Now that Brexit is over – or is it?

The EU and the UK are already drifting apart fast, and the future appears increasingly problematic. The UK is distancing itself from EU rules and the goal of ensuring a level playing field.

The Brexit Bell has rung, and all is well in the kingdom – or at least that’s what the UK government would like everyone to think. In his speech on Brexit eve, Prime Minister Boris Johnson didn’t mention the word Brexit once, apparently because he didn’t think it was a relevant topic anymore. The country should forget the difficult process of departing the EU and focus on the future.

Transition period

The reason for the current calmness, is however the Withdrawal Agreement granted transition period, which runs until the end of 2020. Until then, the UK is for all practical purposes treated like a member state, after which it comes to the single market and the customs union. The real consequences of Brexit will thus only be felt from January 2021 onwards.

By then, the EU and the UK hope to have negotiated a new agreement, setting the framework for their future relationship.

And here’s where the picture has changed the most, if you compare it to the discussions between the EU and the UK just six months ago.

Future Relationship

The political declaration on the Future Relationship, which the parties adopted in October 2019, sets the goal of an “ambitious, broad, deep and flexible partnership across trade and economic cooperation with a comprehensive and balanced Free Trade Agreement at its core, law enforcement and criminal justice, foreign policy, security and defence and wider areas of cooperation”. The EU is finalizing its negotiation mandate, which takes this wide approach as a starting point, and aims at a comprehensive and ambitious partnership in all areas outlined in the political declaration.

But this appears no longer to be the goal in London. This week, David Frost, Boris Johnson’s EU adviser and chief Brexit negotiator, underlined, that one of the primary goals of the UK with Brexit had been to gain regulatory independence. Thus it would not be interested in aligning itself with the EU rules in the future – something that the EU requires in order to grant access to the internal market.

The UK is thus very clearly distancing itself from establishing a level playing field, a goal agreed jointly prior to Brexit. Frost ensured, that the UK would now be perfectly willing to accept a much weaker relationship with the EU – even resembling that with Australia, with which the EU has no free trade agreement at all.

He also confirmed the UK government’s decision not to seek a prolongation of the transition period, something which the UK could do up to six months prior to its expiry, i.e. before the 1st of July 2020. Particularly, the business world has been vocal about the need for a prolongation but taken the very strong mandate of the Johnson government and the weakened opposition, there’s no political pressure for him to move.

The Future

This means, that from January 1, 2021 the trade relationship with the EU and the UK is likely to change dramatically. And if no new deal is in place, the cliff-edge scenario becomes a reality again.

Why does the EU insist that the UK aligns itself with EU’s standards, you might ask? The answer lies in the single market. The EU currently has a well-functioning common market and customs union comprising 27 EU countries and based on joint rules and standards. Allowing one country to trade on different terms would jeopardise the system and also complicate its relationship with the three EEA countries and Switzerland, who also trade in the single market. If the EU – and European companies, for that matter – have to choose, they will prioritise the internal market.

This is why the outlook is less optimistic, when it comes to free trade between the EU and the UK in the future. And that’s what Nordic companies should be preparing for, to avoid nasty surprises.

Lotta Nymann-Lindegren and Henrique Leitenberger, Miltton Europe

For further information

Lotta Nymann-Lindegren
Senior Advisor
Miltton Europe
+45 31 79 0048