EU And UK Transition Period Trade Terms

Key Points

The U.K. and the EU have agreed on the substantive trade elements of the legal text set to govern the U.K.'s withdrawal from the EU (the "Withdrawal Agreement"). If the other outstanding elements of the Withdrawal Agreement are also agreed, then it will be scheduled to be in place from March 29, 2019 until December 31, 2020 (the "Transition Period"). The parties have agreed that, during the Transition Period, the U.K. will be allowed to pursue an independent trade policy while remaining within the EU Customs Union. However, the U.K. will be required to adhere to obligations arising under the EU's existing free trade agreements (FTAs) with third countries. The EU has also formally approved Guidelines for the negotiation of the permanent future trading relationship with the U.K. after Brexit. For the moment, the Guidelines take the form of a declaration issued by the European Council. Both parties aim to have the framework of an ambitious FTA ready for parliamentary scrutiny by October 2018. The EU and the U.K. Agree Trade Aspects of the Brexit Withdrawal Agreement

In broad terms, the United Kingdom will continue to enjoy the benefits of participation in both the EU Single Market and Customs Union during the Transition Period. However, the U.K. will have to observe existing EU legislation, as well as implement new EU laws that come into force during the Transition Period (including decisions of the European Court of Justice). The U.K. will also be recused from all substantive EU decision-making fora from March 29, 2019. In short, the U.K. has agreed to be a "rule-taker" during the Transition Period to mitigate the risk of it leaving the EU without a permanent future trading relationship in place (a "cliff edge" Brexit as some have referred to it).

(i) The U.K. Is to Be Permitted to Negotiate FTAs with Third Countries During the Transition Period

The U.K. government has secured a key concession in that it can commence trade negotiations with third countries during the Transition Period, which it views as one of the main benefits of leaving the EU. That said, the EU has ensured that it has safeguards in place to ensure that the U.K. does not pursue an aggressive independent trade policy that could undermine the EU's existing arrangements and to keep third countries from negotiating more favorable terms with the U.K. to pressure the EU for further concessions. The EU has achieved this by requiring the U.K. to (i) seek authorization...