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Brexit: EU and UK Agree 21-month Transition Period in Conditional Agreement

On 19 March 2018, the European Commission published a draft agreement on Brexit following three days of talks between the EU and UK negotiators. The agreement marks a significant step in the UK’s withdrawal from the EU as it now recognises a 21-month transition period during which the UK will continue to be part of the EU Internal Market and Customs Union.

Hong Kong traders will welcome the security of this transition period as it avoids the disruption and uncertainty of a so-called ‘cliff edge’ scenario. In particular, Hong Kong businesses may wish to note that the UK will continue to be bound by EU trade laws and agreements until December 2021. During this time, the UK is expected to negotiate its own agreements with trading partners, which will then take effect immediately after the transition period.

The EU will also assist the UK in rolling over existing trade agreements by notifying trading partners that the UK should be treated as if it were part of the EU for trade purposes until the end of the transition period. The EU is responsible for all its Member States’ trade policy and has signed over 750 agreements with international trading partners. Thus, the UK will spend the transition time developing bilateral relationships with trading partners and laying the groundwork for taking exclusive control of its own trade policy in 2022.

The draft agreement runs to almost 130 pages. Some sections are marked as agreed, and some sections have been agreed at policy level but not in legal language. Other issues remain unsettled, however.

Among the most politically sensitive unresolved questions include the degree to which the UK will diverge from EU regulatory requirements, and the status of Northern Ireland. Northern Ireland, being the north-east part of the island of Ireland, will be the only region of the UK to have a land border with the remaining EU. Its citizens have a right to both UK and Irish (and therefore EU) citizenship, and trade between Ireland and Northern Ireland is crucial to both economies.

With just under a year to go until the official date of the UK’s withdrawal on 29 March 2019, the transition period will allow companies and traders to better plan for the coming months. Sectors which rely on long-term planning, and industries which rely on manufacturing supply chains, have strongly welcomed the development.

In return for securing this transition period, the UK conceded on its demands for control over new laws, trade deals and immigration to the UK during the transition period. The EU agreed to consult the UK before making decisions, but said it was impossible for a non-Member State to have the same voting rights as a Member State.

The draft agreement remains conditional on the conclusion of a complete withdrawal treaty. Such a treaty would set out in full the terms of the UK’s withdrawal from the EU and will have to tackle the difficult unresolved political issues.

With progress continuing on these, however, the leaders of the remaining 27 EU Member States adopted new negotiating guidelines at their summit of 23 March.

The guidelines anticipate the next round of talks, which will focus on the future relationship between the UK and EU. Key points to be discussed include trade in goods, customs cooperation, regulatory cooperation, trade in services and public procurement rules.

Hong Kong traders may be particularly interested to learn that the EU indicated that it would consider ensuring continued tariff-free trade in goods between the EU and UK through the means of a free trade agreement.

Content provided by Picture: HKTDC Research
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