Brexit update – the latest approach of the UK Government to the UK’s withdrawal from the European Union

• United Kingdom

• Brexit

29-10-2019

October has seen the issue of three crucial documents putting in place the legal framework for the UK’s exit from the EU:

• a revised version of an EU/UK withdrawal agreement under Article 50 of the Treaty on European Union

• a revised political declaration which sketches out the future relationship between the UK and the EU

• the withdrawal agreement needs to be become part of UK law, a bill that if passed by the UK Parliament will become UK legislation to achieve that outcome

The withdrawal agreement and the bill will become the legal basis on which rights at the EU/UK level will become available to businesses and citizens under national law. The bill has become mired in political dispute both in respect of its substance and the fast timetable for debate initially proposed by the UK Government. Against that background, this briefing sets out key points for businesses from the current state of play of these documents.

1. Withdrawal agreement

The key element of the withdrawal agreement remains a standstill transition period during which substantive EU law will continue to apply in full to the UK. As before, this period is to end on 31 December 2020¹.

If exit takes place at the end of October 2019, this gives the UK and the EU 14 months to negotiate a free trade agreement to govern their future relationship. If the date of the UK’s withdrawal is extended to 31 January 2020, the time for negotiation is reduced to 11 months. There must be some significant doubt as to whether a new trade agreement can be negotiated in this timescale and, if this does not occur, trade between the UK and the EU will revert to WTO terms at the end of transition.

We have seen no proposals from either side that the date of expiry of the transition period as set out in the withdrawal agreement should be changed. It can be extended for any period up to 2 years, but must end by 31 December 2022 subject to agreement with the EU. A decision to extend can only be taken once and will inevitably involve discussions on the UK contributing to EU budget for the period of extension.

The most significant change to the withdrawal agreement as renegotiated by Boris Johnson in October from the previous version relates to the arrangements for Northern Ireland². Rather than these arrangements operating as an insurance backstop (that is, only coming into effect if other measures fail to keep the Irish border open), they come into force automatically at the end of the transition period. Although Northern Ireland will not be part of a customs union with the EU, it will remain aligned to a range of EU Single Market rules (including on goods, veterinary controls, agri production, VAT and excise and state aid) so as to avoid a hard border with the Republic of Ireland. These arrangements are permanent, provided consent is given³. Against that background, in practice there will be a customs and regulatory border between Great Britain and Northern Ireland in the Irish Sea and Northern Ireland will apply many EU customs rules where goods are ultimately destined for the EU27, whether direct or after processing.

2. Political declaration

Alongside the renegotiated withdrawal agreement there have been changes to the text of the accompanying political declaration which sets out the framework for the negotiations of the future trading relationship between the UK and the EU. The most significant change is a watering down of the previous language on the depth of the future relationship. The previous language agreed by the EU and the UK was intended to build on the single customs territory provided for in Theresa May’s draft withdrawal agreement. Now the declaration aims for tariff free but not frictionless trade in goods (as rules of origin would apply). Effectively the new policy is a trading relationship at a distance, similar in ambition to the free trade agreements the EU has with Canada or Japan.

Significantly, there is no commitment by the UK to align with pre-existing EU rules in certain regulated areas (often referred to as non-regression). For example, in the field of employment and social policy, there is a loose statement relating to commitment to uphold high standards, whereas the previous draft withdrawal agreement contained a binding commitment on non-regression⁴. Similarly, previous binding wording on free and undistorted competition⁵ has been replaced by potentially weaker language in the new declaration. That is not to say that alignment may not occur, only that the UK is not agreeing to any comprehensive binding commitments in this respect.

There is no change to the framework for negotiations on services. This remains only as a stated aim that the parties should “aim to deliver a level of liberalisation in trade in services well beyond the parties World Trade Organisation commitments”. Nor is there any change to the parameters of negotiation on financial services, intellectual property, public procurement or mobility.

3. UK legislation to implement the withdrawal arrangements

To implement the withdrawal agreement, the UK Government introduced on 21 October the text of the European Union (Withdrawal Agreement) Bill (also known as the “WAB”). This bill is required since the withdrawal agreement is an international treaty that requires domestic legislation for it to take effect in the UK⁶.

The bill’s approach and structure is as follows:

• it provides for the direct application of the withdrawal agreement provisions in UK domestic law mainly by amending the European Union (Withdrawal) Act 2018 (the “2018 Act”): it is designed to work in conjunction with the 2018 Act, the effect of whose provisions it qualifies for the duration of the agreed transition period;

• the UK needs to preserve EU law for the agreed transition period of the withdrawal agreement⁷, even although the bill provides for the European Communities Act 1972⁸ (the “1972 Act”) to be repealed on “exit day” (whether “exit day” remains 31 October 2019 or is a later date). It does this by saving the effect of the 1972 Act after exit day so that EU law can continue to apply to the UK during transition⁹. Some amendments are then needed to be made to the 1972 Act for this purpose and this appears to create a new category of law which could be termed “separation agreement law” that will apply during transition only¹⁰

• new pieces of directly applicable EU law that are adopted by the EU during transition will continue to apply automatically within the UK and other new EU measures adopted during this period will need to continue to be implemented domestically to comply with the withdrawal agreement

• any inconsistent or incompatible domestic law will be disapplied where it conflicts with the withdrawal agreement

• the domestication of EU law onto the UK statute book as envisaged by the 2018 Act will now take place at the end of the transition period rather than on the day the UK ceases to be a member state

• any extension to the transition period is subject to the approval of the House of Commons

• there are provisions on citizens’ rights (including the setting up of a new body to be called the “Independent Monitoring Authority for Citizens’ Rights Agreements” as required by the withdrawal agreement), the financial settlement and implementation of the Northern Ireland Protocol

• there are also provisions concerning protection of the current level of workers’ rights and Parliamentary scrutiny over future changes of those rights. The bill does not contain any “non-regression” provisions relating to environment, consumer protection, competition or state aid

• the EEA/EFTA separation agreement and the Swiss Citizens’ Rights Agreement¹¹ which the UK has also negotiated as part of its exit arrangements are given effect by this bill. They are given an equivalent legal effect in domestic law to that of the withdrawal agreement so that nationals of EEA/EFTA and Switzerland may rely on their rights in the same way as EU citizens

• it covers the principle of direct effect so that where provisions of the withdrawal agreement or EU law that apply during transition are capable of having direct effect, the bill enables persons to rely directly on those provisions in UK courts

• there are extensive provisions delegating authority to ministers and appropriate authorities to make secondary legislation for the purpose of various matters contained in the bill and we expect, if Parliament agrees an effective period of scrutiny, for these to be heavily scrutinised as to their extent

• it provides for Parliament to have a role in shaping the UK’s proposals for the future relationship with the EU by giving Parliament “oversight” of these negotiations. However, the bill contains a specific obligation on ministers that objectives for the future relationship must be consistent with the political declaration of 17 October 2019 and in this sense ties the hands of future negotiators and limits this scrutiny

• there is an express statement that the UK Parliament is sovereign and that nothing in the Bill derogates from this sovereignty

It is important to note that the Government has stated that the bill will be pulled if the members of Parliament vote for an early election. If that occurs and the Conservative party wins a majority at the election, the bill will be re-presented in Parliament.

4. Impact on commercial practice if the bill comes into force

• the changes on the Northern Ireland arrangements have significant implications for businesses supplying goods into Northern Ireland as they should be aware that there will be separate rules in the areas of customs, VAT and regulatory alignment for goods that will apply. In law, an English supplier to a Northern Irish customer may not strictly be an exporter but the differences in regimes will have a similar effect

• we should not assume that a trade agreement with the EU will be in place by the end of the transition period, particularly if there is no extension. Without one being in place, businesses should be aware that UK-EU trade (and trade with other countries where free trade agreements are not rolled over or agreed with the UK) will be governed by WTO terms

• the negotiated documents allow UK regulatory divergence and this appears to be a policy of the current UK Government. Without future specific legislation to this effect, businesses should not assume equivalence between UK and EU law after the end of the transition period

• contingency planning (including contractual rights) based on an exit day (defined as the UK ceasing to be an EU member state) may not reflect the practical reality of the transition period: the UK will have exited from the EU but will remain subject to EU law if the transition period comes into effect. This includes new EU law introduced during this period, without the UK having the ability to repeal this law during transition

• the approach of the bill in how it saves the effect of the European Communities Act 1972 appears to create a separate category of law that applies during transition and this may have implications if contract parties assume compliance with “EU law”

How can Eversheds Sutherland help?

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1 - Article 126 of the withdrawal agreement provides, “There shall be a transition or implementation period which shall start on the date of entry into force of this Agreement and end on 31 December 2020” and Article 127, “Union law shall be applicable to and in the United Kingdom during the transition period”.

2 - There will be changes to Articles 184 and 185 of the withdrawal agreement, as they apply to the revised Protocol on Northern Ireland. Furthermore, the level playing field provisions in the areas of taxation, environmental protection, labour standards, state aid and competition, have been replaced by less specific and non-binding commitments in the revised political declaration.

3 - The revised arrangements allow the Northern Ireland Assembly to provide “consent” for certain EU regulations continuing in Northern Ireland. The first vote would take place 4 years after the end of the transition period and every 4 years thereafter on a simple majority, but 8 years if endorsed on a cross-community basis. If rejected, the regulations will cease to apply after 2 years.

4 - See Article 6 of the draft Northern Ireland Protocol, annexed to the draft Withdrawal Agreement of 14 November 2018, read with Article 4, Part 3, Annex 2 to the Protocol (a similar non-regression provision was incorporated in respect of environmental protection).

5 - Ibid: Part 5: Competition.

6 - In addition, under section 13 of the European Union (Withdrawal) Act 2018 the UK can only ratify the withdrawal agreement if the House of Commons approves a resolution approving both the withdrawal agreement and the political declaration and Parliament passes the European Union (Withdrawal Agreement) Bill to implement it in domestic law.

7 - Although the term used to describe this period in this Bill is “implementation period”.

8 - As a reminder, the European Communities Act 1972 is the legislation that gives legal authority for EU law to have effect as national law in the UK and provides for the supremacy of EU law over UK law.

9 - The exact wording used by the Bill is “The European Communities’ Act 1972, as it has effect in domestic law….immediately before exit day, continues to have effect in domestic law…on and after exit day”.

10 - This reflects the fact that the UK’s relationship with the EU during the transition period is governed by the withdrawal agreement rather than the UK being an EU member state under the EU Treaties. This includes a provision in the bill that, for the purposes of the expression “member State” within EU law as it applies to the UK during transition, “the UK is to be treated as if it were a member of the EU during the implementation period”.

11 - The UK’s obligations under these agreements are substantively similar to those in the corresponding sections of the withdrawal agreement. The EU Settlement Scheme applies to EEA, EFTA and Swiss nationals on the same basis as EU citizens. The EEA/EFTA agreement with Iceland, Liechtenstein and Norway covers the protection of citizens’ rights as well as resolving a number of issues arising from the UK’s exit from the EU. It largely mirrors the withdrawal agreement. The rights and obligations of the current EEA agreement will continue to apply to the UK during the transition period. The agreement with Switzerland relates only to citizens’ rights.