A number of clients have asked me for a glossary of Brexit terms - as the terminology and jargon grows every week.  So here are some of the more common Brexit terms explained:

Article 50: the legal process for the UK leaving the EU: the EU-UK negotiations to agree a deal on the terms on which the UK leaves the EU. This is time limited – it is a two-year period which can be extended if all EU member states agree unanimously. The two-year deadline expired on 29 March 2019.  EU leaders have agreed two extensions to date:  to 12 April and then to 31 October 2019.  31 October 2019 is currently set in EU law as the day the UK leaves the EU.

Brexit: the United Kingdom leaving the European Union.

Customs Union: a single customs area, with no internal tariffs or administrative customs barriers; it also comprises a single EU external tariff regime, with all members applying the same tariffs to third country imports. Members of the EU customs union relinquish their ability to negotiate bilateral trade deals and the EU leads on trade policy with third countries.  Click here for more detail.

Common Market 2.0:  this is a proposal for the future UK relationship with the EU which would combine membership of the customs union (see above) with membership of the EEA (see below). 

Deal: a ‘Deal’ agreement between the UK and EU on a Withdrawal Agreement, setting out terms for ensuring an orderly and smooth Brexit. The ‘Deal’ or withdrawal agreement agreed in principle by the UK government and the EU in November 2018 covers four main things:

  • a guaranteed right to remain for EU citizens currently working and living in the UK
  • a transition period to December 2020 (which can be extended for a further two years) during which access to markets, programmes and regulatory regimes will remain unchanged
  • a guarantee of a permanent open border between Ireland and Northern Ireland, if need be through the whole of the UK staying in the EU customs union after the end of the transition period
  • agreement on the financial settlement paid by the UK to the EU to cover outstanding liabilities.

The Withdrawal Agreement ‘deal’ does not include the final UK-EU relationship; this will be negotiated during a two year ‘transition period’ after the UK has left the EU. The final UK-EU relationship could be one of a number of options which includes EEA or a Free trade Agreement (see below).

EEA: European Economic Area. Also referred to as the ‘Norwegian model’. Members of the EEA (which comprises Norway, Liechtenstein and Iceland as well as all EU members) participate fully in the EU Single Market and must adhere to EU standards and regulations.  Non-EU members of the EEA need to join EFTA (see below) in order to join the EEA. The EEA includes a single market in financial services. EEA membership does not include wider elements of EU membership such as the common agricultural policy or foreign policy. This would allow the UK to negotiate new trade deals except those requiring regulatory changes such as those typically requested by the US. The UK would follow EU regulations and have access to the EU market more or less as now, with some extra restrictions such as customs checks. However, the UK would have to accept continuing freedom of movement of people.

EFTA: the European Free Trade Association (EFTA) is an intergovernmental organisation, currently comprising Iceland, Liechtenstein, Norway and Switzerland. EFTA negotiates free trade agreements with third countries and the EU. EFTA members can also negotiate their own bilateral trade agreements. EFTA is not a customs union and does not have its own legislation. EFTA membership is required to join the EEA if a country is not part of the EU; but not all EFTA members are members of the EEA (Switzerland is not).

EU Council: this is the governmental decision-making body of the European Union, comprising the governments of all the EU member countries.  Meetings of the full EU Council comprise the heads of state of all EU member countries. 

EU Free trade Agreement: the EU has Free Trade Agreements with many countries including Canada, South Korea and Japan. The UK government is currently seeking a comprehensive free trade agreement with the EU (to be negotiated after October 2019) which would provide for tariff-free trade in goods but is likely to have more limited terms on trade in services (including financial services). The EU-Canada free trade agreement is often cited as the model the EU would seek to negotiate (this does not, for example, include passporting of financial services – see below).

No Deal: what happens if the UK and EU fail to reach an agreement on the terms of the UK’s withdrawal from the EU before the article 50 deadline expires. In the event of No Deal, there are no agreements in place to provide a smooth or orderly Brexit; the UK leaves the EU with no agreements in place. Under No Deal, the UK and EU will trade with each other on WTO terms – i.e. treating each other as a third country with no preferential trading arrangements. 

A no-deal Brexit means:

  • No Transition: the UK leaves the EU with few agreements in place to replace existing arrangements on trade
  • UK leaves Customs Union and trades on WTO terms with the EU: EU-UK trade in goods is subject to external tariffs and customs declarations.
  • UK leaves the single market: EU recognition of UK regulatory regimes and standards ceases. There is no automatic access to the EU market for UK goods and services.
  • Free movement of people ends: no automatic right to work or do business except for those already in place; EU health and social security agreements with the UK end. Different immigration rules in each country for UK citizens.

Northern Ireland ‘backstop’: arrangements between the UK and EU to prevent a future border on the island of Ireland and which consist of:

a)     a customs union between the whole of the UK and the EU in order to prevent customs duties and checks, and

b)     a commitment for Northern Ireland to specifically follow EU regulations at a level that is sufficient to ensure that no product checks will be required at the land border in Ireland.

This is designed to support the Good Friday Agreement in Northern Ireland, which ended many years of terrorism by sectarian organisations. The Good Friday Agreement includes a commitment to maintain an open border and open trade between Northern Ireland and Ireland.  Click here for more details.

Passporting: refers to the regulation of financial services. If a certain firm is authorised to undertake certain activities by the regulator of one EU member state, it can apply for a ‘passport’, and it can do business throughout the EU without needing further authorisation.  This is the basis for the EU single market in financial services.

Transition period: a period during which the UK has legally left the EU but continues to trade with the EU on the same terms as if it was an EU member and to adopt any new EU regulations introduced during this period. This ensures a period of stability for businesses and during the transition period there would be no change in access to EU markets, free movement of people or data regulation. This only occurs in the event of a ‘Deal’ or ‘withdrawal agreement’; there is no transition period in the event of a No Deal Brexit.

The Withdrawal Agreement: between the UK and EU is a legal treaty that says that the UK will continue to trade with the EU on current terms until December 2020. If ratified, this ‘transition period’, which starts on the day the UK leaves the EU, can be extended, though probably only until December 2022. Thereafter either a new arrangement will enter into force (e.g. EEA or a Free trade Agreement – see above), or the ‘Irish backstop’ (see above) will come into force.  For more details click here.

WTO terms: the WTO sets minimal, common-denominator rules among 164 countries in the world. For the UK, trading just on the basis of WTO ‘terms’ would mean the introduction of tariffs and agricultural quotas on imports to Britain. WTO terms also means there would be border tariffs, quotas, and border checks imposed by the EU and many other trading partners on UK exports.