European Council Directives of 29 January 2018 on the Withdrawal Agreement and Transitional Arrangements

These supplementary Directives supplement the original Council Directives on the Article 50 negotiations of 22 May 2017 and develop the terms and principles of the Council's Guidelines of 15 December 2017.  We commented on those December Guidelines here. 

Transitional arrangements: continued UK participation in the Single Market and Customs Union

The Council Directives confirm that the transitional arrangements to be provided for in the Withdrawal Agreement will cover the whole body of EU law such that the Union acquis will apply in the UK as if it were a Member State.  During the transitional period, EU law within the scope of the Single Market (including the four freedoms of movement) and the Customs Union will apply in the UK with the same legal effects as in the other EU Member States.

During the transitional period, the full powers of the EU institutions, including the European Court of Justice, will continue to apply in relation to the UK and to UK persons (natural and legal), and all existing EU regulatory, budgetary and enforcement structures will continue to apply in the UK.

However, the UK will be a third country, no longer an EU Member State, as from 29 March 2019, when the Article 50 notice expires and the Withdrawal Agreement is expected to take effect.  Thus the UK will no longer participate in any of the EU institutions or in the decision-making or governance of any EU bodies, offices or agencies, during the transitional period, despite continuing to be bound by EU law and to be subject to EU competences.

The transitional period is to last until 31 December 2020 at the latest, i.e. for a period of approximately 21 months.  This will bring the UK's participation in the Single Market (and Customs Union) into line with the EU's current budgetary cycle on which the financial settlement is based.

The Withdrawal Agreement: further issues

The Guidelines require the completion of work on all issues concerning the UK's withdrawal, including those not yet addressed in the first phase of the Article 50 negotiations.  These issues include governance under the Withdrawal Agreement, intellectual property rights, ongoing public procurement procedures, customs-related matters, the protection of personal data and use of information obtained or processed before the withdrawal date.

The second phase in negotiations should further transpose the results of the first phase negotiations into detailed legal terms.  The Directives state that the citizens' rights provisions of the Withdrawal Agreement should apply as from the end of the transitional period, and therefore that the "specified date" should be defined as the date of the end of the transitional period.  The "specified date" is the date by reference to which citizens' status will be assessed.  Previously, the UK proposed that it would be a date (to be fixed) between the date of the Article 50 notice and the withdrawal date, whereas the EU maintained that it should be the same as the withdrawal date.  Setting the "specified date" as the end of the transitional period will have the effect of widening the scope of EU citizens securing residence and related rights in the UK, and vice-versa as regards UK citizens in the EU.

The transitional period: agreements with third countries

The Directives make clear that, during the transitional period, the UK should continue to be bound by obligations in the EU's free trade agreements with third countries (because the UK will still be a party to the Customs Union).  However, it should be noted that, during this period, the UK cannot rely on being able to derive the benefits enjoyed by the EU27 under those agreements, because it will no longer be an EU Member State and because the extension of those benefits to the UK would require the agreement of the relevant third country in each case.  Also, as a third country itself, the UK will not be able to participate in any of the bodies set up by these EU agreements.

By the same token, the UK will not be able to enter into binding international agreements in its own capacity with any third country in the fields of EU law during the transitional period.

Conclusions

The UK government now needs to decide whether to agree the transitional arrangements on the basis now offered by the EU, with or without any amendments that it might be able to negotiate.  Some parts of the government may be opposed to the free movement of workers continuing (between the UK and the EU27) beyond the withdrawal date.  However, the EU has made clear at all stages that there can be no "cherry-picking" of the four freedoms of movement of the Single Market, so it is doubtful that the EU would agree an amendment of the proposed transitional arrangements on that basis.

An extension of the UK's participation in the Single Market, from the withdrawal date of 29 March 2019 until the end of 2020, would provide welcome continuity and stability for businesses.  However, the UK is likely to find itself in a vulnerable position as regards free trade agreements with third countries as a result of the transitional arrangements.  First, it is doubtful whether a transitional period of 21 months will provide sufficient time to negotiate a relationship agreement with the EU.  The UK's continued participation in the Customs Union during the transition will postpone the date from which it will be able to conclude free trade agreements with third countries.  Yet during such a transitional period, it cannot count on obtaining the benefits of the EU's free trade agreements with third countries (the UK would have to work with the EU to negotiate these with the relevant countries), despite being bound by the obligations contained in those agreements.

The transitional arrangement would enable the UK to gain time and especially prolonged membership of the Single Market, whilst losing its seat at the EU table and giving up, for the duration of the transition, the benefits of the EU's trade agreements with third countries and the ability to conclude its own agreements in that time.

This article is part of our Brexit series.