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Explainer

UK–EU future relationship: what difference would a Brexit deal make?

This explainer illustrates some of the key differences between an agreement and no agreement outcome.

EU flag and Union Jack
The UK will leave the single market and customs union at the end of the transition period.

The UK will leave the single market and customs union at the end of the transition period. Unlike the approach taken by Theresa May’s government, Boris Johnson’s administration has chosen to prioritise regulatory freedom over a close relationship with the EU, which means that there are now fewer differences between an agreement and no agreement outcome. Regardless of the outcome of negotiations, trading with the EU (and between Northern Ireland (NI) and Great Britain (GB)) will be more costly and administratively difficult than it is now. There is also a risk of disruption – at least initially – as businesses, government and individuals adapt to new conditions.

Unlike a possible no-deal outcome during the Article 50 process, a withdrawal agreement with the EU is now in place and will apply irrespective of the outcome of negotiations. It will protect UK citizens living in the EU (and vice versa) before the end of the transition period, resolve existing financial matters and avoid a border on the island of Ireland through provisions set out in the Northern Ireland Protocol. Other elements of the agreement will help avoid an immediate cliff-edge on 31 December 2020 for goods in transit and ongoing judicial processes.

But there are still important differences between an agreement and no agreement outcome. Failure to reach an agreement would mean more friction for UK–EU trade and require more extensive preparations. It would also lead to a less effective security relationship with the EU. Subsequent agreements with the EU or bilateral agreements between the UK and EU member states could minimise disruption in some areas, but they would not replicate the breadth and depth of a free trade agreement (FTA). 

This explainer illustrates some of the key differences between an agreement and no agreement outcome and what this would mean for businesses and the government. It also covers the implications if either side fails to take unilateral decisions in areas such as data adequacy and financial services. While these are not up for negotiation, they will have wide ranging implications.

UK border

At the end of the Brexit transition period the UK will leave the single market and customs union.

The border

At the end of the Brexit transition period (11pm on 31 December 2020) the UK will leave the single market and customs union, regardless of whether an agreement is reached. Great Britain and EU will no longer apply the same customs rules, regulatory standards or enforcement mechanisms, meaning goods crossing the border between Great Britain and the EU will be subject to customs formalities for the first time in nearly 30 years. 

Border checks will be required to ensure that any tariffs or duties are paid and that imported goods meet the relevant standards in areas such as food and product safety and disease control, to prevent smuggling and illicit activity, and to comply with international obligations. An agreement could streamline some of these processes.

The Northern Ireland Protocol removes the need for border controls on the island of Ireland but sets out new rules for goods moving from Great Britain into Northern Ireland. How these will work in practice has recently been decided by the Joint Committee (jointly stablished by the UK and EU to oversee the implementation of the Withdrawal Agreement) and UK government.

Issue No agreement Agreement What is the difference?

Tarrifs and quotas

 

Tariffs and quotas would apply when trading between GB and EU. Tariffs would be payable by those importing goods – but the costs may ultimately be passed on to consumers.

The UK Global Tariff will apply to imports into the UK, while the EU Common Customs Tariff would apply to GB exports to the EU. The EU’s average most-favoured nation (MFN) tariffs are 11.1% for agricultural goods, 15.7% for animal products and 35.4% for dairy.

Tariffs would also be applied to those GB goods moving into NI that are considered ‘at risk’ of subsequently moving into the EU – although the UK–EU Joint Committee has agreed to a trusted trader scheme (the UK Trader Scheme) which will allow eligible businesses based in Northern Ireland to certify that their goods are being sold to customers in Northern Ireland or are destined for final use in NI or the UK and thereby avoid tariffs.

Traders not eligible for the UK Trader Scheme may be eligible to have tariff payments reimbursed if they can show their goods have stayed in the UK.

It is not yet clear whether tariffs and quotas will apply.

Both the UK and EU negotiating mandates seek a zero-tariff and quota-free trade agreement. However, it is also possible that an agreement could be more limited in scope, with tariffs and quotas applying to some goods.

Even if a deal providing for zero tariffs is agreed, some goods will still be subject to tariffs because importers choose not to, or are unable to, comply with preferential rules of origin requirements. Under existing EU FTAs, only about 75% of goods (measured by their value) benefit from preferential tariffs.

Some businesses and industry groups worry that – even if a deal is reached – they may not be able to benefit from tariff free access on 1 January as they will not have time to show they comply with rules of origin requirements, unless transitional measure

If tariffs apply, traders operating between Great Britain and the EU would face additional costs from tariffs – which could make some businesses less competitive. They could also face quantitative restrictions on trade that could benefit from reduced or zero tariffs.

The Joint Committee’s agreement on the NI protocol will mean that most goods moving GB–NI – including through the Republic of Ireland – will not be subject to tariffs. This will be the case even if no agreement on the future relationship can be reached by the UK and the EU

Rules of origin

Only non-preferential rules of origin would apply. These would require traders to demonstrate the origin of their goods when importing into the UK or EU. This information would be used by importing countries to protect their producers and for other monitoring purposes.

Non-preferential rules of origin would still apply. But firms that wish to take advantage of preferential or zero tariffs would also need to comply with preferential rules of origin. This would require traders to demonstrate that goods matched the origin requirements outlined in the agreement.

Northern Ireland businesses operating under the UK Trader Scheme will not have to comply with rules of origin requirements when importing goods from Great Britain.

Non-preferential rules of origin impose less of an administrative burden on businesses and are subject to fewer compliance checks than the preferential rules of origin that would apply in a deal scenario.

The administrative and compliance costs associated with rules of origin could amount to anywhere between 4% and 15% of the cost of goods sold. The process will be more challenging for those manufacturing complex goods containing thousands of components.

If traders want to qualify for a reduced tariff under an FTA, they may need to adjust their supply chains to ensure they meet the preferential rules of origin requirements.

Given these burdens, businesses may choose not to take advantage of the preferential treatment afforded by the FTA and pay MFN tariffs instead.

Customs declarations

Full customs declarations would be required, outlining information about the type of goods, transport information and customs value.

For EU goods imported into Great Britain, the UK will phase in new customs formalities between January and July 2021 in all scenarios.

For goods exported from Great Britain to the EU, full customs formalities will apply from 1 January 2021.

The UK will also be responsible for ensuring customs formalities apply on goods moving GB–NI from 1 January 2021. These checks will not be phased in, unlike those at the GB–EU border. However, the UK government is implementing a ‘Trader Support Service’ to ease the customs burden on firms trading between GB and NI.

The same baseline processes will apply as a no agreement outcome.

However, the UK and the EU are looking to negotiate an agreement that would include measures to simplify customs procedures, such as mutual recognition of trusted trader (Authorised Economic Operator) schemes.

New customs formalities for British businesses trading with the EU are expected to cost firms £7 billion.[2]

An agreement on simplifications such as trusted trader schemes could reduce this cost, by allowing eligible firms to use simplified procedures at the border and provide detailed information at a later date to reduce time spent at the border and ease administrative burdens.

But these schemes do not remove the need for declarations entirely and would not be open to all firms.

The measures on NI agreed in the UK–EU Joint Committee will apply deal or no deal. Either way, there will be no export or exit declarations on goods moving from NI–GB and the Trader Support Service will help support firms trading goods from GB–NI with new customs requirements.

Safety and security declarations

A declaration summarising the goods contained in consignments crossing the border will need to be submitted in advance, as part of a World Customs Organization framework designed to reduce the risk of terrorism and trade in illicit goods.

For EU goods coming into Great Britain, safety and security declarations will not be required until July 2021. But goods moving from GB to the EU (and GB to NI) will require safety and security declarations from 1 January 2021.

No difference.

Businesses will be required to prepare for safety and security declarations in all scenarios.

The UK and EU could agree to waive the requirement for safety and security declarations to reduce the administrative burden on firms, costs and speed up border processes. However, the EU has only waived these for trade with the EEA, EFTA and Switzerland – all of which are part of the single market or accept dynamic alignment.

       

Regulatory controls: Agri-food and plant health

Full regulatory controls will apply when importing food and plant products into the EU and Northern Ireland from GB from 1 January. This will involve pre-notifying authorities of certain movements of goods, plus documentary, identity and physical checks to ensure GB products meet EU standards.

The rate of physical checks will vary by product. For example, all live animals and 30% of poultry meat and eggs for human consumption imported into the EU must be physically inspected. Goods will also need to pass through a suitable Border Control Post (not available at every port).

Checks on GB imports from the EU will be phased in from January 2021 in all scenarios. Full sanitary and phytosanitary controls will not apply until July 2021.

Full regulatory controls will apply, as in a no agreement scenario.

An agreement could reduce the percentage of consignments subject to physical inspections. One of the UK’s negotiating asks is to agree to recognise each other’s sanitary and phytosanitary measures as equivalent (meaning that they provide similar levels of protection). The EU–New Zealand sanitary agreement limits checks on some animal products to 1–2%.

If no FTA is reached, such streamlined processes could also be negotiated through a standalone agreement, although this may not be negotiated in time for the end of the transition period, meaning full-scale checks would apply on imports into the EU from GB from January.

Negotiating easements would reduce the number of physical checks that need to be carried out on imports at the border. This would reduce the administrative burdens on businesses and workload of government agencies.

The benefits of reduced or streamlined agri-foods checks would be particularly important for supermarkets in Northern Ireland, which import the majority of their stock from Great Britain. The higher the frequency of agri-food checks, the greater the costs involved for importers. Delays at border crossings or trade disruption could impact on supermarket supply chains and affect product availability, particularly of perishable goods.

The UK–EU Joint Committee has agreed to provide grace periods before full controls on agri-foods entering NI from GB. 

Regulatory controls: Chemicals, medicinal products and industrial goods

Full controls would apply to imports. Goods imported into GB from the EU will need to comply with GB standards and certifications (and vice versa), unless either side decides to unilaterally recognise the other’s standards and certifications. In the event of a no deal in 2019, the UK had planned to temporarily recognise medical devices certified in the EU.

The precise rules would differ between products, depending on the risk they pose to public health and safety. Chemicals and medicines will be subject to more substantial certification processes.

Full regulatory controls on medicines, chemicals and industrial goods are likely to apply, as in a no-deal scenario. This is because the UK negotiating mandate makes clear that the UK does not intend to dynamically align with EU regulations.

An agreement could be reached on mutual recognition of conformity assessments (testing). This would allow UK regulators to assess whether British products meet EU standards (and vice-versa). EU products being imported into the UK could be deemed compliant with UK standards by EU regulators before they are imported, and so not need to undergo additional checks once they arrive (and vice versa). However, a document check would still be required at the border to prove that the tests have been completed.

In all scenarios, businesses trying to access UK and EU markets will face additional bureaucracy and costs by having to comply with two sets of regulations.

However, compliance costs would be reduced if an agreement on mutual recognition of conformity assessments is reached, as firms would not have to submit products to tests by multiple regulators. This could also reduce the workload of government agencies responsible for assessing product standards, such as the UK Medicines and Healthcare Products Regulatory Agency.

The chemicals sector will face significant new hurdles. The Chemical Industries Association has said that, unless a deal is agreed with the EU to share data held in the EU’s REACH database, the chemicals industry faces more than £1 billion in costs to duplicate existing EU registrations in a new UK system. This is because firms will have to pay for ‘letters of access’ to secure EU chemicals data that they need to support new UK registrations.[3] The UK Health and Safety Executive would also need a new computer system to collect UK chemical registrations.  

 


  1. Parker G, Foster P and Thomas D, ‘British business faces £7 billion red tape bill under Brexit border plan’, Financial Times, 14 July 2020, retrieved 27 July 2020, www.ft.com/content/fbc6f191-6d69-4dcb-b374-0fa6e48a9a1e
  2. Foster P, ‘UK chemical industry wars of £1bn cost to duplicate EU regime’, Financial Times, 3 August 2020, retrieved 3 August 2020, www.ft.com/content/a1c4a5dc-f627-4689-97ae-909d4aaf6162
Financial services London

Comprehensive provisions on services are not commonly included in free trade agreements.

Services

Comprehensive provisions on services are not commonly included in free trade agreements, and are not expected to feature prominently in any agreement reached between the UK and EU.

However, the UK is seeking provisions to facilitate UK–EU services trade from the end of the transition period. The EU believes the UK’s asks amount to unacceptable ‘cherry picking’ of single market rules.

Watch our live panel event on services after Brexit.

Issue No agreement Agreement What is the difference?

Mutual recognition of professional qualifications

UK professional qualifications may not be recognised in the EU (and vice versa), although the UK and EU member states could decide to unilaterally recognise each other’s professional qualifications or provide streamlined routes to re-qualification.

A free trade agreement (FTA) could include provisions for mutual recognition of professional qualifications. The UK negotiating mandate seeks an ambitious ‘pathway’ for the mutual recognition of professional qualifications. The EU negotiating mandate is more limited, proposing only a mechanism for professional organisations and representative bodies to draw up mutual recognition agreements, as in the EU–Canada FTA (CETA).  

The UK and individual EU member states could also strike bilateral agreements to recognise each other’s professional qualifications (so long as any UK–EU FTA didn’t exclude such agreements). Recognition may vary between professions and depend on any historic ties between the countries involved.

Bilateral agreements would also be possible in a no agreement outcome, although a failure to reach agreement in the UK–EU negotiations could make this more politically difficult.

If no agreement (or bilateral agreements) are reached, UK-qualified individuals may need to re-qualify to practice in the EU (and vice versa). Some law firms have already requalified some of their lawyers in Ireland as part of no deal preparations. A lack of mutual recognition could also impact who firms recruit in future.

An agreement (or agreements) on mutual recognition of professional qualifications could make it easier for UK service providers to continue operating in the EU (and vice versa) and remove the expense of securing new qualifications or recruiting appropriately qualified staff. Under UK proposals, it would be more straightforward to establish mutual recognition of professional qualifications.

In contrast, no mutual recognition agreements have yet been agreed under the CETA-style system proposed by the EU.

Freedom of establishment

UK services firms would face additional barriers to establishment in the EU. They would have to comply with usually more onerous third country rules of establishment (such as rules on the nationality or residency of directors or caps on foreign-held equity).

The precise rules on market access would vary between EU member states and could effectively bar some UK services firms from the EU market.

EU firms would have to comply with UK rules of establishment.

The UK is seeking an agreement that would reduce the barriers to UK firms establishing in the EU (and vice versa), for instance, by limiting the barriers to investment.

Depending on what restrictions on establishment are in place, businesses may need to restructure how they operate at significant expense – including setting up new subsidiaries in the EU. Barriers to establishment are likely to be higher in a no agreement scenario.

Many large services firms – especially those in highly regulated sectors such as financial and legal services – have already prepared for the possibility of a no-agreement outcome.

Business mobility

UK service providers making short-term business trips to the EU to provide paid services (and vice versa) may face additional bureaucracy and costs. These would vary between EU member states but are likely include new work visa requirements and restrictions on the services they can provide.

FTAs rarely include provisions covering visits for paid work – although these are included in the UK negotiating mandate. An agreement could contain provisions that make it easier to conduct cross-border business trips, including reciprocal arrangements for temporary entry and stay for business purposes.

An agreement could reduce the costs and bureaucracy involved in making short-term business trips and mean ‘fly in, fly out’ business trips are more feasible than in a no-deal scenario.

 

Fish

Fisheries has been a major area of contention between the UK and EU during the Brexit process.

Fisheries

Fisheries has been a major area of contention between the UK and EU during the Brexit process. Initially, both sides hoped to conclude negotiations on a fisheries agreement by July, but this deadline was missed.

Watch our live panel event on fisheries after Brexit.

Issue No agreement Agreement What is the difference?

Fisheries

The UK and EU would have exclusive rights to fish in their own waters. UK vessels would not be permitted to fish in EU waters without permission from the EU (and vice versa).

Access would be subject to annual negotiations under international law.

The UK is proposing annual negotiations, while the EU initially wanted a continuation of the access EU fishers currently enjoy under the Common Fisheries Policy. An agreement could provide a longer-term and more stable framework for allocating fishing quotas. 

An agreement is seen by the EU as critical to opening the way to a trade agreement. It would provide the EU with more stable access to UK waters, but UK fishers could potentially catch less in UK waters than under no deal. However, many UK fishers who export to the EU would be badly affected if there were tariffs or onerous regulatory checks on their exports.

 

Trade lorries

Both the UK and EU hope to reach an agreement to maintain transport links beyond the end of the transition period.

Both the UK and EU hope to reach an agreement to maintain transport links beyond the end of the transition period. However, issues such as market access and mutual recognition of regulatory regimes are still contentious. Without an agreement, transport links may be disrupted and businesses are likely to face greater costs.

Issue No agreement Agreement What is the difference?

Road

UK road transport operators would no longer hold an EU licence and will lose automatic rights to conduct journeys and carry goods within the EU (and vice versa).

Hauliers would instead have to fall back on European Conference of Ministers of Transport (ECMT) Permits – which are subject to very limited quotas.

EU haulage operators would also need certificates of professional competence issued in the EU, not the UK. UK driving license holders would need to check that their driving licenses were recognised in the EU (or, alternatively, gain an EU license).

The UK and EU could unilaterally recognise each other’s approvals.

The EU intends to allow temporary access for UK coach and haulage services for up to six months, provided that the UK reciprocates, in part because the ECMT permits would cause ‘unmanageable disruptions.’

The UK has not yet confirmed if it would adopt similar measures, although this is likely to do so.

An agreement could allow bilateral access for UK–EU road freight without quantitative restrictions.

The UK negotiating mandate proposes that UK and EU road transport operators should be able to continue providing services to, from and through each other’s territories with no quantitative restrictions, though UK hauliers and passenger transport operators would be expected to comply with relevant international rules, such as those outlined by the ECMT, as well as limits on driving hours.

The EU also envisages an agreement providing for open market access for road transport, but is clear that UK hauliers cannot be granted the same rights as EU freight transport operators. It also proposes some level playing field obligations – such as restrictions on driver work hours – should apply.

Unless the UK and EU reach a road agreement, or put in place unilateral measures, hauliers moving goods between GB and the EU will need to pay for an ECMT permit. But the quota of permits available falls far short of the number of hauliers currently operating between the UK and EU, posing a serious risk to trade.

The Freight Transport Association has said that permits would only be available for 2088 businesses from January, compared with the 8348 that were registered for UK–EU journeys in 2019.[1] The Department for Transport is responsible for allocating permits. In the run up to a possible no deal in 2019, the department prioritised businesses that made the most-cross channel crossings, in an effort to reduce trade disruption.

It is likely that both sides would adopt unilateral measures to avoid reliance on the ECMT scheme and limit disruption in a no deal – although these steps would be temporary and not provide a long-term solution.

Aviation

UK–EU air traffic rights would be governed by broadly outdated agreements initially set out in the Chicago Convention, which provide limited rights and may be unsuited to modern market conditions. Air carriers holding UK operating licenses would no longer be able to provide intra-EU services. The UK is unlikely to allow EU carriers to operate UK domestic routes if the EU does not reciprocate.

The UK would no longer participate in European Aviation Safety Agency (EASA) systems. The UK Civil Aviation Authority (CAA) would take full responsibility for regulating UK aviation, including licensing. Some UK-issued licenses will continue to be recognised in the EU under international aviation rules, such as pilots licenses for use on UK registered aircraft and Air Operator Certificates for services from the UK to the EU. However, most UK-issued licenses, certifications and approvals would no longer be recognised by EASA for use within the EU or on EU registered aircraft.

The CAA has said it would recognise many EASA certificates, approvals and licenses for use in the UK aviation system and on UK-registered aircraft for at least two years after the end of the transition period. However, in some cases there will be additional administrative processes. For instance, EU commercial pilots licenses will need to be validated by the CAA.

The EU’s aviation agreements with third countries would cease to apply. The UK has already renegotiated its own bilateral agreements with several countries to replicate EU agreements – including the US, Canada, Switzerland and Brazil. The UK has also replicated EU bilateral aviation safety agreements with the USA, Canada, Brazil and Japan.

In the event of a no-deal Brexit, the EU intends to adopt measures to preserve basic air connectivity between the UK and EU for up to six months, so long as the UK reciprocates. It also plans to continue recognising some aviation safety certificates. However, it does not intend to repeat measures giving airlines additional time to comply with more restrictive ownership requirements, as it had ahead of a possible no deal last year.

The UK has not yet confirmed if it will adopt similar measures, although it is likely to do so.

The UK and EU negotiating mandates make clear that the UK would no longer participation in EASA Systems.

The UK is seeking to negotiate a new, standalone Comprehensive Air Transport Agreement (covering traffic rights) and a Bilateral Aviation Safety Agreement (covering safety) with the EU, separate from an FTA. The EU wants to cover both topics within an overall trade agreement.

A Comprehensive Air Transport Agreement could replicate some arrangements currently in place and allow UK and EU airlines to operate services between the UK and EU without restrictions on capacity and frequency. The UK is also proposing liberal nationality requirements for airline ownership.

However, an agreement is highly unlikely to replicate current market access and may not go as far as other ‘open skies’ agreements, such as that between the EU and US. The EU has also said that an agreement could be conditional on the UK adhering to level playing field commitments, particularly on competition.

A bilateral aviation safety agreement could include mutual recognition of safety certificates and licenses for aircraft, pilots and cabin crew between the UK CAA and EASA and mechanisms to expand this to other areas such as design and production certificates.

If these agreements are not reached with the EU, it may be possible to negotiate bilateral agreements with individual member states. Although this would be time consuming and could be impeded by EU legal restrictions, which prohibit EU member states agreeing clauses that could exclude other EU carriers from operating services.

Falling back on agreements with individual member states that pre-date the creation of the single EU aviation market could restrict the services that can be operated. It is likely that both sides would take temporary measures to address this, but these would not provide a long-term solution.

Even if an agreement is reached, UK access to the EU aviation market will be limited. This means that in all scenarios, UK-based air operators that wish to continue operating intra EU flights are likely to need to establish an entity in an EU member state that is EU majority-owned. Many airlines – including easyJet – have already amended their ownership structure to take account of this.

In all scenarios, the CAA will take on sole responsibility for regulating UK aviation, requiring a significant increase in its resources and capacity. The aviation trade body ADS has previously said it could take 10 years and cost up to £40 million per year for the CAA replicate EASA’s capabilities.[2]

If there is no mutual recognition of licenses, approvals and certificates, UK firms and individuals may need to seek approval in the EU (and in some cases, vice versa), adding costs and imposing new demands on EU regulators. However, EASA has introduced streamlined application processes for some approvals, such as safety authorisations.   

Rail

Rail operators and train drivers providing cross-border services between the UK and EU would have to comply with both UK and EU legal requirements.

UK rail licences and certifications would no longer be valid in the EU. Train operators and drivers (including those driving cross-border services between the UK and EU) would need to be relicensed by a regulator in an EU member state or the EU Railways Agency. In some cases, this may require firms to establish in an EU member state. Operators running services between the UK and EU may have to fall back on provisions under the Convention Concerning International Carriage by Rail (COTIF).

The UK has said it would continue to recognise many EU licences in Great Britain, including operating licenses, some safety certificates and train driving licenses, until 31 January 2022. After that date, all rail firms and drivers will need to hold a UK license issued to operate in the UK.

Rail operators and train drivers providing cross-border services between the UK and EU would have to comply with both UK and EU legal requirements.

UK rail licences and certifications would no longer be valid in the EU. Train operators and drivers (including those driving cross-border services between the UK and EU) would need to be relicensed by a regulator in an EU member state or the EU Railways Agency. In some cases, this may require firms to establish in an EU member state. Operators running services between the UK and EU may have to fall back on provisions under the Convention Concerning International Carriage by Rail (COTIF).

The UK has said it would continue to recognise many EU licences in Great Britain, including operating licenses, some safety certificates and train driving licenses, until 31 January 2022. After that date, all rail firms and drivers will need to hold a UK license issued to operate in the UK.

There is very little difference for firms whether or not an agreement is reached.

Rail firms and their staff will face additional costs and bureaucracy associated with applying for new licenses and certifications. For new EU licenses, train drivers, will need their medical fitness confirmed by a doctor accredited by the EU accreditation body or recognised by an EU member state, as UK practitioners will not be recognised.

Without a new bilateral agreement on the Channel Tunnel between the UK and France, there is a risk that standards on qualifications and safety on either side of the Channel Tunnel could diverge, which could disrupt operations. The EU has said it will take steps to ensure Channel Tunnel operations can continue until these issues are resolved.

 


  1. Merrick R, Brexit food shortage fears as three quarters of UK hauliers face being locked out of EU, The Independent, 20 July 2020, retrieved 14 August 2020, www.independent.co.uk/news/uk/politics/brexit-no-deal-uk-hauliers-food-goods-shortages-eu-a9627716.html
  2. ‘UK will leave EU aviation safety regulator at the end of 2020’, BBC News, 7 March 2020, retrieved 28 July 2020.
Police officer

Both the UK and EU wish to continue co-operating on law and order issues beyond the end of transition period.

Law and justice

Both the UK and EU wish to continue co-operating on law and order issues beyond the end of transition period. In all scenarios, security co-operation will be less effective than it is now, but would be less disrupted if an agreement is reached.

Issue No agreement Agreement What is the difference?

Law and justice 

The UK will no longer have access to existing EU law and justice co-operation mechanisms, as the EU’s tools are only for member states or countries with special agreements. The UK will have to fall back on alternative mechanisms, but these are largely outdated and less effective.

For instance, the UK would lose access to the European Arrest Warrant. This can be partly be replaced through the 1957 European Convention on Extradition, but extraditions usually take far longer (on average, one year, rather than 48 days under the European Arrest Warrant). The UK would also lose access to EU databases, including the PRÜM fingerprint and DNA database.

An agreement (plus an EU decision deeming the UK data regime ‘adequate’) could allow the UK greater access to some EU law and justice measures than it would have without an agreement.

For instance, the UK could retain access to the PRÜM database and EU Passenger Name Record.

The UK negotiating mandate also seeks to replicate real-time data exchange to replicate the EU SIS II information system – used to share information between border, customs and police authorities (which EU/Schengen countries benefit from) and the European Criminal Records Information System (ECRIS) (which no non-EU country currently has access to). This arrangement would be unprecedented and has been ruled out by the EU. The EU is also likely to insist that the UK undertakes formal commitments to maintain human rights protections.

In all scenarios, the UK–EU security arrangement will be less effective than it is now. The UK’s decision to not accept any ECJ jurisdiction also means that it will not be able to secure as close co-operation as some other non-EU countries.

However, an agreement could mitigate some of the new barriers to co-operation that will arise by providing some access to EU databases, allowing some information to be shared more easily and enabling more co-operation between UK and EU law enforcement agencies than would be the case if there were no agreement. 

 

Artificial intelligence

The UK will be unable to participate in EU research programmes on current terms from the end of the transition period.

Access to EU programmes

The UK will be unable to participate in EU research programmes on current terms from the end of the transition period. However, the UK may be able to access some EU programmes as a non-EU state and an agreement could secure further access.

Issue No agreement Agreement What is the difference?

Access to EU programmes

In the absence of an agreement to participate in EU programmes such as Horizon Europe (the EU’s flagship scientific research programme) and Euratom Research and Training, UK researchers will no longer have access to EU funding and support for international research collaboration.

The UK’s Research and Development Roadmap states that the UK will consider participating in EU programmes and funding streams such as Horizon Europe and Euratom Research and Training as part of a ‘fair and balanced deal’. The UK government’s negotiating mandate recognises that participation would be on a ‘third country’ basis.

In all scenarios, the UK will have less access to EU programmes than now, as the majority of EU funding goes to member states. This may limit UK–EU co-operation in areas like scientific research and restrict  the scope of joint collaborative projects and EU funding available to UK researchers.

If the UK does not formally associate with Horizon or Euratom Research and Training, the UK government has said it would implement ‘ambitious alternatives’ to address funding gaps.

 

Brexit digital

In some areas, unilateral decisions taken by the UK and EU will have a greater impact than whether an agreement is reached.

UK/EU unilateral decisions

In some areas, unilateral decisions taken by the UK and EU will have a greater impact than whether an agreement is reached.

Two of the areas where unilateral decisions will be most important are discussed below. Decisions on these matters are inevitably influenced by the politics surrounding the Brexit negotiations.

Issue No agreement Agreement What is the difference?

Data

If the UK’s data regime is not deemed adequate by the EU, it will not be possible to transfer data from the EU to the UK as freely as today.

To be deemed adequate, the European Commission will need to be satisfied that UK data protection laws provide comparable protection to that provided by the General Data Protection Regulation (GDPR).

If the UK’s data regime is deemed adequate, UK firms complying with UK data regulations will be able to continue transferring data between the EU and UK as they do now.

The EU was expected to make its adequacy assessment by 30 June 2020, although this deadline has been missed. A decision may not now be made until 2021, if at all.

The UK has said that transfers of data from the UK to the EEA will not be restricted from the end of the transition period.

If EU data adequacy is not granted, firms that want to transfer data from the EU to the UK will have to fall back on more cumbersome alternatives – such as Standard Contractual Clauses (SCCs), which require written agreement between companies sharing data. The recent Schrems II case in the European Court of Justice sets a high bar for their use, requiring that they provide protection essentially equivalent to that guaranteed within the EU by the General Data Protection Regulation (GDPR). It also imposes new burdens on those transferring data to assess the adequacy of data protection regimes.

Multinational companies may also be able to rely on ‘binding corporate rules’ to allow them to transfer data from the EU to the UK within their business.

A lack of data adequacy could also make it more difficult for UK and EU law enforcement authorities to share information relevant to criminal investigations – for example, criminal records and DNA (although this would also depend on reaching an agreement on law and justice co-operation).  

Financial services

If the EU does not grant financial services equivalence, banks in the UK would have to operate with poorer access to EU markets.

The EU can make ‘equivalence decisions’ across 12 different EU Directives and Regulations, covering a range of financial and related services, including insurance, audit, credit rating agencies etc. This would involve the EU recognising the UK’s regulatory regime for financial services and would reduce or eliminate overlaps in compliance requirements for firms and give EU regulators confidence that firms were complying with equivalent rules in the non-EU country. The EU has already granted temporary equivalence in two areas – although these measures are aimed at allowing existing operations in the UK to be wound down, rather than facilitating continued trade. 

EEA financial services firms operating in the UK under an EU ‘passport’ can apply to the UK ‘temporary permissions regime’, which was originally established to minimise disruption to the financial services sector ahead of a possible no-deal Brexit in 2019. The UK temporary permissions regimes will allow eligible firms to continue operating in the UK for up to three years (which the Treasury can extent by 12-month increments) while they secure new UK authorisations. This will reduce disruption to their operations.

Being granted financial services equivalence would make it easier for some parts of the financial services sector to trade between the UK and EU from the end of the transition period – particularly in investment banking and insurance. However, equivalence does not replicate the access to EU markets financial services firms have under current EU ‘passporting’ arrangements. Temporary equivalence measures that have already been announced will allow some existing operations to be wound down in a less-disruptive manner, but will not allow trade to continue long term.

Without equivalence, financial services firms will find it difficult to provide some services in the EU from the UK and may need to move more of their operations to the EU to continue servicing their clients. UK regulators may also have to seek separate agreements with individual EU member states, adding complexity to financial services operations.

 

Topic
Brexit
Publisher
Institute for Government

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