More Brexit-related turbulence is on the way: here's what to expect

From 1 January 2022, customs declarations on goods imported from the EU will be required "upfront" (as opposed to "in arrears" at present) – and any applicable tariffs must be paid "upfront" as well (although VAT-registered businesses will still be able to use postponed VAT accounting to avoid having to pay import VAT at the point of import). There is also likely to be a higher level of physical checks. 

For more detail on these changes and how you can ensure that your business is in a position to mitigate any risks, see our briefing "Be prepared: new border requirements on EU imports are coming in from January 2022."

The UK Government believes that the Northern Ireland Protocol is unworkable in its current form and needs to be renegotiated. Under Article 16 of the Protocol, a party can take "safeguard measures" in response "to serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade." If it invokes Article 16, the UK will argue that this threshold has been met and that it is therefore entitled to deviate from what has been agreed in the Protocol. The UK Government's aim may be to put pressure on the EU to accept more significant changes to the Protocol than it has been prepared to countenance in negotiations to date.

If no agreement can be reached via consultations in the Joint Committee, the UK would be entitled to implement safeguard measures. In response, the EU would be entitled to take "proportionate rebalancing measures" – although it is unclear precisely what these would involve (and it would depend on the nature and impact of the UK's safeguard measures). It may also initiate proceedings under the dispute resolution provisions of the Withdrawal Agreement, arguing that the UK was not entitled to invoke Article 16 and/or that its measures go further than what is "strictly necessary in order to remedy the situation". However, there has been speculation recently that the EU might go further and look to terminate or suspend some or all of the UK-EU Trade and Co-operation Agreement (TCA), with a view to putting pressure on the UK to back down from its current stance on the Protocol.

The short answer to this is yes – but much of the current speculation surrounds rights which would require the EU to give notice (of between 9-12 months) to terminate parts or all of the TCA. It is therefore unlikely that there would be any immediate termination/suspension (and during any notice period, the TCA would continue to operate) – but as we highlight in Section 4 below, this may be a factor which makes the EU more inclined to "pull the trigger" on termination.

Termination or suspension of the TCA in response to problems relating to trade with Northern Ireland might appear to some as a "nuclear" option, to be used only a last resort – and it may be that this is ultimately how the EU decides to use it. However, there are a number of reasons why the EU may well be seriously considering deploying this option at this juncture:

• Northern Ireland is a major issue for the EU:  First, the EU may suspect that the UK's real objective is that, rather than placing a goods border in the Irish Sea, there should be checks at or around the land border between Northern Ireland and the Republic of Ireland (for example, the UK's lead negotiator, Lord Frost has recently endorsed a Policy Exchange report advocating precisely this solution). Such an approach has so far been a red line for both the Republic of Ireland and the EU. Meanwhile, if no agreement can be reached with the UK about changes to the Protocol, the EU faces a situation where there will effectively be a "hole" in the Single Market through which goods from the UK can enter without (as the EU would see it) the appropriate levels of safeguards at the border.  The EU is therefore likely to view the UK's approach as a threat both to the Single Market and to a key strategic interest of one its Member States – hence its willingness to consider options that some might regard as "nuclear" such as termination/suspension of the TCA.
  
  
• Patience may be running out with the UK's approach: Second, the EU's view is that the UK agreed to the Protocol and should implement it - and patience may be running out with the UK's hardline approach. In particular, the EU would probably argue that it has recently offered the UK significant new flexibilities in this area, which provide a basis for compromise. There may also be a wider concern that the EU needs to demonstrate – not only to the UK but also to counterparties to its numerous other international agreements – that it expects commitments made in those agreements to be upheld (and if they are not, the EU will not be afraid to flex its muscles in response).
  
  
• Termination/suspension is unlikely to be immediate: Third, as explained above, giving notice to terminate some or all of the TCA would not have an immediate impact, but it could reasonably be expected to concentrate minds on finding a negotiated solution so as to allow the notice to be withdrawn (and the TCA to continue). Indeed, the periods in question e.g. 9-12 months, ought to provide sufficient time in which to find such a solution. Although termination or suspension of the TCA would have an adverse impact on the EU, there seems little doubt that its relative impact on the UK would be as great, if not greater – and the EU would be banking on this to encourage the UK to reach an agreed solution. 

The EU will not necessarily limit its response to the potential termination or suspension of the TCA (either as a whole or in the areas highlighted above). For example, there has also been speculation that the EU is considering a range of other options relating to issues such as the transfer of personal data to the UK, the UK's participation in the Horizon Europe scientific research programme and the extent of border checks on UK exports to the EU (as France threatened to do in relation to the recent fishing dispute with the UK). However, as with termination or suspension of the TCA, there are pros and cons to all these potential courses of action and much will depend on how strong a message the EU wants to send to the UK at this stage.

Other Brexit-related developments to look out for include:

• Regulatory reform: a reasonable proportion of the UK Government's regulatory reform programme is driven by a desire to "do things differently" after Brexit. Of particular note from a general perspective are proposals to change the approach to retained EU law. For more detail, see our briefing "A blizzard of regulatory reform: did you miss anything?"
  
  
• Freeports: with the first tax sites having recently received Government approval, implementation of freeports policy is now well underway. Our view is that for some businesses, these may present a Brexit opportunity – for more detail, see our recent webinar and related briefings on freeports.
  
  
• Levelling up: recent Budget announcements (e.g. the allocation of £2.6 billion to the UK Shared Prosperity Fund) underlined the Government's determination to pursue its levelling up agenda. As we discuss in our briefing "Where to invest: the geographic impact of Brexit," these initiatives may present opportunities for some businesses.