28 March 2018

Update

EU & UK negotiators agree status-quo transition period as talks begin on the future economic relationship

Last week’s formal announcement on an EU/UK 21-month status-quo transition agreement marks a positive step forward for business. Although some sectors need much greater legal certainty, the transition deal reached last week will help to lift the fog of uncertainty for many businesses. 

EU & UK negotiators agree status-quo transition period as talks begin on the future economic relationship

Business breathed a sigh of relief last week as the leaders of EU27 countries agreed the draft Brexit withdrawal agreement and approve guidelines on the future relationship. Though some sectors need much greater legal certainty, for others it will be enough to pause contingency planning and maintain investment in the UK.

While the agreement on a 21-month transition period until 31 December 2020 is a major breakthrough, this agreement will only become legally binding once the negotiations on the withdrawal agreement are finalised and then ratified by the EU and UK parliaments.

Read the CBI’s analysis of the March European Council summit and what it means for business

The two sides reached "complete agreement" on the divorce bill and on citizens’ rights, so that any EU citizens who come to the UK during transition will have the same rights and guarantees as those who reside in the UK before Brexit. The UK will also be able to sign and ratify new trade deals during this period, although these will only come into effect once the transition period is over.

However, the Irish border remains unresolved and the EU has insisted the withdrawal agreement must include an emergency "backstop" option to avoid a hard border. Crucially, UK Prime Minister, Theresa May, dismissed this option in her Mansion House Speech on the grounds of threatening “constitution sovereignty” of the UK. Negotiators must urgently agree an effective and realistic solution on the Irish border.

Businesses have been clear that any solution to the Irish border must safeguard vital trade. Given 37% of Northern Ireland’s exports go to the Republic of Ireland each year, the economic evidence shows that some form of customs union with the EU is necessary to ensure frictionless trade and avert a hard border between the Republic and Northern Ireland.

The agreement reached on transition shows what can be achieved when people and prosperity are placed above political ideology which is something the CBI has been calling for since last summer.

Both sides must now turn their attention to resolving the remaining points of disagreement within the withdrawal agreement as we head towards the ratification process in October. The CBI will continue to work with UK and EU negotiators to reach an ambitious new future economic relationship that maintains frictionless trade and economic prosperity across the whole of the UK.

For more information, insight and intelligence on the latest Brexit developments and its implications, visit the CBI’s Brexit hub, or contact EUNegotiations@cbi.org.uk.