Finalisation of the UK/EU Withdrawal Agreement

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12-2018

The UK and EU negotiating teams settled, on 14 November 2018, the text of the draft Agreement for the Withdrawal of the UK from the EU.  The draft Agreement, if approved by the EU Council and by the UK Parliament, will smooth the UK's exit from the EU and will in essence achieve a "soft Brexit". Most significantly for businesses, the Withdrawal Agreement, if so approved, will bring about a transitional period to at least the end of 2020 during which EU law will continue to apply in and to the UK (and the UK will in effect and for most purposes) be treated as if it were an EU member state, giving businesses considerably more time to prepare.

General or "common" provisions: The provisions of the Withdrawal Agreement are to be given direct effect in the UK and to be enforceable by natural and legal persons in UK courts, in much the same way as the provisions of the EU treaties are currently directly enforceable in national courts of the member states.  For purposes of the Withdrawal Agreement, the UK is to be treated as an EU member state except as regards the appointment or election of members of the EU institutions and agencies, and except as regards participation in the decision-making and governance of EU bodies and agencies.

Transitional period: During the transitional period to the end of 2020, EU law is to continue to apply to and in the UK.  This includes the EU treaties, the EU customs union, EU legislation, EU agreements with third countries, and the EU Charter of Fundamental Rights.  EU law is to produce, during this transitional period, the same legal effects in and in respect of the UK as it produces within the EU27 and is to be applied in accordance with the same methods and general principles as in the EU.

Although the UK generally will not have a right to participate in the decision-making of EU bodies and agencies, it will exceptionally be permitted to attend meetings of the European Commission or of other EU bodies, offices or agencies where (a) the discussion concerns individual acts to be addressed during the transition period to the UK or to UK residents, or (b) the presence of the UK is necessary and in the interest of the EU for the effective implementation of EU law during the transitional period.

The final version of the Withdrawal Agreement includes a provision for extension of the transitional period beyond 31st December 2020 by means of a single renewal period ending on a yet to be specified date. Such extension must be decided upon before 1st July 2020, and would be subject to agreement of the appropriate financial contributions by the UK to the EU budgets for the period 1st January 2021 to the end of the extended period.

Citizens' rights: EU citizens lawfully residing in the UK and UK nationals lawfully residing in the EU as at the end of the transitional period will be permitted to stay, and once they have been resident for five years will be entitled to a permanent right of residence.  However, EU citizens and their family members in the UK will be required to apply for "settled status" through the new EU settlement scheme.  As regards professional qualifications, EU professionals resident or working in the UK, and UK professionals resident or working in the EU, will continue to have their professional qualifications recognised.  However, for this purpose a recognition decision must have been obtained before the end of the transitional period.

Separation provisions: The Withdrawal Agreement contains numerous provisions to ensure that arrangements relating to the UK's withdrawal proceed in an orderly way at the end of the transitional period, for example the continued conduct of cases pending before the European Court of Justice, the continuation of ongoing procurement processes, and arrangements regarding the UK's withdrawal from the Euratom Treaty.  Also customs procedures for goods that are midway through a customs process, ongoing customs procedures will continue to apply.  Goods that were placed on the market before the end of the transitional period will continue to be able to circulate freely as between the UK and the EU.

In relation to Community-wide intellectual property rights, the UK is required to implement equivalent national-level protection for Community trademarks, Community design rights (registered and unregistered) and database rights, upon the cessation of those Community rights in relation to the UK (as from the end of the transitional period).  Similarly, geographical indications of origin will continue to apply in the UK as at present.

Financial provisions: The UK is required to continue to contribute to the EU budgets for the years 2019 and 2020.  The UK also accepts liability for the following: the UK's share of the EU's budgetary commitments and budgets of EU decentralised agencies as at the end of the transitional period; the UK's share of financing of EU liabilities incurred prior to 31st December 2020, including pension rights and other employment-related benefits accrued before that date; and the UK's share of the EU's contingent financial liabilities that were decided upon before entry into force of the Withdrawal Agreement.  The UK government has recently estimated the total financial settlement to be in a range of £35-39 billion.

The Northern Ireland Protocol: The need for a solution to the Northern Ireland border issue has been the most challenging aspect of the negotiation of the Withdrawal Agreement.  All parties have been committed to maintaining a soft border between Northern Ireland and the Republic of Ireland in accordance with the 1998 Belfast Agreement (also known as the Good Friday Agreement).  However, the border is also a frontier of the EU Single Market and the parties needed to safeguard the integrity of both the Single Market and also the UK internal market comprising Great Britain and Northern Ireland.  This is intended ultimately to be covered in the relationship agreement that will be negotiated by the UK and the EU during the transitional period.  However, to cover the possibility of the solution not being found by 31st December 2020 (or by the end of any extended transitional period), the Withdrawal Agreement provides, in a separate Protocol, for a "back-stop" arrangement involving a single customs territory between the EU and the whole of the UK, taking effect at the end of the transitional period, i.e. from the end of 2020 or from the end of any extension of the period.  There will be no tariffs or quotas applicable for goods traded between the UK and the EU and no need for traders to prove the origin of goods moving between the UK and the EU. 

Northern Ireland will be part of the same customs territory, but will be required to apply EU customs law in full (as set out in the EU Customs Code).  In addition, Northern Ireland will be required to comply with EU Single Market rules as regards the technical regulation of goods, agricultural and environmental production and regulation, State aid and other areas of North-South co-operation between Northern Ireland and the Republic of Ireland.  This will be necessary to avoid regulatory compliance checks on products moving across the Norther Ireland border. Northern Ireland will continue in the EU Single Electricity Market.

As a result of being allowed to remain within the single customs territory with the EU, the UK will be required by the Protocol to achieve regulatory alignment with EU law in a number of areas, in particular competition law and State aid rules, environmental protection and social and labour standards.  In most of these areas, the UK is required not to lower its existing standards, but as regards competition and State aid rules, the UK must also stay aligned with new EU rules.

It is important to note that the Protocol requires (in Annex 2) that the UK must align its tariffs and rules with the EU's Common Customs Tariff and the EU's rules on origin of goods, and that the UK must not set any tariff which is lower than the Common Customs Tariff for any goods imported from any third country. This will seriously limit the UK's ability to conclude free trade agreements with third countries for as long as the back-stop arrangement continues.

This back-stop, customs territory arrangement can only be ended when both the UK and the EU, acting through the Joint Committee which is to be set up as the central institutional body to supervise the operation of the Withdrawal Agreement, agree that satisfactory arrangements are in place to avoid the need for a hard border between Northern Ireland and the Republic of Ireland.  If necessary, either party could appeal a deadlock or refusal on the part of the Joint Committee, to an appeal panel which is provided for in the dispute resolution provisions of the Agreement.  In any event, it is clear that the UK could not unilaterally withdraw from the common customs territory arrangement and could therefore potentially be locked into the customs territory with the EU and the related regulatory alignment provisions for an indeterminate period. Indeed the Attorney General emphasized the UK's inability to exit the Protocol (without a subsequent agreement with the EU), in his advice to the Prime Minister on the Protocol, which was published on 5th December. This, combined with the differential treatment of Northern Ireland as compared with the rest of the UK, are the two main features which have given rise to some political opposition and to political uncertainty as to whether the UK Parliament will approve the Withdrawal Agreement.

If and when the UK Parliament does approve the Agreement, it will need to be implemented into UK law.  Further legislation will be required for this, namely the European Union (Withdrawal Agreement) Bill, which will need to be enacted and brought into force before the Brexit date of 29th March 2019. 

This article is part of our Brexit series.

 

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