The House of Commons Treasury Committee (Committee) has published a report entitled, Transitional arrangements for exiting the European Union. The report discusses how the UK can move from its position within the EU to its end-state relationship in a smooth and orderly way, particularly when the final relationship might not be fully agreed on 30 March 2019.
The report concludes the following:
- the Committee supports the Government’s proposal for a time limited arrangement after the Article 50 negotiations conclude, and welcome the alignment between the UK and EU27 on the core objective of this arrangement, namely, that the same common rules of trade should continue to apply in the UK and the EU as existed at the point of the UK’s formal exit;
- the “standstill” transitional arrangement must be sufficiently simple to negotiate within a matter of weeks, to provide early certainty about the legal framework for trade from 30 March 2019, and maximise the time available for subsequent discussions on the future framework for trade;
- there remain differences between the two sides as to the purpose of transitional arrangements. The EU27 use the term “transition” and envisage negotiations on a long-term trade deal continuing during the interim period, while the UK is a third country. The Government uses the term “implementation”, and maintains that the purpose of this period is to provide time to adapt to a trade relationship that will be known and agreed by the end of 2018, when the Article 50 talks are expected to conclude;
- the Committee strongly supports the Government’s objective of maintaining the “freest and most frictionless trade possible” through a “bold and ambitious” trade deal with the EU. However, it considers it very challenging for the completed details of the bespoke free trade agreement envisaged by the Government to be fully agreed within the Article 50 timeframe. More importantly, businesses do not have confidence that the future relationship will be known and agreed by March 2019. The Government should seek, by the end of the Article 50 process, an agreed framework for the future trade agreement and a clear direction of travel;
- it is highly likely that, for certain sectors, including financial services, the standstill transition period will have to be followed by an adaptation period that provides time to adjust to changes to the legal and operational environment under the future trade relationship, once it is known with clarity. At this stage, the Committee makes no recommendations about the design or duration of this subsequent period, expect that, unlike the standstill period, it need not involve the UK applying the existing framework of EU rules across all sectors. The report further notes that in practice, there are two broad categories of outcome for the UK’s economic relationship with the EU on 30 March 2019: (i) a reversion to a trade relationship based on World Trade Organisation commitments; or (ii) the preservation, on a temporary basis, of the status quo. In terms of their economic impact on both the UK and EU27, the difference between these two outcomes is dramatic; and
- there is also scope for differences between the two sides on the governance of the interim period, and in particular how the existing structure of EU rules and regulations can be given effect in the UK after the EU Treaties have ceased to apply and the European Communities Act 1972 has been repealed.