK and EU a maximum of 11
months to agree on the terms of their future relationship.
Given the tight timetable, PM Johnson wants to expedite negotiations.
However, Brussels is unlikely to be rushed. Although draft mandates
for the talks should be ready by 1 February, talks cannot officially
begin until after 25 February at the earliest. On this date, EU
ministers must decide whether or not to give Michel Barnier, the
bloc’s chief negotiator, a mandate. As formal negotiations cannot
begin before this date, the already tight timetable is squeezed to
just 10 months.
Although the future trading relationship between the UK and EU27 has
dominated the media, the talks will have a much broader scope.
Policies under discussion are likely to include security, foreign
affairs, cultural and educational ties, data sharing, fisheries and
Trade deals alone can take many years to conclude. Take some recent
examples. This week, Canada began the process of ratifying the updated
Nafta deal — the United
States - Mexico - Canada Agreement. Talks for this deal began in
May 2017 and concluded at the end of September 2018. Mexico ratified
the deal first, followed by the US, but it cannot come into force
until all three signatory countries complete the ratification process.
In a similar vein, talks to create the African Continental Free Trade
Area began in 2012. The agreement was signed in March 2018 and came
into force in April 2019. Last year the EU and the Mercosur countries
reached a trade deal in principal after 20 years of talks — and
ratification is likely to take several more years.
With so many areas to cover as well as trade, it is difficult to
imagine that the EU and the UK will have finalized all aspects of
their future relationship before 1 January 2021. Therefore, the UK and
EU could face a new no-deal scenario by the end of this year.
Should the UK and the EU be unable to conclude negotiations by the
end of the year, it is possible that they will reach some sort of
preliminary trade deal. However, a deal in and of itself will not
necessarily allow goods to flow seamlessly between the bloc and the UK.
EU rules and standards are a major sticking point. Earlier in
January, the UK Chancellor, Sajid Javid, said that the UK would not
align with EU rules after the transition period. Last week, Javid
appeared to somewhat walk back those remarks to assure businesses that
while the UK would not diverge
unnecessarily, control over rules was a key aspect of Brexit.
“We are leaving the EU, the single market and the customs union,”
Javid said. “And we are doing that so that we can have control of our
rules and laws.”
The UK Home Secretary Priti Patel echoed Javid’s sentiments. In an
Patel stated: “In terms of divergence, we are not having
alignment. We will be diverging. We want to take control of our laws,
money and our borders.”
The EU is concerned that divergence from the bloc’s rules and
regulations could give the UK an advantage. By lowering social and/or
environmental standards, the UK could produce low cost goods and flood
EU markets. Therefore, it is likely that the EU will demand that the
UK agrees to zero dumping in exchange for zero tariffs and quota-free
flows of goods.
A number of industries have stated that failure to follow EU rules
will lead to delays at important ports such as Dover and Calais.
Others suggest that businesses will need to leave the UK entirely.
Furthermore, there is still the possibility that World Trade
Organization rules will apply should the two sides fail to reach a
trade deal. (For more information on the impact of WTO rules, please
It is as yet too soon to tell how the future trading relationship
between the EU and the UK will shape. During the transition period,
companies that trade between the EU and the UK should examine the
impact of WTO rules on their businesses to determine if changes are to
their supply chains and operations are warranted.
QAD along with QAD Precision is to host a webinar on Brexit and the
impact of WTO rules on EU/UK trade.
The UK is due to leave the European Union on 31 January 2020. After
this, a transition period will run until 31 December 2020. As a
result, there will be only 11 months for the two sides to negotiate
and agree on a future trade deal.
Join our webinar on 6 February 2020 at 10:00am to 10:30am Central
European Time. During the webinar, we will discuss the impact should
the UK and EU fail to come to terms, and revert to World Trade
Organization rules. To register for the webinar, please click here.
QAD Precision, a division of QAD Inc., provides industry-leading global
trade compliance, and multi carrier transportation
execution solutions from a single, integrated platform. An
ISO-certified company, QAD Precision assists companies to streamline
and transportation operations, optimize deliveries, and increase
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integrates with existing ERP and WMS solutions. Industry leaders in
every region of the world rely on QAD Precision’s global support
centers to leverage thousands of carrier services and manage millions
of global trade and shipping transactions every day. For more
information about QAD Precision, visit www.qadprecision.com.
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