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The June deadline for Brexit extension has passed – but the UK could still buy more time

There are ways to secure more time later in the year for businesses worried about their new trading relationship with the EU

Many businesses are worried they will not be ready for a new trading relationship with the EU on 1 January 2021. There are ways to secure more time later in the year – but they cannot be negotiated last-minute, says Georgina Wright

By passing up the opportunity to extend by the 30 June deadline, the government has kept the UK on course to leave the transition period by the end of the year. It has instead opted to intensify talks, with the prime minister saying he wants the outline of a deal agreed by the end of July. The EU has mooted 31 October as a more realistic deadline for the end of negotiations, but that would leave just two months for businesses to prepare for the practical changes – from the swathe of new customs procedures to the new regulatory border down the Irish Sea.  

It is increasingly clear that UK and EU won’t have everything in place to trade under the terms of a deal, if one can be reached, and businesses still do not know the scale of the preparations they need to undertake for 1 January 2021. The GB–EU border will not be ready, with the government acknowledging as much when it set out its new plans to avoid full checks on EU goods entering the UK for the first six months of next year and Liz Truss, the international trade secretary, reportedly expressing her concerns when she wrote to Michael Gove and Rishi Sunak this week. On top of this, the coronavirus outbreak has caused yet more uncertainty.

The government is firmly set against any extension now, but it may find that it needs more time after a deal has been reached.

The government has not lost its only opportunity to secure more time

The current transition was originally named an “implementation period” by former prime minister Theresa May. It was intended to last 21 months, giving time to negotiate a new treaty and to adapt to the new trading relationship once the Article 50 period had ended. The revised Withdrawal Agreement allowed only 11 months for negotiation, ratification and implementation. Though the deadline to extend the transition period has passed, our latest research shows that it may be possible for the UK and the EU to secure more preparation time in the form of a real implementation phase later in the year.

There is an approach with precedent. When countries sign free trade agreements, they often agree a period of time to bring the new arrangement into force. For example, the EU–Japan Economic Partnership Agreement provides for a 20-year phase-in period for certain highly sensitive goods. The difference, of course, is that the UK and EU will be moving further apart, rather than closer together.

But an implementation phase itself would need to be negotiated

An implementation phase could form part of the final deal, but its terms would also need to be negotiated. The lack of time means it would also be necessary to limit the implementation phase to areas of EU law only – as any agreement that covers areas of member-state law, such as transport and road freight, would also require approval in EU national and regional parliaments.

One option is to design an implementation phase which resembles the existing transition period in the application of EU law, though it is very unlikely that the UK would ever agree to extend current arrangements. While it could opt out of EU programmes that will start at the same time as the EU’s new multiannual financial framework on 1 January 2021, this form of implementation phase would see EU law continue to have effect in the UK with the European Court of Justice having oversight. The UK would also need to continue making financial contributions to the EU.

Another option would be to negotiate a more bespoke implementation phase, which could look similar to the Northern Ireland protocol. For example, the UK could remain in a customs union with the EU, continue to apply EU product standards, and apply EU state aid rules. But it could leave the common agricultural policy, the common fisheries policy and the EU single market for services. Free movement of people could also end. This may be more palatable, to the UK at least.

An implementation phase would help ensure that government and business are ready

The idea of an implementation phase has gained traction, including amongst Brexiteers. For example, trade expert Shanker Singham has suggested time to take account of the effects of coronavirus is “more attractive” than a transition extension for negotiations – although he hasn’t set out what exactly that would entail.

The fifth round of EU–UK negotiations wraps up this week, and a deal looks no closer. An implementation phase is not a guaranteed way to ensure Brexit preparedness – but it would give the government and businesses the best opportunity to adapt to the new trading relationship, deal or no deal. If there is even the slightest chance that an implementation phase becomes necessary, the government would be wise to start considering options now.

Additional research by Haydon Etherington

 

 

Topic
Brexit
Keywords
Business Trade
Publisher
Institute for Government

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