Brexit Update: U.K. Brexit Day – The Transition from The European Union Commences

Following a referendum in June 2016 , the United Kingdom (U.K.) finally leaves the European Union (EU) today, which is the start of a transition period to new relationships with both the EU and the U.S.

Last week, the U.K. Parliament passed the Withdrawal Agreement Bill, which subsequently received Royal Assent to become law as the European Union (Withdrawal Agreement) Act 2020 (WAA). On 29 January, the EU Parliament and Council gave their consent to the Withdrawal Agreement. The U.K. will leave the EU on Friday, 31 January at 23:00 GMT (midnight in Brussels).

However, not much will change immediately. This is not the end of the process. Rather, it is the beginning of what could be a long process of disengagement and negotiation of future trade deals with both the EU and other countries, including the U.S. Although the U.K. will be legally outside of the EU, the WAA enacts a “transition period” where the U.K. will follow all EU rules as if it was still a Member State until 31 December 2020 unless both sides agree an extension. The WAA includes a (politically symbolic) provision that prohibits any extension beyond 2020. This is intended to focus both sides’ minds on negotiating the withdrawal in as short a time as possible, although this could be legislated to change in future if needed.

The WAA implements the U.K.-EU Withdrawal Agreement (see our update for more information on the deal). In addition to giving effect to the transition period, the WAA serves a number of other purposes.

• The WAA preserves the effects of the European Communities Act 1972 (the statute that gives effect to EU law in the U.K., which will be repealed on Friday), essentially ensuring the law functions on 1 February exactly as it did on 31 January. Therefore, EU laws (including those relating to employees, health and safety, clinical trials, and data privacy) will not immediately fall away.
• It saves EU-derived domestic legislation and enables EU-related terminology in U.K. law to operate properly; for instance, defining what is meant by some terms so that the legislation will make sense when it refers to EU, European Economic Area (EEA) or Member State in law. Therefore, while EU law is imported wholesale, the U.K. will be free to modify those laws in future according to the wishes of the U.K. Parliament, which will now be the supreme decision maker.
• It sets out where the European Court of Justice will continue to play a role in the U.K., and it makes the Withdrawal Agreement supreme over other areas of U.K. law in some respects.
• It provides for payments by the U.K. to the EU for its future obligations (the so-called “divorce bill”).
• It ensures the Withdrawal Agreement provisions will take effect at the end of the transition period, which include:
  • The EU citizens' rights provisions (including the EU Settlement Scheme).
  • Implementation of the Northern Ireland protocol.

The next stage of the Brexit process will involve intensive negotiations between the U.K. and EU on their future relationship, with negotiations expected to begin in March. The negotiations will be driven by political considerations and the respective strategic priorities of the EU and the U.K. At a high level, the EU will want the U.K. to align as closely as possible to EU rules in return for access to the EU Single Market to avoid having an economically powerful competitor subject to fewer regulatory burdens on its doorstep. On the other hand, the U.K. will seek to maintain access to EU markets on economically advantageous terms while reducing (or modifying) regulatory obligations and, crucially, maintaining control of its immigration policy. While freedom of movement will continue to apply during the transition period, U.K. immigration rules are likely to be subject to significant change, and U.S. businesses operating across Europe will need to review the mobility of their workforce between the U.K. and EU.

Discussions on ostensibly technical or sector-specific issues, such as equivalence of financial services regulations, adequacy of data protection laws, product and food safety and standards, and agricultural and fisheries policies will be part of broader political negotiations, which are likely to take up the remainder of 2020. In parallel, the U.K. and the U.S. will seek to negotiate a comprehensive free trade deal before the end of the year. The Brexit process is, therefore, far from over, and we will follow up during the course of the year on steps that U.S. businesses should take to prepare for the end of the transition period and a future U.K.-US trade deal.