Implications of the Brexit transition deal on business

This article was published prior to the publication of the post-Brexit agreement between the UK and EU which covers the relationship between the UK and EU following the end of the implementation period (commonly referred to as the “transition period”) created by the European Union (Withdrawal Agreement) Act 2020, and should be read in that context. 

In this series of Brexit-focused articles, we explore the commercial implications of leaving the EU.

The Brexit transition deal was agreed in principle by David Davis and Michel Bamieron 19 March 2018, driven by UK business demand for certainty. UK businesses have been waiting for specific details, to enable the planning of post-Brexit operations.  

The deal bridges the gap between the UK's current membership of the EU and its eventual exit outside of Europe in the long-term. Its effect is to allow the UK to maintain the same arrangements with Brussels on trade, free movement and regulation; we accept all EU rules with limited power to shape them. It puts in place an implementation phase, to allow the UK to conclude a free trade deal with the EU for the long-term.

The transition will last until end of 2020, during which time UK businesses can continue to trade with the EU tariff-free.

What do you need to know about the transition deal?

• Firstly, it is not carved in stone - it is a political deal that requires clarification of the terms of the withdrawal agreement. The deal is targeted to be approved in October, meaning that the next 4 months will involve intense negotiations.
• Businesses should not forget the withdrawal agreement is itself subject to resolution of some key issues such as the future trade deal between the UK and the EU, as well as the Irish border. Although tensions are rising, we are still a long way from the necessary resolutions.
• For businesses the transition period has been good news, providing some certainty about what happens post-Brexit; we believe sentiment has become more positive. Although increased business confidence will be beneficial to the UK economy, businesses should keep the bigger picture in mind. The deal is just a postponement - the UK will be outside of all EU arrangements in 2021 and there is probably not going to be any extension. Many believe this still represents a tight timetable to conclude a trade deal.
• We're also unclear yet as to whether after March 2019 UK businesses can still benefit from the EU trade agreements with third countries, without further confirmation from those countries. We will be keeping a close eye on what is agreed in respect of this.

The Brexit process is entering a crucial phase, there's still a lot to resolve and businesses cannot stand easy - early risk assessment and preparation is still the order of the day.