One of the most notable difficulties in keeping up with the UK’s shifting Brexit situation is the speed with which changes occur at home, while progress in negotiations appears to be crawling. One of the most significant developments to have emerged over the summer has been the debate raging within the government over the possibility of a transitional deal between the UK and the EU. What would such a deal involve, and what impact might it have on doing business abroad?
What is a transitional deal?
A transitional Brexit deal would involve the UK and EU implementing a phased separation rather than a sudden and total severance of ties. Between the UK’s official exit at the end of the two-year Article 50 process and the commencement of a new trade deal between the two parties, a temporary agreement would be in place.
The specifics of any such deal, including the length of time for which it would apply, are difficult to predict with any degree of certainty. These will largely depend upon several key areas which will form part of the ongoing negotiations – the UK’s level of access to the single market, for example. If a permanent trade agreement were to be made before the March 2019 negotiating deadline then a transitional deal would no longer be required – however the current pace of talks makes this outcome unlikely.
How might it affect business?
Although opinion continues to be split, an increasing number of voices are warning against the UK cutting its EU ties in one stroke. The independent think tank Institute for Government (IFG) has warned that failure to secure a transition deal could cause the overnight reintroduction of stringent border checks, significantly impacting supply chains and disrupting trade. The IFG predict that the resultant difficulties could leave 180,000 businesses with a combined bill of at least £4 billion within the first year.
Supporters of a transitional deal argue that it would provide a period of stability for the UK economy, in which businesses could begin the process of preparing themselves for operating outside of the EU.
Although the nature of any deal is currently vague and uncertain, a period in which businesses could adjust to the lay of the post-Brexit land would almost certainly be enormously beneficial for companies engaged in overseas trade. In the meantime, businesses who deal heavily with Europe can consider setting up a legal entity within the EU to provide greater security.
How likely is it to happen?
Although the benefits of a deal have been dismissed by the Brexit secretary, David Davis, the idea has support from several major figures within the government, including the chancellor Philip Hammond. There is also growing dissent within the Conservative party over a hardline approach to Brexit.
With Labour also signalling support for temporary, or even permanent, membership of the single market, the likelihood of some form of transitional arrangement has undoubtedly increased.
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