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Brexit: UK Says Goodbye, but Not So Fast

07 February 2020   |  

At 11pm GMT on January 31, 2020, the UK officially Brexited. While Prime Minister Boris Johnson and fellow Brexiteers jubilantly celebrated the UK’s departure from the EU, both sides will soon sit back down to discuss what comes next.

Just to clarify, the UK isn’t truly out of the EU: For the remainder of 2020, existing rules pertaining to travel, freedom of movement and trade remain in place. What’s more, the UK will contribute to the EU's budget and is still subject to the European Court of Justice. The most tangible change so far is the UK’s giving up its voting rights in the European Parliament and European Commission. 

Think of January 31 as more like the start of the next act in an exhausting tragicomedy. This new act is called the transition period and will last until the end of 2020—though both sides could agree to an extension before a July 1 cutoff.

Compared to all that’s happened so far, the next act may be less dramatic but is by no means less important. The two sides are set to discuss free trade, financial services passporting, agriculture, fishing, utilities supplies, consumer protections and much more.   

According to UK Chancellor of the Exchequer Sajid Javid, Brexit means the country will no longer “be a rule taker.” But complete regulatory sovereignty is not assured. Agreements will require full approval by all EU member states, the UK parliament and the European parliament. If no progress is made by year’s end, the UK would follow any EU rules set into UK law through the EU Withdrawal Act 2018 and would fall back to international conventions, such as World Trade Organization terms for international trade.  

Even if agreements are reached, the importance of the EU market could leave many UK companies little choice but to adhere to certain EU regulations anyway. Ironically, Brexit means the end of the UK’s moderating influence on EU regulations, raising the possibility of an even tougher regulatory conditions in the EU and ultimately for some UK companies. 

The UK may also negotiate trade deals with other countries. At the top of the list will be the US. While Johnson and President Trump appear to have a chummy relationship, some challenges exist—such as differences between US and EU agriculture, food safety and animal welfare rules. The recent UK decision permitting limited usage of 5G equipment made by China-based Huawei, which the US believes poses a security risk, is another hot-button issue.

The sheer size of the US and China economies also means the countries have significant leverage in negotiations with the UK. The need to reach independent bilateral deals with key trade partners could lead to some tough choices ahead.

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