The EU will respect this deadline in good faith and limit the scope of trade negotiations to what can be achieved in 11 months. The European Commission is working on a “basic package with a basic free trade agreement for products linked to a level playing field, governance, external and internal security and fisheries.” The trade negotiations are led by the EU`s chief negotiator, Michel Barnier, who also stressed that negotiations must take place gradually with the first phase of the talks, focusing on duty-free trade on goods, equal conditions of competition and access to thought water. The United Kingdom has opted for a regime that requires EU citizens to apply for a new resident status known as “settled” or “pre-settled.” It is not yet clear whether each EU-27 will exercise its discretion under the withdrawal agreement to force British residents to apply for a new resident status. During the transitional period, the UK and the EU-27 will seek to conclude the agreement that will strengthen their trade relations after the end of the transition period. On the basis of the revised political declaration, the EU and the United Kingdom appear to be aiming for a comprehensive but “classic” free trade agreement for goods, services and investment. The political statement is thin in detail, but trade in goods will be based on a free trade agreement that will at least guarantee that there will be no tariffs or quotas, as well as some degree of regulatory alignment with the EU. However, as a result of the free trade agreement, customs controls are required, requiring each party to prove that the goods originate from their respective customs territory, in order to obtain duty-free treatment. This means that the UK and the EU-27 must now agree on detailed rules of origin. This is probably a complex and tedious process. At least companies need to think about the rules of origin they want for different products and start putting pressure on them as soon as the UK and eu start negotiating the new free trade agreement. It is encouraging to note that the scope of the future trade regime appears to encompass services, including financial services and investment (although the agreement is in turn very detailed) and that it provides assurance that the agreement on future relations will offer a liberalisation of trade in services well beyond the obligations of the United Kingdom and the WTO.
It is essential that the transition period can be extended by a mutual agreement between the EU and the UK. Please note that, in accordance with the agreement, the transitional period can only be extended once until 31 December 2022 and that the United Kingdom and the European Union must make a decision by 1 July 2020 on whether such an extension should be made.