Flag symbolizes Brexit; Source: istockphoto.com/melis82

© istockphoto.com/melis82

Overview

Following ratification of the Withdrawal Agreement by the European Union and the United Kingdom, the United Kingdom is leaving the European Union as of 1 February 2020. In principle, nothing changes for companies and citizens on that day, since the Withdrawal Agreement provides for a transition period in which EU law continues to apply in and to the United Kingdom in principle, but without any participation by the United Kingdom in EU institutions.

The transition period ends on 31 December 2020. It can be extended by up to two years if a joint agreement is reached on this by 30 June 2020.

The EU and the UK will make intensive use of the transition period to engage in negotiations on the future relations between the EU and the UK.

The Withdrawal Agreement and the Political Declaration

On 29 March 2017, the UK government formally notified the European Union of its intention to withdraw from the EU.

On 19 June 2017, the United Kingdom and the European Commission took up negotiations on the United Kingdom’s withdrawal from the European Union and in November 2018 agreed on a Withdrawal Agreement and a Political Declaration setting out the framework for the future relationship.

At a special meeting of the European Council (Article 50 TEU) on 25 November 2018, the EU Heads of State and Government endorsed the Withdrawal Agreement and adopted the Political Declaration setting out the framework for the future relationship. On 17 October 2019, the chief negotiators of both sides agreed on a slightly modified package, which was endorsed by the Heads of State and Government at the European Council (Article 50 TEU) on 17 October 2019. The UK Parliament approved the Withdrawal Agreement Bill on 22 January 2020; the European Parliament approved the Withdrawal Agreement on 29 January 2020, followed by the Member States represented in the Council on 30 January 2020. The Withdrawal Agreement was signed on 24 January 2020 by European Commission President Ursula von der Leyen, Council President Charles Michel and UK Prime Minister Boris Johnson.

Essential elements of the Withdrawal Agreement are grandfathering arrangements for the rights of EU citizens living in the UK and British citizens living in the EU and the fulfilment of the UK’s financial obligations under the current Multiannual Financial Framework. The rights of all EU citizens living in the United Kingdom until the end of the transition period, and the rights of the Britons living in the EU will be comprehensively protected until the end of their lives; they can continue to live, work, study and receive welfare benefits in the UK and the EU respectively. According to the revised Protocol on Ireland/Northern Ireland included in the Withdrawal Agreement, Northern Ireland shall be part of the customs territory of the United Kingdom after the transition period, while having a special customs partnership with the EU where the EU customs code will basically be applied. Furthermore, all relevant EU internal market rules will continue to apply in Northern Ireland. The necessary controls will take place and customs duties will be levied at the entry points of the island of Ireland in Northern Ireland. This solution is to guarantee both peace on the island of Ireland and the integrity of the EU internal market.The Agreement also contains governance rules to ensure effective implementation and enforcement of the Agreement.

You can find an overview of the contents of the Withdrawal Agreement here (en allemand).

The revised Political Declaration setting out the framework for the future relationship between the European Union and the United Kingdom provides for an economic partnership and a security partnership. As regards the economic partnership, the aim is to conclude a comprehensive Free Trade Agreement. In view of the geographic proximity and the close ties between the EU and the UK, robust and comprehensive arrangements are to be adopted in order to guarantee a level playing field. As regards the security partnership, the aim is comprehensive and close cooperation on internal and external security based on reciprocity. The details of the future relationship will be negotiated after the United Kingdom’s withdrawal from the EU.

The Withdrawal Agreement provides for a transition period from 1 February 2020 until 31 December 2020. This period can be extended once by a maximum of two years by virtue of a joint decision of the EU and the United Kingdom. This decision would have to be taken by 30 June 2020. During the transition period, EU law will in principle continue to apply to the UK, as do the rulings of the European Court. The UK will also remain a member of the EU internal market and customs union during this period. However, the UK is no longer participating in the EU institutions and can only take part in their meetings in very restricted exceptional cases at technical level without voting rights.

What are the next steps?

The EU and the UK will make intensive use of the transition period to engage in negotiations on the future relations between the EU and the UK. The European Commission will present a mandate for the conduct of the negotiations to the Member States at the beginning of February. Your can find out more about the preparatory meetings here. The EU’s goal is to maintain the closest possible partnership with the UK.

Further information for businesses

Information from the UK about Brexit can be found here.

Background information

The United Kingdom in the European Union

The United Kingdom joined the European Union on 1 January 1973, together with Denmark and Ireland. This brought the number of Member States to nine. The United Kingdom comprises Great Britain (England, Wales and Scotland) and Northern Ireland. With around 65 million inhabitants, the UK accounts for 12.8 per cent of the total EU population. On 23 June 2016, UK citizens voted in a referendum to leave the European Union.

Current economic relations with the United Kingdom

The United Kingdom is Germany’s sixth most important trading partner (trade volume in 2018: €119.03 billion). For Germany, the UK ranks fifth in terms of exports and eleventh in terms of imports. In 2018, the volume of German exports to the United Kingdom totalled €82.09 billion. UK imports amounted to €36.94 billion.

Around 2,300 German enterprises employing approx. 433,000 people were doing business in the United Kingdom in 2017 (source: Deutsche Bundesbank). German investors in the United Kingdom include Siemens, Bosch, BMW, VW, Daimler, RWE, E.ON, Deutsche Post, Deutsche Bank, Deutsche Bahn, Linde, Lidl, Aldi, Bayer, BASF and Heidelberg Zement. In 2017, German direct and indirect investment in the United Kingdom totalled roughly €145 billion.

More than 1,500 UK firms employing a total of around 286,000 members of staff were operating in Germany in 2017 (source: Deutsche Bundesbank). In 2017, UK direct and indirect investment in Germany totalled €38.1 billion, focussing on the manufacturing industry, the chemical sector and the oil industry (including BP, Shell, GKN, Rolls Royce).

Possible impact of the withdrawal on the German and European economies

Brexit will have economic repercussions for the EU Member States and especially for the United Kingdom. The extent of this impact will much depend on the shape of future relations between the EU and the UK.

A study by the ifo Institute commissioned by the Federal Ministry for Economic Affairs and Energy contains an initial assessment of the economic impact on the German and European economies. The findings of the study show that even in the most unfavourable scenario, the impact of Brexit on the EU economy, and the German economy in particular, ought to be manageable in the long term. That said, there may well be some sectors that are hit harder by these developments. You can find the study (in German) here (PDF, 1 MB).