Brexit Update - March 2020. What has already changed and what will change

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As we all know, the United Kingdom officially left the European Union on 31st January 2020, bringing to an end 47 years of British membership of the EU and the institutions that preceded it.

Attention has now turned to the future EU-UK relationship, as both sides face the huge challenge of agreeing a trade deal in just a few months. The transition period ends on 31st December 2020.

Since the referendum in 2016, there has been concern that the prolonged, acrimonious process has shifted attention from major global challenges, not least the battle to address the climate emergency. For many in Europe, the prospect of an institutionalised rift between the UK and the EU weakens the continent at a time when the likes of America, China and Russia are becoming increasingly assertive.

How are the negotiations going?

In early March 2020 the UK and the EU began negotiations over a new trade deal and the terms of their future relationship — covering a wide range of areas including good and services, fishing and farming, security cooperation, data policy, education and science.

Both sides outlined sharply contrasting positions as they flexed their muscles in advance of the talks. Officials in Brussels have been reportedly taken aback by the stance of Boris Johnson’s government — which is seeking a far more distant, independent relationship with the EU than the one sought under the previous UK prime minister, Theresa May.

EU leaders have called for an “ambitious” wide-ranging agreement — subject to conditions. Setting out the EU's position, chief negotiator Michel Barnier said there could be no trade deal unless Britain agreed to a "level playing field" — a commitment included in the EU-UK divorce deal — and did not undercut EU regulations.

But during the pre-talks period Johnson, other ministers and officials, all highlighted the UK's stance: that being able to diverge from EU rules and standards was the essence of Brexit and the UK’s “new footing as an independent sovereign nation”.

In essence, Britain is seeking a narrower free trade deal similar to those the EU has done with countries such as Canada. On the other hand, Brussels stresses it has always been clear that the UK’s geographical proximity to the EU - and degree of economic integration with Europe - mean the same rules cannot apply.

The divorce agreement allows for a two-year extension of the transition period to give more time for negotiation, but Boris Johnson's government has opted to rule it out. The British government argues that a trade deal can be struck by the end of 2020, and has threatened to walk out of the talks early unless sufficient progress is made.

Critics say the shorter deadline provides nowhere near enough time to conclude a deal embracing all aspects of future EU-UK relations. One possibility evoked is for a simpler, more “bare-bones” trade deal to be struck, leaving the detail of other policy areas to be sorted out at a later stage.

What worries the markets is that both sides’ red lines have raised fears that no deal may be reached, bringing an abrupt, damaging “cliff-edge” at the end of 2020 – a “no-deal” Brexit after all??

The end of free movement

One of the first changes introduced since the divorce with the EU is the introduction of a new immigration policy, taking effect from January 2021. EU nationals will no longer have preferential treatment and a new points-based system will be introduced to attract skilled workers.

Under the new system, EU migrants will be treated the same as those from the rest of the world. To get a visa, applicants from anywhere in the world will have to:

  • • Have a job offer from an "approved employer" at an "appropriate skill level"
  • • Speak English 

This will get an applicant to 50 points. But they must have 70 points to be eligible for a visa. The most straightforward route to the final 20 points is that the applicant will:

  • • Earn at least £25,600 (reduced from the £30,000 which currently applies to non-EU applicants)

But they can also gain extra points for having better qualifications (10 points for a relevant PhD; or 20 points for a PhD in science, technology, engineering or maths) or an offer of a job in which the UK has a shortage (20 points), even if they don't earn as much money.

Key dates in the future negotiations 

Let’s take a look at the dates that will shape the future of the EU-UK relationships this year. Do also bear in mind that the UK Cabinet minister Michael Gove suggested the next round of Brexit talks could be cancelled amid the current coronavirus crisis.

March 2020

Both sides want the EU-UK future-relationship talks to begin swiftly. Both sides agree that a priority in the talks will be to hammer out a free trade agreement that will be the core of their new future economic relationship. The EU and UK have said that the objective should be quota-free, tariff-free trade in goods.

June 2020

A time for stocktaking. An EU-UK political declaration, agreed as part of Boris Johnson’s Brexit deal, says a summit should take place in June so Britain and the EU27 can assess the progress of the talks.

June is also the final month for Britain to request an extension of its transition period beyond 2020, something Boris Johnson has pledged not to do.

July 2020

The political declaration that forms part of Mr Johnson’s Brexit agreement with the EU commits both sides to seek a deal by 1st July on access to UK fishing waters for European fishermen. The two sides also have a target to reach decisions on access to each other’s financial services markets by this date. Brussels sees this as another source of leverage in the talks, given the importance of the City of London to the UK economy.

November 2020

EU officials say that a trade deal must be negotiated, checked, translated and presented to the European Parliament by 26th November, if it is to be ratified by the end of the year. MEPs will be in Strasbourg in the final week of November for their penultimate plenary session of 2020. The final one, in mid-December, would come too late to sign off on any deal with the UK.

EU negotiators note that, in practice, this leaves only about six months to actually politically negotiate with Britain.

31st December 2020

The cliff edge. If a trade deal is not in place, then Britain will fall back on to basic World Trade Organization terms, meaning tariffs on goods and little practical co-operation to smooth border checks. The outcome would effectively be the same as a “no-deal” Brexit and both sides would need to make preparations for how they cope with the economic fallout in 2021.

After 2020

Despite the push to secure a deal by the end of this year, future relationship talks are expected to continue after 2020. Michel Barnier, the EU’s chief Brexit negotiator, has made clear that not everything can be addressed in the time remaining before the transition is set to expire, and that in some areas the EU can adopt stop-gap measures. He has given examples to MEPs, including air and road transportation, where the EU can simply grant temporarily permissions to Britain so that things continue as normal. The core trade deal may also be complemented by further agreements after 2020, notably in the area of services — which are so vital to the UK economy.

Looking to the future…

There will be new opportunities for both UK and EU companies after Brexit. There are early signs of a recovery in the UK’s growth. The consumer is in good health, while wage growth and house price trends look positive. Low rates and fiscal stimulus should be supportive of economic growth as well.

While the growth forecast for 2020 was reduced – to 0.8% from the previous forecast of 1.2% and we don’t know how much the coronavirus crisis will affect economies worldwide, the future doesn’t look too gloom. 

For those that were thinking of opening or investing in a company in the UK, that is still a very viable option. The UK will need to attract more businesses to sustain its growth and claw back some of that lost business that occurred due to Brexit. There could also be some good incentives in the pipeline for foreign investment. Regardless of their legal parameters, the UK is, and will continue to be, one of the most amazing and interesting markets you can operate in. 

Start-ups and scale-ups from Europe and the rest of the world will continue to work with the UK given the vast opportunity offered. With even more power now residing with Boris Johnson’s team, it is very likely that the government will continue to encourage innovation and foreign investments in Britain. In the face of adversity, there are always opportunities for those savvy entrepreneurs who work the system to their advantage.

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