Brexit commentary | Brexit | 07 Nov 2019

If Brexit goes ahead, will it all be over and done with by 31 December 2020?

Overview

Although many commentators argue that this election is extremely difficult to predict, let’s assume that polls suggesting a Conservative majority turn out to be correct.  In that case, the expectation would be that the new government would be able to secure the passage of its Bill implementing the renegotiated draft Withdrawal Agreement.  The UK then has a transition period until 31 December 2020 in which to agree a deal with the EU on the future relationship.  Is that deadline realistic?

Just for once, even though we are talking about Brexit, there is a straightforward answer: No. Here’s why:

Time needed for negotiations on the future relationship

Michel Barnier, the EU’s Chief Negotiator, has recently suggested that the UK may need an extension of the transition period to allow time to complete the negotiations.  His comments were echoed by outgoing Commission President Jean-Claude Juncker in an interview this week.  If an extension is to be put in place, the draft Withdrawal Agreement makes it clear that this would need to be agreed with the EU by July 2020.  The UK government, however, is insisting that there is no need for an extension and that the future relationship can be negotiated in time for the UK to exit the transition by 1 January 2021.  It argues that, because the UK and the EU are already closely aligned, a free trade agreement should be quite straightforward to negotiate. It also points to its success in achieving a relatively swift renegotiation of the Withdrawal Agreement as an example of how progress can be made relatively quickly.

It is likely to be very challenging to get a comprehensive free trade agreement agreed with the EU by December 2020.

Most trade experts disagree with the government's assessment, pointing out that this trade agreement will be unusual in that the UK is looking to diverge from the EU in future and in some areas raise barriers to trade – whereas normally, trade agreements focus on areas where the parties are looking to remove barriers, including by agreeing to align their regulatory approaches.    A further reason that trade agreements typically take time is their length and complexity.  Both the EU-Canada and EU-South Korea free trade agreements, which the parties may be looking to use as precedents in order to speed up the drafting process, run to over a thousand pages.  In relation to services, which account for over 70% of the economy, the UK would have a strong interest in negotiating a higher level of access than is provided for in those agreements, which would add a further layer of complication (although it is not clear that the government intends to seek a significantly higher level of access for services).  

Lastly, whilst the UK government is correct to point out that negotiations on the latest deal were concluded relatively swiftly, the vast majority of the Withdrawal Agreement was left unchanged and the amendments to the Irish protocol drew heavily on previous discussions between the parties about alternative ways of dealing with the Irish border issue.  Comparing that fairly limited renegotiation with the process for agreeing a comprehensive free trade agreement is of doubtful value.   In light of these factors, our view is that it is likely to be very challenging to get a comprehensive free trade agreement agreed with the EU by December 2020.

Even if a deal is agreed by December 2020, it is unlikely that the UK will be ready to implement it from 1 January 2021.

Time needed to prepare for practical implementation of the future relationship

Even if a deal on the future relationship were to be agreed, it is unlikely that the UK would actually be ready to move to a relationship with the EU based on a free trade agreement by 1 January 2021.  To take just one example, major changes would be required to border formalities and checks, likely to require significant changes to IT systems and infrastructure;  these will be difficult to prepare for fully until all the detail of the future relationship with the EU has been finalised.  The UK could of course fall back on its planning for no deal – but one wonders what the public will make of a situation where the government says it has agreed a deal on the future relationship (supposedly allowing for a “smooth and orderly Brexit”), yet the actual outcome is a level of disruption similar to that which would arise in a no deal situation.  At least in a no deal scenario, the government will have the option of blaming the EU – but if it exits the transition with a deal on the future relationship without having prepared for it adequately, it will only have itself to blame.

All this points, in our view, towards an extension of the transition period being sought in July 2020.  But as mentioned above, the outcome of the election is extremely difficult to predict and it is possible that the analysis in this article may be overtaken by events.

Action point

Businesses should not abandon their efforts to prepare for a no deal Brexit outcome.  There are several reasons for this:

  • A no deal outcome at the end of January 2020 cannot be ruled out.  For example, in response to pressure from the Brexit Party, the government has already hardened its stance on requesting an extension to the transition (indicating that it will not do so) and is likely to come under further pressure during the election campaign to commit to a so-called “clean Brexit” (which is effectively a no deal exit);

  • Apart from the transition, the draft Withdrawal Agreement is primarily “backward-looking”;  until agreement is reached on the future relationship, a no deal outcome on 1 January 2021 remains a possibility; and

  • Even if a deal is reached with the EU on the future relationship, this is only likely to be possible by January 2021 if it is very much at the “harder” end of the Brexit spectrum. For certain sectors of the economy (such as EU-UK trade in goods), this is likely to be almost as disruptive as “no deal” and therefore “no deal” planning will still be of assistance in that scenario.