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Brexit: What Happens After 31 January 2020?

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. 

Trade Talks and Much More

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 much more. 

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.

Divergence vs Alignment  

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 interview Ms 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.”

Quotas, Tariffs, Delays and Dumping

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 click here.) 

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. 

[Live Webinar] QAD Insights Webinar Series: Brexit, WTO Rules and EU/UK Trade

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

About QAD Precision – Trusted Global Trade and Transportation Execution

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 their import, export and transportation operations, optimize deliveries, and increase logistics ROI. QAD Precision’s scalable and extensible solution easily 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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