UK/EU. Travel retail industry lobbyists have welcomed today’s news that the UK and the European Union (EU) have made ‘sufficient progress’ to move to ‘Phase 2’ of Brexit negotiations.

“In short, today’s agreement means that it is entirely up to the UK and the EU 27 to either bring back duty free or not on 30 March 2019 – there is now no legal obstacle to this happening,” said Hume Brophy, advisors to the ETRC and UK Travel Retail Forum.

“So, there is all to play for, and we need to get the industry mobilised over the coming months to help make this a reality. As we have said all along, it is the next stage of negotiations that will be critical.”

The following briefing notes on what today’s developments mean for the duty free sector are courtesy of Hume Brophy. We’ll bring you more detailed analysis soon.

What ‘progress’ implies

While the ‘sufficient progress’ announced today must still be voted on at the European Council meeting next week, Council leader Donald Tusk, the Irish government and Commission negotiator Michel Barnier have confirmed that they will agree to progress to the next stage of talks.

The joint report on Phase 1 commitments can be read in full here. It is worth noting that this is a joint negotiation document and is not legally binding. However, to undo any of the agreements (if for example, there is a new leader of the UK Conservative party), would be extremely difficult.

How the BBC covered today’s apparent breakthrough agreement

Next Steps of Negotiations

European Council President Donald Tusk has now sent draft guidelines for Phase 2 negotiations to the EU27’s leaders, which he will present at next week’s Council meeting. These must be adopted and are therefore subject to amendments.

During the meeting, Member States will also need to approve the Commission’s assessment on “sufficient progress”. The European Parliament needs to be kept in the loop as well, at it will have to ratify the final Withdrawal Agreement.

Draft guidelines: Transition period

The draft guidelines aim for a transition period of two years during which the UK will continue applying the full ‘acquis’ but will lose its voting rights.

Next Steps for ETRC: UK will be a third country in the transition period

Importantly, the UK is classed as a third country for the purposes of the transition period (29 March 2019 +). This is necessary for the EU27 to enter into negotiations and conclude the future trading relationship.

The Treaty of Lisbon restricts the EU from entering into such negotiations with parties which are either a third country or an international organisation; the UK will therefore have to become a third country for those negotiations to take place during the transition period.

Hume Brophy said: “As a third-country destination, there is a clear opportunity for a return of duty free. There is a complication of the UK remaining a member of the Single Market during the transition period. On a straight application of the EU legislation, it would seem that sales to travellers to the UK could indeed be duty free.”

Hume Brophy said it has spoken to HMRC today, which has confirmed that as a third country they [the UK] are indeed free to reintroduce duty free – it is a matter of choice for the UK government and for the EU27.

“While the UK will still be in the Single Market and Customs Union for the transition period, it is confirmed that it will also be a third country (i.e. no longer a member of the EU), so therefore duty free shopping is a distinct possibility for UK-EU pax from 30 March 2019,” the lobbyist said.