On Monday, the European Commission revealed that it had taken on board the United Kingdom’s request for help in asking third countries to continue to treat Britain as if it were an EU member state during the planned 21-month transition period after Brexit.
The concession was included in a small footnote of the draft UK withdrawal agreement that says: “The union will notify the other parties to these agreements that during the transition period, the United Kingdom is to be treated as a member dtate for the purposes of these agreements.”
The EU’s remaining member states are expected to endorse the political agreement on the transition period which will see the UK apply the entire European rulebook without having a say in it until a new trading relationship is established.
That arrangement “will give businesses like yours the time needed to put in place the new arrangements that are required as the terms of our future partnership become clearer”, Lord Callagan, the Department for Exiting the European Union’s minister for state, told a business audience in Brussels.
The transition agreement requires Britain to apply all the international agreements to which the EU has signed on. In return, the EU accepted that the UK negotiate and conclude its own international deal during the transition period.
The reason the EU made that concession to Britain might have less to do with London’s request than lobbying by European businesses.
Speaking to a group of journalists today, Markus Beyrer, director general of BusinessEurope, said: “To safeguard these 60-plus agreements should be priority No. 1.”
“During the transition, [the UK] will stay in the customs union,” Beyrer said. “And we hope they will stay in as many FTAs as possible. But for this, active steps will be necessary.” Both the UK and the EU need to make a diplomatic effort towards that goal, he added.
Nicolai von Ondarza, a scholar at the German think tank SWP, said that ensuring Britain gets treated as if it were an EU member during the transition is clearly in the bloc’s interests. Otherwise, this could bring distortions into the single market and disrupt supply chains across the Channel. “It is worth the effort of the EU to find a solution with the UK and the third countries,” he said.
The problem is that no third country can be forced to recognise Britain as qualifying for preferential treatment under an existing FTA. Though experts believe that most FTA partners are likely to fall in line in the end, some might ask for concessions and request renegotiations in the FTA text.
It is also likely the short transition period – less than two years – means talks on continuing to recognise the UK as if it were an EU member will become embroiled in longer-term negotiations in which the UK is already engaged as it tries to replicate existing priority trade arrangements.
Here it gets complicated, and the EU will inevitably have to get involved.
Why? Take the iconic ‘Mini’, a brand owned by Germany luxury car producer BMW, which has production sites in Britain and the Netherlands. The way the Mini Cooper supply chain is organised in the EU’s single market means that once Britain exits, the vehicle will probably no longer qualify as either originating in the bloc nor as originating in Britain under the rules of origin of the EU-South Korea free trade pact.
“This is a very highly integrated supply chain that has been developed over many years,” noted Ian Robertson, a representative of BMW Group’s UK operations. His company shifts around assembled cars, motor engines and components across the EU.
“This is a totally integrated finished goods and totally integrated component manufacturer,” Robertson said of BMW.
The EU will only be able to send the promised notifications to third countries once the transition period is a certainty – this means not before October, if negotiations progress as planned. This prolongs uncertainty over the third-country issue.
Britain’s departure from the EU is disrupting a wide web of trade relationships that reaches well beyond its single market and customs union membership. Agreeing to a status quo transition period is probably only one minor step in avoiding abrupt ruptures.