EU and UK reach agreement on their future relationship beyond 31 December 2020 – initial response from Herbert Smith Freehills

Senior Partner James Palmer commented:

“The reaching of this agreement is good news and we expect it to come into effect on 1 January 2021. All sorts of people wanted all sorts of different outcomes. That is inevitable. But once the UK committed to Brexit, whatever the rhetoric and negotiating positions, achieving agreement became fundamental for both the EU and the UK, or serious harm would have been caused to both. We always saw an agreement as highly likely, given that shared interest.

“The terms reflect the UK’s commitment to free trade and open borders for international business,  but also the context of the EU’s position that, in order to protect the benefits, integrity and unity of the EU and its single market, the UK must lose some of its trade freedoms.

“While many argued for commitments by the UK to align UK rules for the long term to the EU, including going forward, in our view that never made sense: alignment works for members, with membership rights, but to be a pure regulatory “taker” from the EU without membership rights did not look like an acceptable outcome, given the inevitable divergences and differences that lie ahead over time.

“The agreement creates a great basis for restoring the depth of co-operation between the UK and EU, which has inevitably been impacted by what has felt to many like divorce discussions. It also allows the UK, whatever the disadvantages of being outside the EU, to be more agile in setting new regulatory standards and addressing new priorities, such as the green and tech agendas. By definition the EU will be slower to adapt its frameworks on those  issues, simply by virtue of size and complexity of processes. However the UK will not go for low standards; it has historically sought to attract investment by leading with new and higher regulatory standards. That philosophy is likely to continue.

“There is a vast amount of work to be done on the next levels of clarity, but given the UK left the EU from the start of 2020 , this is significant progress for businesses, as compared with the only alternative left on the table.”

Alison Brown, Executive Partner, West, comments:

"Agreeing a deal will be a relief for business. But major change is still coming.

“Throughout the Brexit process, teams across our firm have been helping clients in all markets and parts of the world in preparing for this.  Across a range of sectors, clients have set up new subsidiaries, acquired new regulatory approvals in the EU or the UK, prepared for changed distribution channels and sought to protect their people working across countries.

“But not everything can be expected to run smoothly, and complex systems will come under great pressures - particularly at goods borders."

Brexit Director Paul Butcher comments:

"For business the kind of deal that has been agreed is much closer to not having a deal at all than to EU membership. 

“But having an agreement provides a good basis to seek to remove unnecessary new barriers to trade over time. The UK’s regulatory independence should be able to be consistent with a much better deal for the businesses and consumers of the UK and EU and I expect UK and EU businesses will push hard for this now that the initial frenetic phase of negotiations are over. This is just the start."