The Tory general election mantra to “Get Brexit Done” was clear and simple but what does it actually mean for Scottish businesses? Since winning their majority, the Conservatives have reiterated the UK will cease to be an EU member by 31 January and will operate outside Single Market regulation as quickly as possible, with any future UK/EU trade deal needing to be in place by the end of 2020.
In one sense, there is greater certainty in this approach as we know there will be no second referendum and the time timetable for both leaving the EU and the transition period that will follow is now set out very clearly. However, if the transition comes to an end in just under a year (31 December, 2020) it is only a short respite for business with uncertainty as to what any EU/UK trade relationship will look like beyond then. The political declaration which accompanied the withdrawal agreement sets out some parameters for the future trade deal, stating that it would be a comprehensive Canada style relationship, would make this future relationship far looser and less integrated than the current Single Market and Customs Union.
There are some key issues that businesses should monitor as they will give an indication of the potential state of play of the forthcoming negotiations.
Firstly, there is the timetable. At present, the transition period runs to 31 December 2020 with an option to extend for another one or two years. The transition period means that, for most practical purposes, Scottish businesses will still enjoy access to the Single Market effectively on existing terms. If no extension is requested by the UK Government by the deadline date of 30 June 2020, a potential no-deal Brexit and WTO rules applied to trading with the EU becomes more likely. We would expect to see a ramping up of no-deal planning by the UK Government in this scenario.
Attitudes to regulatory convergence by the UK Government is the second important indicator. Some Brexit supporters correctly point out that the UK and EU member states will, at Brexit, share the same regulatory standards. The EU will, however, be looking for reassurances that the UK will not undertake to lower its future standards in areas including food, goods, and employment rights below those that are currently in place. This is key as the less commitment the UK shows towards regulatory convergence, the less access it will likely have to the EU markets and the more restrictive the custom regime will become. This also impacts any future UK trade agreement with the US as the more the UK changes standards to increase US market access, the less access to EU markets it will enjoy and vice-versa.
Prioritisation is a third factor. It is unlikely there will be enough time for a comprehensive deal covering all sectors which means that some, such as manufacturing, will need to be prioritised. Service sectors, including financial services, could therefore be delayed. One important area is ensuring data protection between UK and the EU companies and organisations. This may involve a degree of horse trading where deals on some sectors may be impacted by political manoeuvring by EU member states, such as France, Spain and the Netherlands on fishing rights. Currently there is no clarity as to how sectors not covered by trade agreements would be treated post-2020.
Third country treaties, where the UK presently enjoys access to many international markets due to EU deals, is a fourth point to consider. While the UK will wish to renew these agreements there are potential problems. Countries such as Japan have made it clear that they will temporarily roll over the relevant treaty for the UK but also intend to re-examine it in light of post-Brexit arrangements.
Unravelling 45 years of convergence will take time. It is therefore difficult to see how agreeing and implementing a trade deal by the end of 2020 can be achieved.
The mantra of “Get Brexit Done” was effective in winning the Tories a large majority, but for the moment it is little more than a slogan. Failure to deliver on these challenges around getting Brexit done could impact on Scottish business this year and beyond.
Stephen Phillips, Partner and member of the Brexit Group at CMS