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Withdrawal Agreement and Political Declaration

On 25th November 2018, the UK and European Commission agreed the text of the UK Withdrawal Agreement (WA) and Political Declaration (PD).

The BCC has analysed the level of clarity for business that the proposed Brexit agreements provide on the key areas covered by our Risk Register and Business Checklist.

If you have any questions, would like further clarification or would like to provide feedback get in touch.

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People

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Transition Period

During the transition period (also known as the implementation period), employers would face ‘business as usual’ arrangements with respect to EU citizens living in the UK. Free movement would continue as now but EU citizens would be able to register for settled/pre- settled status under the EU Settlement Scheme. EU citizens who arrive in the UK before the end of the transition period will be able to remain: those who have been resident for 5 years will have the right to settle permanently in the UK (‘settled status’) and their family members will also be protected. Those in the UK for less than 5 years will have the opportunity to stay until they have accrued 5 years (‘pre-settled’ status).

As an employer, you can use the Home Office EU Settlement Scheme Employer Toolkit to support your employees to apply for settled/pre-settled status. The WA protects the existing rights of employees from the EU to equal treatment and non-discrimination.

EU workers will continue to have their professional qualifications recognised in the UK, where they obtained or are obtaining a recognition decision before the end of the transition period.

Backstop

If the ‘backstop arrangement’ comes into force, the current reciprocal rights of UK and Irish citizens would be unaffected and maintained across both countries. But outside of this, the UK’s future immigration policy towards non-Irish EU nationals (and vice-versa) would come into effect after the end of the transition period – whether or not the backstop is activated.

Post Transition / Backstop

Post transition period, freedom of movement between the UK and EU would end and a new skills-based immigration system would come into force in the UK, replacing the current, reciprocal automatic rights to work and settle. The details of this will be laid out in an Immigration Bill expected in early 2019, pre-figured by an Immigration White Paper expected to be published by the end of the year.EU citizens arriving in the UK during the transition period would be given a grace period after this ends to apply.

Trade

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Transition Period

During the transition period (also known as the implementation period), no tariffs will apply to UK goods placed on the EU market and vice versa. UK-based firms will retain access to the Single Market as under current arrangements, including for aviation, road haulage and other cross-border economic activities.

No tariffs will apply to goods placed on the market before the end of transition period where the movement of goods has not been completed before the end of transition period. Such goods will move freely until they reach the end user.

In principle, the EU’s current free trade agreements will continue to apply. The EU will inform partners of the transition period – but it is uncertain as to whether the agreement of these third countries is required. The UK would adhere to EU FTAs, working on the basis of reciprocal adherence.

The UK will be able to negotiate, sign and ratify its own agreements provided they do not enter into force before the end of the transition period.

Backstop

If the ‘backstop arrangement’ comes into force, a single customs territory would be created between the UK and the EU. There are separate provisions for Northern Ireland, the detail of which can be accessed here.

Customs duties would be prohibited on any goods in free circulation (originating in the EU/UK or not) as well as products produced from inputs from outside EU/UK which were not in free circulation, provided all appropriate formalities have been completed. If the goods do not meet the conditions, third-party tariffs (WTO rates) would apply. UK and EU tariffs would be fully aligned. No rules of origin would apply, but traders would need to demonstrate that goods are in free circulation and all conditions have been met. A new movement certificate, A.UK, will be used for this purpose.

Existing Free Trade Agreements (FTAs) would not automatically be rolled over under the backstop arrangement. However, in principle, the EU, the UK and third countries could negotiate a roll-over of the agreements on a trilateral basis. The lack of continuity would also apply to the customs union with Turkey. Further clarification is required on the details of UK-Turkey trade during backstop, were it to come into effect. There is no detail on how aviation would be impacted by this scenario.

Post Transition / Backstop

Post transition or backstop arrangement, the mutual objective outlined in the Political Declaration is for no tariffs, fees, or quantitative restrictions on the movement of goods. Ultimately this will depend on the outcome of detailed discussions on the future partnership agreement. It is understood that the UK would be outside the EU VAT regime and so import VAT could be payable on goods - but it would be collected via normal VAT accounting returns (using postponed accounting).

The Political Declaration states an ambition for no rules of origin, to build on the single customs territory and create a free trade area, combining deep regulatory and customs cooperation. Ultimately, this will depend on the outcome of further negotiations.

In principle, the EU, the UK and third countries could negotiate a roll-over of the existing free trade agreements on a trilateral basis, but the Political Declaration stresses that the UK will operate an independent trade policy post transition.

The future of UK-EU aviation services are not specified in the Political Declaration beyond a general statement about cooperation of authorities.

Borders

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Transition Period

During the transition period (also known as the implementation period), it would be business as usual for customs arrangements, declarations and trusted trader schemes. The UK government stated its ambition at the 2018 Budget to halve the time it takes to achieve the accredited status of Authorised Economic Operator (AEO) – a form of ‘trusted trader’.

Backstop

If the ‘backstop arrangement’ comes into force the Political Declaration is to avoid border formalities, but specifics will need to be further clarified. A new movement certificate, ‘A.UK’, will be required for goods moving within the single customs territory of the UK and the EU. Customs authorities may in some cases conduct inspections to verify submitted documents, but verifications do not need to mean at the border.

Post Transition / Backstop

Post transition or backstop arrangement, the type of customs inspections will depend on how closely the UK is aligned with EU rules. The Political Declaration refers to ambitious custom arrangement planned with various arrangements and technologies for trade facilitation. But ultimately this will depend on the outcome of future negotiations. The PD points to the potential for mutual recognition of trusted trader schemes, but the UK would need to set up its own scheme and seek mutual international recognition.

Digital

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Transition Period

During the transition period (also known as the implementation period), businesses would face ‘business-as-usual’ arrangements for the handling and protection of data. The EU will provide an assessment of the UK’s data protection standards through its ‘adequacy framework’ (which underpins business, governmental and security partnerships) by the end of 2020), with comparable activities in the other direction from the UK. There is a commitment to cooperation between regulators.


Backstop

In the event of a backstop arrangement coming into force, UK domestic rules on data protection will apply. The Political Declaration and Withdrawal Agreement contain no information on mobile roaming in this scenario.

Post Transition / Backstop

Post- transition or backstop, UK domestic rules on personal data protection will apply. The EU and the UK hope to have in place relevant frameworks to support data protection standards by the end of the transition period, providing that the correct standards are met.

The UK leaving the EU would not prevent UK mobile operators making and honoring commercial arrangements with mobile operators in the EU - and beyond the EU - to deliver the services, including roaming arrangements. The availability and pricing of mobile roaming in the EU would be a commercial question for the mobile operators.

Regulations and Standards

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Transition Period

During the transition period (also known as the implementation period), employers would expect to face ‘business as usual’ arrangements with respect to UK and EU regulations. All existing structures will continue to apply, including jurisdiction of the European Court of Justice.

With respect to product testing, there will be a continued transfer of information between UK and EU bodies. If a manufacturer applies for a new certificate in the EU, having already obtained a certificate in the UK, the information will be transferred to the EU testing body before the end of the transition period.

On standards, the withdrawal agreement includes ‘non-regression clauses’ to prevent the UK from bringing in lower standards on environmental, labour, and social regulations. EU state aid rules will also continue to apply

Backstop

If the ‘backstop arrangement’ comes into force, Northern Ireland will remain aligned to a number of EU rules that are required to avoid a hard border and there are a number of changes expected for businesses.

Products originating in Northern Ireland that are sold in to Great Britain will need a UK origin label. However, products originating in Northern Ireland that are sold into the EU will need a different label: “UK(NI)”. No EU approval process will be needed to place NI goods onto the UK market and both EU and UK approvals will be recognised for goods sold throughout the UK. State aid rules will continue to apply.

Post Transition / Backstop

Post-transition or backstop arrangement, the political declaration between the UK and EU expects the creation of a free trade area with deep regulatory alignment. Alignment on standardisation, accreditation, labelling, intellectual property, and conformity assessment is expected to go beyond WTO agreements. The UK and EU will explore the possibility of UK cooperation within a range of EU regulatory agencies. However, beyond these commitments, the political declaration does not contain detail on the specifics of future regulatory or standards cooperation.

Tax

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Transition Period

During the transition period (also known as the implementation period), EU law for VAT will continue for UK businesses. No VAT registered business will be required to pay VAT upfront when moving goods between Great Britain and Northern Ireland, and that accounting for VAT can continue to be done through postponed accounting and UK VAT returns. VAT simplification measures, including the mini one stop shop, is expected to remain available to UK firms.

Backstop

If the ‘backstop arrangement’ is required there is likely to be some alignment with EU VAT rules for businesses in Northern Ireland in respect to the movement of cross-border trade in goods. However, Northern Ireland will remain part of the UK’s VAT area and no VAT registered business will be required to pay VAT upfront when moving goods between Great Britain and Northern Ireland. There is no reference as to whether the rest of the UK will be subject to EU VAT rules.

Post Transition / Backstop

Currently, there is no detail on the likely VAT regime for UK post-transition or backstop arrangement.

Finance and Banking

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Transition Period

During the transition period, (also known as the implementation period), financial services firms in the UK will be largely able to operate as usual, including passporting. However, during this period the EU and UK will be carrying out equivalence assessments.

Backstop

Financial services firms are unlikely to be additionally impacted if the ‘backstop arrangement’ is required.

Post Transition / Backstop

Post-transition or backstop arrangement, EU market access for UK firms in the financial services sector will be based on ‘equivalence’, which is more limited than under current arrangements. Under equivalence, market access is based on recognising each other’s regulations and can be withdrawn with 30 days’ notice. Currently, equivalence does not cover basic products and services such as bank lending. It remains unclear whether this will impact UK firm’s access to finance or other financial products and services.

Funding

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Transition Period

During the transition period, (also known as the implementation period), funding arrangements would apply until the end of the implementation period and current EU Multi-annual Financial Framework (end December 2020).

Backstop

It is unclear how an extended transition period of backstop arrangement beyond this date would affect the UK’s participation in or application of EU funding systems. Current government policy is to implement after December 2020 a new Shared Prosperity Fund to replace the EU structural funds system in the UK, and to introduce a domestic system to replace EU rural and farm payments.