Brexit: What happens on 31.01.2020 at midnight?
In late September 2018, it was said to be another six months until Brexit (our News of 29 September 2018). Now it is actually about to happen. The United Kingdom (UK) will leave the European Union (EU). We summarise the key issues for you below, especially from the perspective of customs and foreign trade law:
Which documents are actually relevant?
Essentially there are two. They deal with the withdrawal of the UK, firstly from the perspective of Germany, and secondly from the perspective of EU law. Here are the links
What are the phases?
- The UK’s withdrawal application under Article 50 of the Treaty on European Union triggered phase 1. This phase will end once the Withdrawal Agreement comes into effect at 11pm GMT on 31 January 2020; see Article 185 of the Withdrawal Agreement. The Withdrawal Agreement must of course still be ratified by the European Parliament on 29 January 2020.
- Phase 2: the transition period within the meaning of Article 126 of the Withdrawal Agreement. This will of course last only until 31 December 2020. Article 132 of the Withdrawal Agreement provides for the option of extending the transition period by one or two years. But London does not want to think about any further extension at all and is even considering ruling such out an extension by law; it is unlikely that the political wind will change direction, particularly since the extension would have to be requested before 1 July 2020.
- Phase 3 begins upon the end of the transition period and harbours the greatest uncertainties. Ideally, at the end of 2020 there will already be a trade agreement – but given the duration of negotiating such a complex agreement, scepticism is permitted, or even essential. The year 2021 could thus start with a – slightly diluted – hard Brexit. ‘Slightly diluted’ because the Withdrawal Agreement also deals with the time after the end of the transition period.
So what happens after 31 January 2020?
Upon completion of the withdrawal under Article 50 of the Treaty on European Union, the UK loses the status of an EU Member State and becomes a ‘third country’. The shipping of dual-use goods, for example, would in principle require an export licence; each shipment of goods would be subject to customs duties and the hurdles of customs procedures. In order to avoid this, both Germany and the EU have resorted to a convenient workaround: while the UK will no longer be an EU member, for the purposes of German or EU law, however, it will count as such during the transition period:
- Under German federal law, section 1 of the Transitional Brexit Act ensures precisely this workaround. The problematic reference therein to the long-outdated agreement published in February 2019 has already been corrected by Article 9 of amending law mentioned above. That means that wherever federal law places special restrictions on trade with third countries, for example in the Foreign Trade and Payments Ordinance, these do not apply to the UK. And wherever federal law grants privileges for trade with EU Member States, these apply to the UK. After all, in the transition period, everything is meant to basically remain the same.
- On the German regional level, it is incumbent on the parliaments of the Länder to enact appropriate laws – which may well happen. Like the federal Act, these date back to March 2019, as far as can be seen, and thus likewise still require further adjustment, where this has not already been done.
- Under EU law, the same principle applies due to Part Four of the Withdrawal Agreement. Article 127 provides in section 1, subsection 1, that EU law will continue to apply to the UK and in the UK up to the end of the transition period. Exceptions only apply if they were expressly stipulated by the Withdrawal Agreement. As far as can be seen, these exceptions concern neither customs nor foreign trade law.
And what happens after the end of the transition period?
Either the new provisions of a free trade agreement or (which cannot be ruled out altogether) a further bridging agreement will apply, or ‘only’ WTO rules will apply in principle. The Withdrawal Agreement nevertheless lays down the following principles in the event of a hard Brexit:
- With regard to ongoing procedures and proceedings – i.e. those begun before the end of the transition period and to be completed afterwards – EU law is not to end overnight. Instead, the principle will apply that procedures/proceedings begun under EU law are also to be completed under EU law. Thus in this model, Articles 47 onwards will govern ongoing customs procedures. In detail, peculiarities may of course always arise. Thus for example the presumption rule of Art. 153 of the Union Customs Code will only apply to Union goods in liner shipping; also, a proof of status (previously irrelevant) could thus be necessary after the end of the transition period. Deliveries started before the end of the transition period are generally to be treated ‘like deliveries in the European Union’. For the shipping of dual-use goods (excluding items listed in Annex IV) started before the end of the transition period, export licences will therefore not suddenly need to be obtained.
- Administrative cooperation will initially continue. This concerns procedures started before the end of the transition period and those which are started up to three years afterwards but relate to the period before. Article 98 of the Withdrawal Agreement specifies this for customs matters, for example. Specifically, this can be a procedure of administrative assistance in the context of the customs duties collection, communication on returned goods or the sharing of information regarding the control of dual-use goods. Similar rules generally apply to court and administrative proceedings.
- The UK’s access to IT infrastructure (networks, information system, databases) will still exist for a certain period in many instances. In customs law, this concerns for example NCTS for shipping procedures (until 31 January 2021) or EOS/EORI (read-only access until 31 December 2021); see details in Annex IV of the Withdrawal Agreement in conjunction with Articles 50, 53 and 99 onwards.
If no trade agreement is achieved for the phase after the end of the transition period and insofar as the Withdrawal Agreement does not expressly create transitions or simplifications, the UK must be regarded as a third country. And what then? For the Brexit which was not carried out after all in March 2019 the EU and Germany operated with new General Permits (amendment of EU001, enactment of AGG 15) in foreign trade dealings. This may be repeated in the event of a hard Brexit in 2021. Dual-use goods, except for the items specified in Annex IIg of the Dual-Use Regulation, could be then exported in a simplified manner. Easing of import custom duties at least on the part of the UK is likewise to be expected, for example in the form of the Transitional Simplified Procedures announced in the past, together with a temporary suspension of customs duties. Regrettably, the administrative effort and financial expense will increase. And the volatile legal situation should be monitored with particular attention. We will keep you posted.
Any questions? Please contact: Dr Bärbel Sachs and Dr Johannes Schäffer
Practice Groups: Regulatory & Governmental Affairs