Where are we now on the Brexit negotiations?
16th August 2018
With Parliament in recess for the summer, now is a good time to take stock of the progress on Brexit negotiations.
As at early August 2018 the future relationship between the UK and the EU is still uncertain. What we do know is that on 29 March 2016 the UK Government gave the UK’s Article 50 notification and so, if no agreement is reached or even if some form of agreement is reached, the UK will withdraw from the European Union at 11.00pm GMT on 29 March 2019.
The UK and the EU are continuing to negotiate a withdrawal agreement which would allow the UK a transitional period until 31 December 2020 when almost the entirety of EU law would continue to be applicable to and in the UK. They are also negotiating the nature of their future relationship post this transition or, if no withdrawal agreement is reached, post 29 March 2019, but the extent of the UK’s access to the EU’s markets is, as we are all aware from press reports, still unclear.
As UK political developments make conclusions on what occurs after 29 March 2019 difficult to call, from a contingency planning perspective the choices are whether to plan on the basis of a hard, disorderly Brexit (which assumes that the UK and the EU do not agree a transitional period and do not come to an agreement on their future trading relationship by 29 March 2019), whether to plan on the assumption that the UK and the EU will agree a standstill transitional period until 31 December 2020 and whether to plan for the possibility of some kind of free trade agreement between the UK and the EU that covers goods. What is somewhat clearer is that both the UK and the EU appear to be in agreement that “nothing is agreed until everything is agreed”, meaning that neither the withdrawal agreement nor the future framework agreement/free trade agreement can be considered final until both are agreed. How much of this is a public negotiating position is uncertain.
Domestic treatment of EU law
The other aspect of Brexit is how it is dealt with at the level of domestic law. This involves a series of Acts and Bills. Already on the statute book (although in most part not implemented) is the European Union (Withdrawal) Act 2018 which will repeal the European Communities Act 1972 on the day the UK leaves the EU and thereby end the supremacy of EU law. This Act then “writes back” into UK domestic law the body of EU law in force in the UK at the moment prior to this repeal.
There will be other UK legislation that will govern particular areas: there will be a separate bill dealing with approval of the withdrawal agreement covering transition which is currently being negotiated with the EU (the Withdrawal Agreement and Implementation Bill), 2 bills dealing with trade, customs and VAT (the Trade Bill and the Taxation (Cross-border) Trade Bill, separate legislation dealing with sanctions (the Sanctions and Anti-Money Laundering Act 2018, which received Royal Assent on 23 May 2018 but most of which is yet to be implemented) and an Act dealing with nuclear safeguards (the Nuclear Safeguards Act 2018). Other bills will also be required: an immigration bill and it is likely that there will be a fisheries and an agriculture bill. An Environmental Principles and Governance Bill is also proposed.
The European Union (Withdrawal) Act 2018, as well as transposing operative EU law into UK law as at the exit day also gives the UK Government certain delegated powers to make changes to this transposed law to allow it to operate effectively post Brexit. The intention is therefore to provide continuity from and including exit day but with “corrective” consequential amendments to be made in the short term to ensure that the continuity and the domestication of EU law works at a practical level.
However, this domestic legislation does not address all issues, including:
- as exit negotiations mean we do not know what agreement will be reached on what access the UK will receive to certain EU legislative regimes in respect of particular sectors, there are questions surrounding equivalence of regulations and what new regulations might be need to allow for the UK to participate in EU regimes
- we do not know which EU domesticated laws the UK will keep “updating” to ensure equivalence with the EU law and which will be amended or grandfathered (resulting in divergence over time)
- when repeals or substantive modifications are needed where continuity is not the intended policy or outcome post Brexit
- what new regulatory regimes the UK will put in place to “replace” the EU regulatory regimes (and whether to a greater or lesser extent)
The UK and EU positions on future trading relationship and the withdrawal agreement as at late August 2018
The EU has offered the UK a standard free trade agreement with Northern Ireland in the Customs Union and part of the Single Market or the UK as a member of the EEA with a common rulebook on agri-food and part of a customs union with the EU. The UK Government has said that neither of these outcomes would work for the UK. From the UK Government’s perspective, the problem with a standard free trade agreement model is that it will not provide frictionless trade in goods at the border.
The UK Government’s response, in its White Paper of 12 July 2018 is to continue to push for frictionless trade in goods at the border which is to be underpinned by a common rulebook and what they call a “facilitated customs arrangement” with the hope that this would avoid the need for customs checks at the borders and would protect the integrity of existing supply chains and enable products to only undergo one set of approvals or authorisations in either the UK or the EU market, before being placed on the market. The common rulebook would be part of UK law, but UK Parliament would be free to repeal or amend this in the future, in the knowledge that it would breach the UK’s treaty obligations to the EU and therefore have consequences for the trading relationship between the UK and the EU. Outside the common rulebook, the UK would be free to pursue its own trade policy.
The basic idea behind this facilitated customs is that the UK would be able to control its own tariffs for trade with the rest of the world. The UK would apply UK tariffs and trade policy for goods intended for the UK and would apply the EU’s tariffs and trade policy for goods intended for the EU. The detail on how this would work in practice are sketchy.
On services, the UK’s proposal is to ensure regulatory freedom and not to make services part of a controlled free trade arrangement. However, the UK has proposed a new enhanced equivalence arrangement for financial services which would not replicate the EU’s passporting regimes.
The UK Government’s proposal is for EU free movement to end in the UK but with a new framework to enable UK and EU citizens to continue to travel to each other’s countries and businesses and professionals to provide services.
The UK Government has proposed a common rulebook on state aid and the establishment of co-operative arrangements between regulators on competitors, with reciprocal commitments to maintain current standards on environmental and employment rules (through the use of “non-regression” commitments).
The UK Government is seeking co-operation in other areas such as aviation, rail, civil nuclear, civil judicial co-operation and equivalence and adequacy for audit and accounting, as well as a separate agreement with the EU for personal data but current proposals in this respect are short on detail, particularly on their practical application.
The EU’s position on transition can be found in the version of the draft withdrawal agreement of 19 March 2018, as updated by a statement from the negotiators on 19 June and as summarised by the European Parliament in July. Withdrawal negotiations have focussed on 3 priority areas: citizens’ rights, the financial settlement and Northern Ireland, alongside other separation provisions such as ongoing judicial procedures, Euratom and data protection. More than 75% of the text of the draft withdrawal agreement has been settled (so that citizens’ rights, financial settlement and the proposed standstill transitional period until 31 December 2020 have all been agreed at negotiator level) but disagreement remains on some fundamental details such as the jurisdiction and power of the European Courts over the application of the transitional arrangements and the issue of the Northern Ireland/Republic of Ireland border post Brexit.
The withdrawal agreement does not contain any provisions regarding the possibility of extending the transitional period beyond 31 December 2020
For the future trading relationship, the EU’s position is:
- frictionless trade is not possible outside the Customs Union and Single Market
- the four freedoms are indivisible and there can be no cherry picking through participation in the Single Market on a sector by sector approach
- the offer of a free trade agreement will be something less than participation in the Single Market and will cover trade in goods of all sectors, seeking to maintain zero tariffs and no quantitative restrictions, but with the need for appropriate rules of origin
- trade in services on the basis that market access is allowed under host state rules, including as regards right of establishment for providers
- “ambitious” provisions on movement of natural persons based on full reciprocity and non-discrimination
- continued connectivity between the EU and the UK in transport including through an air transport agreement, combined with aviation safety and security
- participation in certain EU programmes such as R&D, education and culture to be on the basis that the UK would be a third country
- obligations on the UK not to undercut levels of protection in competition and state aid, tax, social, environmental and regulatory measures and practices, requiring a combination of substantive rules “aligned” with EU standards and mechanism to ensure enforcement
- data follows to be governed by EU rules on adequacy
From the UK Government’s perspective, the problem with a standard free trade agreement model is that it will not provide frictionless trade in goods at the border.
There are certain deadlines coming up:
However, for certain regulated sectors, the timings for taking the necessary steps for a hard Brexit may have already passed.
Eversheds Sutherland will continue to keep you updated but if you would like a more in depth discussion, please contact us.
How Eversheds Sutherland can help
Since June 2016, our lawyers and consultants have advised various institutions passporting into the UK from EU27 Member States and passporting from the UK into the EU27 on Brexit planning and Brexit related issues.
We would be happy to discuss how we can help you with your Brexit planning and execution of those plans.
For more information contact please contact Tom Bridgford or Richard Prowse