19-12-2019

Brexit: Transition phase bears serious risks

With Boris Johnson's majority, the regulated Brexit has become likely by 31.1.2020. However, the time and political risks in the transition phase until the Free Trade Agreement comes into force pose an economic threat to the UK and the EU. 

The precondition for the Brexit is that the House of Commons accepts the negotiated withdrawal agreement, which Johnson renegotiated with the EU on 17 October 2019. A transitional period until the end of 2020 would bridge the period until a new trade agreement between the UK and the EU comes into force. A dramatic economic slump is therefore unlikely, but there is a clear risk for economic development in the UK, according to cep expert Bert Van Roosebeke. "It seems unrealistic to negotiate and adopt a new free trade agreement in just one year. Especially as this treaty must be approved as a 'mixed treaty' by all (sub)national parliaments of the EU member states. The CETA free trade agreement between the EU and Canada for example was almost brought to a standstill by the Walloon parliament in 2016." 

Given that Johnson has ruled out an extension of the transitional period beyond 2020, there is a serious risk that the transition period expires in the absence of a free trade agreement. In that case, the EU and the United Kingdom will revert to WTO law.  This is likely to have negative economic effects, according to Van Roosebeke: “As economic players already see this risk as significant, there will be no investment and the negative impact will soon be felt."