CONTENT PREVIEW
Country Risk

EU proposal to end post-Brexit transition by December 2020 increases pressure on UK ahead of trade talks

21 December 2017
European Union Chief Negotiator Michel Barnier during a press conference at the European Commission in Brussels on 20 December 2017. Source: Dursun Aydemir/Anadolu Agency/Getty Images

Key Points

  • As it is politically, legally, and technically unfeasible to reach a fully fledged free trade agreement during the second phase of Brexit talks, it is likely that negotiations will continue during a post-Brexit transition period after March 2019.
  • The UK government’s recent acknowledgement that the country will likely accept wide-reaching equivalence of current relations with the European Union during that time is risk-positive.
  • However, levels of uncertainty remain heightened due to the current lack of detail on the United Kingdom’s desired future trade relations with the EU and different viewpoints on the duration of transition.
  • In 2018, progress in Brexit negotiations is at risk of being hampered by domestic political developments in the UK.
  • In addition, there is an elevated risk that the EU’s current strength in negotiations translates into limited willingness for compromise to accommodate UK priorities.

Event

Following the European Union’s recent agreement with the United Kingdom to move Brexit negotiations to the second phase, talks about future trade relations will commence in March 2018.

On 20 December, European Union Chief Negotiator Michel Barnier presented the EU’s latest draft negotiating guidelines, stating that the EU would like to end any form of post-Brexit transition period on 31 December 2020. This would coincide with the conclusion of the EU’s current Multiannual Financial Framework (MFF), which the United Kingdom has committed to and that will be the last MFF that will benefit from the UK as a net payer to the EU. The UK government had previously indicated that it would prefer a transition phase to last for two years until April 2021. Prior to this, on 14–15 December, the EU’s heads of states and governments decided at a crucial summit in Brussels to commence with talks about post-Brexit UK-EU trade relations in March 2018.

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