Brexit briefing | 24 Dec 2020 |

UK and EU reach Brexit trade deal – good news, but still expect some disruption in 2021

The announcement that the UK and EU have (at long last) reached agreement on the trade aspects of their future relationship is obviously very welcome news for business. In particular, it avoids the prospect of an acrimonious break with the UK's biggest trading partners and will mitigate some (but by no means all) of the adverse trade impacts of the UK leaving the EU Single Market and Customs Union. However, businesses should be under no illusions about the magnitude of these changes and should still expect some disruption in 2021, particularly in sectors reliant on goods trade with the EU.

Provisional application

Whilst the UK appears to be confident that it can ratify the deal in a matter of days before the end of the year, ratification on the EU side is more problematic because the European Parliament is (not unreasonably, given the length of the text) insisting on more time to scrutinise the agreement. In view of this, it is understood that the EU plans to apply the deal on a provisional basis, as was done in relation to the EU-Canada free trade agreement, pending ratification. Provisional application is possible based on a decision of the EU Council (i.e. the Member States), without the European Parliament's involvement.

Preparation remains key

Whilst the deal should soften some impacts of the end of the transition period, there are some areas – such as the introduction of new border red tape on UK-EU goods trade – where it will make very little difference. It certainly does not remove the need to prepare for a substantially changed trading environment in 2021. Businesses reliant on goods trade in particular should expect disruption, as explained here; this may well be exacerbated by existing problems at key ports caused by COVID-19.

Our Brexit Readiness Portal sets out what businesses need to do to prepare. Once more details of the deal are known, we will be updating our guidance accordingly. However, the materials on the Brexit Readiness Portal already discuss the likely position should a deal be agreed, based on the draft texts published by the UK and EU earlier in the year – and as noted above, there are some areas where a deal makes little difference to what you need to do to prepare.

Grace periods

Business organisations such as the CBI have been pressing the UK and the EU to provide grace periods across a range of areas to allow business more time to adjust. Whether these will be forthcoming remains to be seen and during the early part of 2021, it is probably safest to assume that they won't. That said, the fact that a deal has been agreed makes it more likely that authorities in the UK and the EU will be prepared, at least informally, to overlook less serious instances of non-compliance for a limited period – particularly given the very limited time that businesses will have had to familiarise themselves with the detail of the deal (see textbox headed "Problems with Day One compliance").

It has been reported that the agreement contains provisions designed to help preserve EU-UK flows of personal data on an interim basis, pending a European Commission decision on the adequacy of the UK's post-Brexit data protection framework (Read our explanation of the issues with Brexit and personal data). If correct, this would be a helpful move for many UK businesses which receive personal data from the EU.

Problems with day one compliance

Although agreement with the EU is welcome, businesses are now unlikely to have time to put the necessary measures in place to comply with key aspects of the deal, such as proof of origin requirements on goods (which will be needed to avoid tariffs, at least on entry to the EU). Unless compliance is waived, businesses affected by that issue – or their customers, as the case may be – may need to be prepared to pay tariffs in the short term in order to ensure that goods get through in time (we recommend keeping detailed records with a view to ensuring that, if customs authorities are prepared to allow tariffs to be reclaimed retrospectively on compliance with relevant origin rules, the possibility of such a claim is preserved).

More information on the deal

At the time of writing, the full text of the deal had yet to be published, but the UK and EU had issued the following documents summarising its contents:

Please check back into this site in the coming days and weeks for more information and guidance on the deal once it has been published and we have digested the content and its impact on future trading arrangements with the EU. Meanwhile, if you have any questions about the implications of the deal, and what you should be doing to prepare, please do get in touch with your usual contact at the firm.

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