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Agreement on standstill transitional arrangements between UK and EU27 is now urgent

14 December 2017

Treasury Committee report says transition must be simple enough to negotiate within a matter of weeks.

Report Summary

  • The Committee supports a time-limited ‘standstill' transition arrangement after the Article 50 negotiations conclude, and welcomes the broad alignment between the UK and EU27 on this issue.
  • It agrees with the Chancellor that transitional arrangements are “a wasting asset”. They should be sufficiently simple to negotiate within a matter of weeks, to provide early certainty from 30 March 2019, and to maximise the time available for subsequent discussion on the future framework for trade.
  • It is highly likely that for certain sectors, including financial services, the ‘standstill' transition period will have to be followed by an adaption period, once the terms of the future relationship become known with clarity.
  • The Committee strongly supports the Government's objective of maintaining “the freest and most frictionless trade possible”, but considers it “very challenging” for the terms of the ‘bespoke' free trade agreement envisaged by the Government to be fully agreed within the Article 50 process.
  • Taking this into account, there are two broad possible outcomes for UK-EU trade on 30 March 2019: a reversion to a trade relationship based on WTO commitments (so-called “no deal”), or the preservation, on a temporary basis, of the status quo, through a standstill transition.
  • The difference between these two outcomes is dramatic, and it is overwhelmingly in the economic interests of both the UK and the EU to reach an agreement on transition.
  • The Government appears to consider it inevitable that arrangements would be reached in the dying days of the Article 50 process to mitigate the most disruptive consequences of a ‘no deal' scenario. But the history of international trade diplomacy is replete with examples of short-sighted political considerations prevailing over economic self-interest.
  • Firms are starting to take action to prepare for a ‘no deal' scenario, and this will gather momentum over time. Reaching an agreement on transition is therefore an urgent priority. If it expedites the negotiations, the Government should not rule out a transition arrangement that encompasses EU rules beyond those pertaining to the Single Market and Customs Union, and retains, on a temporary basis, the principles of direct effect and supremacy of EU law. Visible disagreement between the parties on these points of principle would lead to a loss of confidence among businesses, and diminish the value of whatever is eventually negotiated.
  • The Committee heard two reasonable ways of giving effect to a ‘standstill' transition:
    o By appending relevant Treaty provisions to the Withdrawal Agreement
    o By specifying in the Withdrawal Agreement which Treaty provisions will continue to apply
  • Transitional arrangements would exist to allow preparation for the UK's future outside the EU. Nothing in the Withdrawal Agreement should prevent the UK from starting the process of establishing independent trade relationships during the transition period.

Chair's comment

Commenting on the Report, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee, said:

"The Treasury Committee, a cross-party group consisting of Members with a wide range of views on Brexit, is unanimous in its view that an agreement between the UK and EU27 on ‘standstill' transitional arrangements is now urgent.

The consequences of failing to reach an agreement are dramatic and damaging. Many businesses will begin to prepare for a ‘no deal' outcome—moving jobs and activity, and incurring potentially unnecessary expenditure—early next year.

Transitional arrangements must therefore be straightforward enough to negotiate in a matter of weeks.

Speed is of the essence. Delays to agreements caused by arguments over arcane points of principle could damage the economy. The Government should be prepared to accept the terms on which transition is offered by the EU27.

This may well include accepting EU rules beyond those of the Single Market and Customs Union; and it is likely to involve retaining, on a temporary basis, the jurisdiction of the ECJ, and the direct effect and supremacy of EU law. That is a price worth paying for stability and certainty after 30 March 2019."

Sub-Committee Chair's comment

John Mann MP, Chair of the Treasury Sub-Committee, said:

"The difference between a ‘no-deal' scenario and the temporary preservation of the status quo is dramatic. A ‘no-deal' scenario would be damaging to both sides; a ‘standstill' transition is in the interests of both the UK and the EU27

In particular, a ‘standstill' transition would mitigate the major risk that HMRC's Customs Declarations Service is not ready in time for 30 March 2019.

If this project were to fail, the Committee remains to be convinced that contingency plans exist to avoid the severe disruption to goods that would occur in an unplanned ‘no-deal' scenario."

Further information

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