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Brexit – not an end but a new beginning

Friday, January 31, 2020

On 31 January 2020, the United Kingdom will leave the European Union. Following a calamitous Brexit negotiation process and after the change of three British governments since the referendum in 2016, the UK will quit the community it joined in 1973. However, on 01 February the UK although de jure will not be part of the EU anymore, de facto will continue to apply the EU laws that govern everything from trade to energy policy during a transition period until the end of 2020.

Thus, although the British MEPs will no longer sit in the EP hemicycle, the British ministers and their teams will no longer attend the Council meetings after 47 years of collaboration and the Union Jack will be lowered from the EU institutional buildings, very little will actually change until the end of the transition period. Certainly, when it comes to ordinary citizens or companies, this major political change will become evident after the transition period is over.

The British Prime Minister, Boris Johnson, has vowed to not allow any more extensions and delays to the British detangling from the EU. However, if this promise is to be kept, it sets a very ambitious timeline for agreeing upon and adopting the largest and broadest free trade agreement the UK has made to date with its biggest trading partner. Only from then on, the UK can effectively deviate from EU rules.

When it comes to the future agreement, the negotiations are expected to be carried out in a parallel way by opening numerous chapters in various domains at the same time. On the EU side the chief Brexit negotiator, Mr Michel Barnier, will take on the role of chief trade negotiator and is expected to work with the various commissioners for the different files but most importantly the EU Irish Trade Commissioner, Mr Phil Hogan.

Whatever the future agreement looks like, it will probably not be like the case of Norway since there are plenty of red lines for the UK – importantly – contribution to the EU budget and regulatory oversight. Additionally, the future agreement probably will also not resemble the case of Switzerland, which has a highly complex relationship with the EU that is governed by more than 100 agreements covering various trade and bilateral relations. A number of high-level EU diplomats voiced their reluctance to pursue such porous and privileged so-called pick-and-choose trade deal.

Additionally, both parties have agreed on Northern Ireland remaining part of the UK while also remaining part of the single EU market, which among many other things means that EU laws governing wholesale electricity markets will still apply to Northern Ireland (unless the Northern Irish Assembly votes otherwise).

Thus, given its importance in trade and security, as well as the new immediate border, the UK will not be like any “other” third country for the EU. This leads to becoming a new type of a special partner for the Union – a new case with lots of asterisks on trade, customs, tariffs and so on… maybe something more like a Canadian-like big and unique agreement with an additional special EU border as well.

Based on the Withdrawal Agreement, the future of interconnectors should be ensured when it comes to security of supply. However, there is still a lot of uncertainty on what a future agreement on energy would include and whether the two sides would apply some kind of tariffs or whether they would decide to put an asterisks for some of the energy related bodies and put possibilities of exemptions as strategic projects that are needed.

Currently, the UK imports around 12% of its gas and 5% of its electricity through interconnectors to EU countries and also uses them for balancing its energy system, which has an increased amount of renewables (primarily wind energy). After Brexit, the future use of this system remains uncertain since if the UK is not part of the single market the goods (i.e. energy) will be taxed in one way or another, which would make the price for the final consumer higher, meaning that at the end of the day the consumer will be paying the price for Brexit.

On both sides of the channel the need for interconnectors linking Great Britain to mainland Europe is foreseen in various national and EU reports (e.g. UK’s BEIS and OFGEM foresee growth in interconnectors and continued/increased trade with the EU in their 2030/2050 plans for decarbonisation). However, the uncertainty around the future energy and climate part of the deal delays and can even halt some of these projects.

During the last session of the British MEPs when they bid farewell to their colleagues, the hemicycle erupted into a rendition of “Auld Lang Syne”. Indeed, since the hard work of trade talks and deal-making starts now it will be very hard for anyone dealing with these matters and future cross border relations and projects to forget the old acquaintances.