Brexit Business Brief | Out, with opt-ins
Published on 30th May 2018
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The UK government continues to debate with itself on how to avoid a hard border between Northern Ireland and the Republic of Ireland, and more generally how to keep UK and EU trade as frictionless as possible after Brexit.
The Prime Minister appears to be supporting a "backstop" plan, under which the whole of the United Kingdom would remain aligned with the EU Customs Union and participate in some sort of Single Market for goods. That would, in theory, avoid tariff and non-tariff barriers at borders and customs. The backstop would start after the proposed transition period ends in December 2020, and finish once the final trading relationship between the EU and the UK is settled.
That backstop is tentatively referred to as a "customs and regulatory alignment period".
Although the plan appears to be anticipated by Article 49 of the December 2017 UK-EU Joint Report, the EU will not be keen, as it looks like "cherry-picking" of elements of the Single Market. For example, there is no suggestion from the UK side that freedom of movement would continue.
The EU and UK teams continue to negotiate the Withdrawal Agreement. A reminder, as usual (!), that until the Withdrawal Agreement is agreed and ratified – hopefully in the last quarter of 2018 – the "standstill" transition period proposed to run from 30 April 2019 to 31 December 2020 remains a political agreement, not a legal certainty. The next milestone in the Brexit negotiation process is the European Council meeting on 28 and 29 June 2018.
In the UK, the centrepiece of the government's Brexit legislation, the European Union (Withdrawal) Bill, is now back with the Commons after being substantively amended by the House of Lords. I discuss this more below under "Legal developments".
The UK government published a series of framework papers setting out its views on the future relationship. These are largely iterative of positions already set out by the UK, in particular the Prime Minister's Florence and Mansion House speeches.
In its data protection framework paper, the UK repeats that it is seeking more than an adequacy decision to keep data flowing after the transition period. It would like a "new model", which is sketched out in the paper. The UK believes the domestic Information Commissioner's Office should have an "appropriate ongoing role" on the European Data Protection Board.
An interesting aspect of the science, research and innovation framework paper is that the UK says it will "respect the remit of the CJEU, where relevant, where we participate in the EU programmes". Ending the European Court of Justice's authority in the UK was one of the "red lines" set down by Mrs May in the early months of her premiership. As with the suggestion that the UK continue within some parts of the Single Market after the end of the transition, those red lines are now becoming blurred.
In its economic partnership paper, the UK confirms that it "will transpose the EU state aid rules and principles in full through the EU Withdrawal Bill".
In a contribution to the customs debate in the UK, the EU's Brexit taskforce published a slide emphasising that common customs controls are only one part of keeping borders frictionless; regulatory alignment and product conformity are also needed.
Sir Ivan Rogers, the UK's former Permanent Representative to the EU, gave a lecture setting out why he believes the UK's Brexit strategy is likely to fail. He agrees with the Luxembourg PM's description of this strategy as "before they (the British) were in with a lot of opt-outs; now they are out and want a lot of opt-ins".
As with Sir Ivan's November 2017 explanation of why David Cameron called the referendum, his speech is a great guide to understanding Brexit and the UK's options on a fundamental level.
Sector and other developments
Financial services: The ECB issued a short note on its supervisory approach during the transition. The UK government published its response to the House of Lords European Union Sub-Committee on Financial Affairs report on Brexit and the future of financial regulation and supervision. The AFME looks at the implications of Brexit for personal data flows and the capital markets in this paper.
The European Commission and HM Treasury have asked the European Central Bank and the Bank of England to convene a technical working group on risk management in the period around 30 March 2019.
Financial and professional services group TheCityUK published a paper making recommendations for the UK's future immigration system. It has been reported that the government will publish its immigration White Paper before the summer, which is a change to the previous timetable of "by the end of 2018".
Competition and trade: BEIS wrote a letter setting out the UK government's current Brexit policy on competition and State aid. The Competition and Markets Authority's Executive Director spoke on Brexit and competition policy. The new UK Trade Remedies Authority will be based in Reading. The TRA is one of the new regulatory bodies which the UK must build in preparation for leaving the EU and the return of the policing of international trade relations from Brussels to the UK.
Environment: The UK government started a consultation on a new Environmental Principles and Governance Bill, to "ensure environmental protections will not be weakened as we leave the EU".
"Be prepared" notices: The Commission issued more of its notices to business on what the legal situation would be in the event of a cliff edge Brexit (i.e. no deal on 29 March 2019). These cover pensions, the internal energy market and certificates for medicinal and plant products.
The European Union (Withdrawal) Bill completed its third reading in the House of Lords. The Lords made a number of very material amendments to the Bill, including that the UK must set out the steps it has taken to negotiate a customs union with the EU, and that it should continue to participate in the EEA. Parliament would also acquire the ability to direct the government on Brexit negotiations if (very broadly) the Withdrawal Agreement is not agreed by the end of 2018 or early 2019.
It is open to the Commons to reverse all of the Lords' amendments. It is reported that the government may bring the Bill back to the Commons in the week beginning 11 June 2018. If that happens, we will then find out whether the Commons is prepared to back any of the changes made by the Lords – and if so, what effect a defeat on its flagship legislation will have on the government.
I discuss why the government is persisting with the Withdrawal Bill in this Insight article.
There is still no date for when the Brexit Customs and Trade Bills will come back to the Commons.
Take a look at