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In brief

As the transition period after the Brexit will expire on 31 December¬†2020, time is running out to reach an agreement. With the introduction of the UK Internal Market Bill, which partly contradicts the regulations in the Northern Ireland Protocol of the Withdrawal Agreement, the British Government has further raised questions on its willingness to commit to and abide by international agreements with the European Union (EU). The future of the trade relationship between the UK and the EU remains open, as does the future of Northern Ireland (“NI”). While the outlook for a trade agreement between the EU and the UK is unclear, the UK is already intensifying efforts to conclude trade agreement with other economic powers, such as in particular the United States (US), making full use of its regained sovereignty to conclude trade agreements with third parties.


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Watering the immediate effects of Brexit down – the transition period until 31 December 2020

During the transition period, the UK has remained in the EU Customs Union and the EU Single Market and most of EU legislation has continued to apply. The immediate effects of the withdrawal have therefore been minimal.

However, the long-term effects of Brexit will substantially depend on whether a post-Brexit agreement can be concluded. The ambitious task of reaching a conclusive agreement on all outstanding issues between the EU and UK in less than a year has always been very ambitious. The UK government has intensified talks on the conclusion of a trade agreement with the US. The UK has also today issued the UK Internal Market Bill suggesting rules for the trade with Northern Ireland that would contradict the Withdrawal Agreement. Both actions raise the question of how much priority the UK government really dedicates to reaching a trade agreement with the EU before the end of the transition period.

What will trade across the Channel look like in the future?

In light of the type of EU trade agreements in force, several types of trade relationships could have been chosen for the trade across the Channel: a customs union (“Turkey model”), a membership in the European Economic Area (EEA) (“Norway Plus model”), a bilateral customized trade relationship (“Switzerland model”) and a free trade agreement similar to CETA. However, in light of the stalemate in the EU-UK negotiations on a post-Brexit agreement, the “No-deal scenario” has become the most probable outcome. The British Government has refused to foresee an extension of the transition period. Every week without substantive progress in the negotiations brings the option of a “No-deal scenario” therefore nearer. If no agreement is concluded until the end of the deadline, the trade relationship between the EU and the UK will in the future be governed by WTO rules. Customs duties would arise in this case and customs controls would generally have to be set up. An exception is currently provided for with respect to the case of Northern Ireland. Based on the NI Protocol as part of the Withdrawal Agreement, a ‘hard border’ between Ireland and NI is in principle excluded. Instead, customs controls are generally foreseen to occur on the Irish Sea between NI and the British mainland. The issuance of the UK Internal Market Bill however appears to question this agreement over the NI border issue.

The future of Northern Ireland

The Protocol on Ireland and Northern Ireland of the Withdrawal Agreement

The Ireland/NI Protocol of the Withdrawal Agreement states that there will be no customs controls on the border between Ireland and NI. Whilst NI will remain part of the UK customs territory, it will still apply all EU internal market rules and the EU customs code. The customs controls are intended, based on the Protocol, to take place in all British ports of the Irish Sea and be conducted by British officials. Every four years, the special status thus granted to NI will be put to a vote for the people of NI to decide whether or not to maintain their status, in accordance with the Protocol.

The Internal Market Bill

However, PM Johnson introduced a new Internal Market Bill that significantly questions the Withdrawal Agreement and in particular the current solution found regarding the border between NI and Ireland. The British government is not willing to accept an obligation to declare the large quantity of the goods exported between the UK and NI. Instead, they want NI to maintain an unfettered access to and be fully integrated in the internal British market. The solution found for the customs border issue in the Withdrawal Agreement would contradict this plan. In enacting the UK Internal Market Bill, the UK government has also stated to not recognize the direct effect provided of the Withdrawal Agreement within the UK legal system in a ‘certain, very tiny, defined circumstances’, as Secretary of State for Northern Ireland Brandon Lewis puts it.

UK trade negotiations with third states including the US

Looking at other external trade relationships of the UK, the UK has set out and successfully achieved trade agreements with several smaller nations. However, as expected, negotiations with other economic powers like the US have turned out to be difficult. With regard to the trade talks with the US, several sticking points have occurred, among them agricultural issues, the British desire to implement a digital services tax, and the liberalization of the British health care system. These hurdles will make it unlikely for a trade agreement to be signed by the end of the year. This reveals that the UK’s plan to benefit from Brexit by being able to make bilateral trade agreements with other countries more favorably to them than a trade agreement with the EU – a key promise made by the Brexiteers – is turning out to be a rocky path with an uncertain outcome.

Author

Anahita Thoms ist Partner bei Baker & McKenzie Partnerschaft von Rechtsanwälten und Steuerberatern mbB

Author

Alexander Ehrle is a member of the Firm's International Trade Practice in Baker McKenzie's Berlin office. Alexander studied law at the Universities of Heidelberg, Montpellier (France), Mainz, Munich and New York (NYU) specializing in Public International and European Law. He worked as advisor and member of a delegation of a developing country at the United Nations before qualifying for the German bar. He spent his clerkship with the Higher Regional Court in Berlin, the German Ministry of Foreign Affairs in Berlin and Tokyo as well as an international law firm in Frankfurt and Milan. He wrote his doctoral dissertation on the structural changes of public international law and their conceptualization in academic discourse basing his research on the governance of areas beyond national jurisdiction. Alexander is admitted to practice in Germany and New York.