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Brexit - the countdown to customs and border controls

30/01/2020

The date has been postponed on several occasions but now the day is here. The United Kingdom will leave the EU on midnight (CET) on 31 January 2020.

Transition period

The transition period begins thereafter. This fixed period agreed in the Withdrawal Agreement will last until 31 December 2020. Although the UK is no longer an EU Member State and thus loses its voting right in EU bodies it will however continue to be treated as a Member State by the EU during the transition period. All EU law, with the exception of the provisions which were not binding even before withdrawal, will continue to apply to and in the UK.

In the United Kingdom the continued application of EU law is transposed inter alia by the European Union Withdrawal Agreement Act 2020. For example the German legislator has adopted the Brexit Transition Act in which it is confirmed that German federal laws which are linked to the status as a Member State will also continue to apply to the United Kingdom during the transition period. The other EU Member States must also take such measures in order to ensure that the United Kingdom and its citizens will be treated just as they were in the past.

Extension of transition period? 

The Withdrawal Agreement provides the option of an extension to the transition period to be adopted by joint decision of the EU and the United Kingdom. This decision would have to be adopted before 1 July 2020. The European Union Withdrawal Agreement Act 2020 prevents the responsible British minister from applying to the EU for an extension to the transition period. Even if the relevant provision can still be amended at short notice businesses should be prepared for the transition period ending at midnight on 31 December 2020. By this date the free-trade agreement between the United Kingdom and the EU will also have been concluded. 

Free-trade agreement and customs border from 1 January 2021 

The political declaration agreed between the UK and the EU in addition to the Withdrawal Agreement sets out the direction of travel for future relationships between the EU and the United Kingdom. The focus will be on a "comprehensive and balanced free-trade agreement". In the previous version negotiated by Theresa May a free trade area was sought between the EU and the United Kingdom. The change made on the initiative of the British government is significant: Although the objective is a free-trade agreement with no tariffs, or charges or quantitative restrictions across all sectors for trading goods, a customs border will be erected between the EU and the UK. The political declaration foresees the need for appropriate, accompanying rules of origin and ambitious customs agreements to be negotiated. However, the negotiators are facing major challenges.

Thus, businesses must expect, when importing and exporting goods from and into the United Kingdom that there will be a customs border between the EU and the UK on 1 January 2021. Although agreement may be reached to keep tariffs on some or all categories of goods at 0% this will neither remove the need for customs declarations nor avoid the possibility of checks at the border for deliveries from Germany to the UK. An appropriate infrastructure will be required for this purpose. For example U.K.'s computerised customs declaration software will require an upgrade in order to be able to handle the volume of declarations to be expected, and whether this can be done in time is a matter for concern.

Financial services, data transmission and the free movement of workers 

Given the limited time available, it is assumed that the emphasis of the free-trade agreement will be on the trading goods sector so that the UK will be a third-country state  possibly from 2021 with regard to services. In the political declaration on future relations between the EU and the UK regarding the financial services sector it was announced that a corresponding framework for equivalence decisions is to be drawn up as soon as possible. Also, regarding data protection, the EU will need to make an adequacy decision during the transition period in order to facilitate further data transmission between the EU and the UK. However, in many other sectors the regulatory environment could change significantly. 

The end of the transition period will also herald an end to the free movement of EU citizens as workers in the UK and of citizens of the UK in the EU. Workers from EU Member States who have not yet lived in the UK and are to be deployed there for a significant period of time from the beginning of next year will require a permit. By contrast, EU citizens who arrive before the end of the transition period will be able to make use of the pre-settled status under the EU settlement scheme. This is one area where businesses may consider whether it makes commercial sense to deploy staff to the UK before the end of 2020. Although the UK government does want to introduce a new immigration system this is only one of many areas to be addressed.

Our Brexit Offer 

Your company is also affected by Brexit? Our Brexit team would be pleased to advise you on the implications of leaving the EU. A list of our Brexit specialists can be found here.

For further information and our Brexit checklists please see our Brexit website. These will provide you with a good initial overview of the most important implications in the different legal areas after the transition period has expired. Please also have a look at our blog on our Brexit topic page.

Do feel free to contact our lawyers on our Brexit hotline at any time: +49 711 9764 930.

Authors

John Hammond
John Hammond, M.A. (Oxon)
Partner
Stuttgart