Brexit: What happens with Brexit after Boris Johnson's decisive win at the general election?

Events before the general election and the result hereof 

In October Boris Johnson and the EU revised the withdrawal agreement and political declaration. The main changes to the withdrawal agreement and the political declaration concerned the border between Northern Ireland and Ireland (the so-called "Irish backstop"). The political declaration about the future relationship, including the trade between EU and UK, was, however, also amended due to a change in the UK Government's position on alignment with EU legislation.

In last week's general election Boris Johnson and the Conservative party won a landslide victory. With 365 seats in parliament the Conservative party enjoyed its best election results since 1987, given the Conservatives absolute majority and a strong position from which to effect Brexit. 

The legislation needed to give the withdrawal agreement legal effect must be adopted by the UK Parliament and the European Parliament before 31 January 2020, however, this is expected to go through although hard-liners in the UK may try to oppose any sort of an agreement regarding Brexit. 

What should companies do now?

From the date of ratification and until 31 December 2020 a transition period will take effect, cf. article 126 of the withdrawal agreement. In the transition period, companies will experience very few changes in their trade relations, as EU legislation will continue to apply in the UK. 

The transition period is vital for companies' trade relations, as the end of the transition period marks a new milestone in the Brexit saga. Three possible scenarios can be identified after 31 December 2020:

i. The UK and EU agree to extend the transition period. The transition period can be extended for up to two years, if decided before 1 July 2020, cf. article 132. 

ii. The UK and EU have agreed and entered into a trade agreement. In the revised political declaration UK has stated that it will opt for a free trade agreement with the EU. Negotiations are, however, to a large extent still awaiting ratification of the withdrawal agreement and it is doubtful whether the UK and EU can agree on such a complex agreement within less than a year.

iii. The UK and EU do not enter into a trade agreement nor do they extend the transition period. In this case Brexit will once again become a "no deal Brexit". Trade relations between EU and UK would then as a starting point be regulated by the World Trade Organisation (WTO) rules, although certain protective measures will apply in order to avoid a hard border (physical) between Ireland and Northern Ireland.

In the coming year, the UK and EU will commence negotiations for a trade agreement. It is
expected that Boris Johnson will stand firm on securing an advantageous agreement for British companies. In this regard, Boris Johnson has publicly expressed his aversion to extending the transition period, as he prefers a clean cut with EU. If a trade agreement has therefore not been entered into by late 2020, Boris Johnson may once again threaten with a "no deal Brexit" as the fall-back scenario.

What do companies need to do now?

Due to the transition period, companies now have an extension in which to prepare for the upcoming Brexit. It is not possible to foresee the future outcome in detail due to the many uncertainties regarding Brexit. However, we recommend that companies proactively plan for Brexit at the end of the transition period, being either a "no-deal Brexit" or a Brexit with a limited free trade agreement.  

Proactively planning can involve a value chain analyses of customers and suppliers, e.g.:

i. Review up- and down-stream contracts with a specific focus on delivery obligations set via, for example, incoterms, as the UK leaving the EU Customs Union may in some cases increase the cost of delivery/receipt of goods and services. Further, if the UK currently is the company's gateway to the Single Market then it should be thoroughly considered whether the setup should be adjusted in the future.

ii. Identify potential problems with data protection, as UK will not remain a part of the EU data protection rules. To continue to transfer data on the same basis as today, companies must consider and implement necessary protectionary steps in the same manner as if it were transferring data to a country outside the EU (a so-called 'third country').

iii. Identify the company's EU-based IP rights (for example EU trademarks or design rights), as these will be converted to comparable UK rights after Brexit and, in turn, subject to the genuine use of the IP rights within the relevant territories. 

The above are just a few of the potential legal issues which companies should consider during the transition period. Furthermore, companies should be aware of the potential increase in administrative burden and its impact on the company's ability to fulfil its obligations pursuant to its contracts.

If your business or Brexit taskforce has questions regarding the interpretation of your contracts in the light of Brexit or has other questions regarding the impact of Brexit on your existing business, we are happy to elaborate further.