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27th November 2018

Brexit political declaration: what businesses need to know

The EU 27 have now approved the text of a political declaration which sets out some broad principles on which the UK’s future relationship with the EU will be based. Thrings commercial partner, Kate Westbrook, looks at what it means for UK businesses.

Not legally binding

It is important to note that the declaration is not a legally binding document (unlike the withdrawal agreement which will be legally binding if ratified by parliament).

Formal negotiations will begin after the UK has left the EU. This means there are no certainties, and businesses will need to continue to plan for a range of scenarios and keep abreast of developments.

It lacks detail

The declaration is written in very broad terms and the details will be negotiated and agreed during the transition period which commences at 11pm GMT on 29 March 2019. Whilst businesses now have a better idea of the overall direction of travel, there is very little in the declaration that will help them understand precisely what the final trade deal will include.

Goods

The stated aim is to have a ‘trading relationship on goods that is as close as possible with a view to facilitating the ease of legitimate trade’.

The aim is to create a free trade area, with zero tariffs and no fees or charges – but this is likely to be dependent on having regulatory and customs cooperation. The extent of checks and controls at borders will depend on the extent of this cooperation. There is also reference to ensuring a ‘level playing field’. We can therefore assume we would need to stay aligned with EU regulations and competition law.

The declaration refers to ‘ambitious customs arrangements that build and improve on the single customs territory’. What this means in practice could range from a customs union to a customs arrangement that obviates the need for certain checks. As a customs union would prevent the UK from making its own trade deals with other countries, and the UK’s ambitions in this area are clearly set out in the declaration, it seems unlikely that a full customs union will be agreed.

Services

Reflecting the Prime Minister’s Chequers plan, the future trade relationship says less about cross-border trade in services. It is anticipated that arrangements should deliver a ‘liberalisation in trade in services beyond [each party’s] WTO commitments’, but there are no details on what this might look like and no hint at the UK getting better terms than any other third country.

Financial services

The UK will be treated as a third country with no special passporting deal and therefore bankers and traders will have to rely on the EU’s equivalence framework. The stated aim is to conclude equivalence assessments before the end of June 2020.

Digital 

There is a recognition that the UK and the EU will need to agree terms which facilitate ‘electronic commerce and cross-border data flows’ and ‘unjustified’ barriers to trade should be addressed.

Freedom of movement

The declaration tackles freedom of movement head-on and notes that this will no longer apply between the EU and the UK. The aim is that short-term visits would be visa-free and so this implies that long-term trips would require a visa. The declaration also provides that arrangements for business trips will be made and this may include a business visa system.

Data protection

The importance of data flows between the UK and the EU is recognised. The declaration confirms that the UK will be treated as a third country for the purposes of data protection standards and, as such, the European Commission will begin to assess the UK to ensure it has an adequate level of protection.

Given that the Data Protection Act 2018 adopts the GDPR wholesale, it likely that the UK and the EU will deem each other’s data protection regimes to be adequate, but such an assessment could be delayed or withheld as part of the negotiating process. In the meantime, other legal bases for international transfers of data should be considered, and wording in existing documents referring to transfers of data outside the EU or the EEA may need to be revisited.

Intellectual property (IP)

The declaration calls on the UK and the EU to maintain current standards of IP protection. In practice this will require the UK to continue to make certain rights available such as database rights, protected geographical indications, an ‘EU-style’ unregistered design (to sit alongside the current UK design right) and various aspects of copyright.

The Irish border

Whilst the border itself won’t affect all UK businesses, it is clear that a hard border between Northern Ireland and Ireland must be avoided and the declaration’s ambition is to reach a technological solution so as to avoid the backstop.

What next?

The EU and the UK may only begin to negotiate the vast detail that will be required in order to give legal effect to the declaration once the UK leaves the EU on 29 March 2019. Until then only preparatory organisational work will be undertaken. And that pre-supposes that the withdrawal agreement is ratified by parliament in mid-December.  If that fails, it could well be back to the drawing board.

The aim of the trade deal negotiations will be to conclude by the end of the transition period in December 2020. However the withdrawal agreement allows an extension of the transition period if the trade deal is not concluded by then.

So whilst the declaration offers UK businesses some longed for clarity on the likely direction of future trading arrangements with the EU, we still lack certainty and detail. On this basis, businesses should continue to plan for the worst while hoping for a positive outcome that benefits business.

Should the withdrawal agreement be ratified by parliament, businesses will avoid a cliff edge in March 2019 and can cease preparations for a ‘no withdrawal deal Brexit’. However ratification of the withdrawal agreement is simply another stop along the road – businesses will need to continue Brexit preparations during the transition period so as to anticipate and counter the changes that the final trade deal between the UK and the EU will bring.

If you would like to discuss any aspect of this article, please get in touch with Kate Westbrook or your usual Thrings contact. For sector-specific updates on Brexit, please visit our Business of Brexit pages.

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