Brexit EU – UK deal announced – Hogan Lovells commentary

LONDON, 24 December 2020 – The UK and EU have announced today that they have reached a deal that will determine the framework for the new UK-EU relationship effective from 1 January. It remains subject to formal approval and ratification by both sides.

While its 2,000-plus pages cover a lot of ground, it is focused on trade in goods and related issues. When compared with the UK's current integration in the EU's wide-ranging legal, regulatory, and economic structures, the deal still marks a fundamental shift in the EU-UK relationship.

As a result, 1 January 2021 will see significant change for any business which operates in the UK or which services EU and UK markets. Many rules that govern how businesses deal with the EU/UK border or how businesses operate in the UK will change immediately. And, for every business operating in or through the UK, it will mean a new legal regime, which will be interpreted, enforced, and developed in the future in different ways.

Today's deal also leaves significant areas of uncertainty. Key areas are left unresolved. Looking to the future, it is possible the two sides may reach further agreement in specific areas. But divergence is also likely as the UK seeks to use its new-found flexibility to enhance its position as a distinct and attractive destination for international business, particularly in high-skill areas such as technology and life sciences.

This is a defining development not only for business in the UK but also for EU businesses and for global businesses with operations, customers, or suppliers in Europe.

Responding to the news, Charles Brasted, Head of the UK Global Regulatory practice and co-lead of the Hogan Lovells Brexit taskforce, said:

"This is a seminal moment for the UK. With today's announcement, the UK and EU have provided welcome certainty on key issues such as trade in goods and related issues. This will mean less disruption in the beginning of the new year and beyond for businesses around the world.

"There is much detail to study in the new agreement, and more steps before it crystallises into law. One thing that we know will change is how rules are interpreted and applied in the UK, in the context of two separate EU and UK systems. Vast amounts of previously EU-derived law and regulation in the UK will be on a new legal footing from 1 January 2021 and potentially open to reinterpretation in its new post-Brexit context.

"Businesses in the UK whose operations are currently affected by EU law should be prepared to manage the risks and capitalise on the opportunities that could arise from this legal uncertainty. Any area of law, regulation or policy in the UK previously touched by EU law, is potentially affected. Businesses and their advisors cannot assume that familiar laws and rules will not become faux amis."

Robert Gardener, Director of Government Affairs at Hogan Lovells, added: "We have always said there would be a deal. Now, more than before, the political will is as much of an obstacle or facilitator as any substantial matter of policy or even law. Brexit began as a political ideal and so it has required political will to push it through."

Aline Doussin, partner and Head of the UK Trade practice, said: "Today's announcement provides welcome clarity on tariffs, quotas and other trade barriers coming into force for businesses exporting internationally. However, it is worth noting that a trade deal with the EU27 may minimise the financial impacts of paying duties but it will not make trade frictionless with the EU nor will it eliminate customs checks because border checks are now legally required for EU27 and UK trade. We would still expect some border delays on both sides of the Channel, so businesses should continue to implement their customs Brexit plans regardless of the terms of the FTA and continue to prepare to ensure they are able to continue to trade with the EU27 from 1 January onwards."

Businesses should avoid short-term thinking and also consider the long-term impacts of Brexit. Susan Bright, UK Managing Partner and co-lead of the Hogan Lovells Brexit taskforce, said: "We expect the political, market and regulatory uncertainty created by Brexit and COVID-19 to have major implications in the medium to long term for both UK and international businesses. Businesses will need to think through, in a detailed and systematic way, how to take advantage of the opportunities, as well as manage the risks over the coming years."

For further information on the work the Hogan Lovells Brexit Taskforce is doing to assist businesses in assessing the Brexit effect, please visit the Hogan Lovells Brexit Hub page or follow the #BrexitEffect hashtag on Twitter.

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