August 2, 2018

Where now for UK/EU negotiations?

A summary of the UK Government's policy paper "The future relationship between the United Kingdom and the European Union"

On 12 July 2018, the UK Government published its long-awaited White Paper policy document which sets out the UK's views and proposals on the UK's exit from the European Union in more detail than ever before. It also raises many practical questions, which could affect our client's global trading and other relationships. This summary document identifies the key points raised in the White Paper.

  1. What is a Government "white paper"?

    A white paper is the term used for a policy document which the UK Government wishes to share before bringing any proposed legislation before the Houses of Parliament. A white paper is not legislation; and consultations may be made on a white paper which can change the structure of the eventual legislation.
     
  2. Why is the July 2018 Brexit White Paper so important?

    The UK Government has been considering its proposals for the UK's future relationship with the EU since the referendum of 23 March 2016. The UK Government triggered its notification to the European Council under Article 50 of the Treaty on the Functioning of the European Union on 29 March 2017. The statutory two year fixed timescale for exit to be negotiated will expire on Friday 29 March 2019, absent an extension to the Article 50 process or an agreed phased withdrawal agreement being in place. Consent to extend the Article 50 timescale requires a unanimous decision of the European Council, in agreement with the UK. An implementation period was agreed in principle on 19 March 2018, which envisages a period between 29 March 2019 and 31 December 2020. After the 29 March 2019, the UK will leave the EU, and the implementation period will mean that the UK will continue to be party to existing EU trade agreements until the end of December 2020.
     
  3. What does the White Paper propose?

    The White Paper marks the end to considerable negotiation between both the members of the UK Government, and the other political parties in the UK. The White Paper proposes a "middle way" withdrawal from the EU for the UK, (which the UK Government considers to be "principled and practical"). It seeks to address cross-party concerns in relation to: ​
    1) ​The future Economic partnership between the EU and the UK;
    2) The future Security partnership between the EU and the UK;
    3) Future wider co-operation between the EU and the UK;
    4) Future institutional arrangements.

    The UK proposal, effectively, creates an economic partnership and a security partnership. It is likely that more than one treaty will be required to document the proposals, should these be accepted by the EU.

    Economic partnership proposals


    Much of the debate has focused on the UK's desire to maintain as frictionless trade as possible with the EU, recognising the close proximity of supply chains between the EU and the UK which have been built up over the UK's membership. The White Paper proposes a "broad and deep economic partnership" with the EU, which can be summarised as follows:

    - ​The UK will leave the EU customs union and the EU single market on 29 March 2019.
    -  The UK wishes to be able to settle new Free Trade Agreements during the implementation period, with a view to bringing these into force from January 2021.
    -  An end to free movement of people once the Treaty on the Functioning of the European Union ceases to apply to the UK.
    -  A new "free trade area" for goods, with no tariffs being applied.
    - No quotas in the free trade area, and "routine requirements for rules of origin for goods traded between the UK and the EU".
    - The UK will commit to "relevant EU rules" to ensure "frictionless trade at the border" The UK would continue to participate in relevant EU goods regulation agencies (the European Chemicals Agency, the European Aviation Safety Agency, and the European Medicines Agency). The UK would commit to accept the rules of these bodies and to make a financial contribution to reflect this access.
    - A new "Facilitated Customs Arrangement" which would seek to remove customs checks and controls "as if" the EU and the UK were a combined customs territory. This would see the UK apply "EU tariffs and trade policy for goods intended for the EU". The UK would be able to
    apply "its own tariffs and trade policy for goods intended for consumption in the UK".
    - The UK proposes a "trusted trader scheme". This would involve goods at the UK border being liable for the UK tariff (if the ultimate destination is "robustly" shown to be the UK) or the EU tariff (if the ultimate destination is "robustly" shown to be inside the EU). Where the
    ultimate destination is not clear, the goods would be charged to the "higher of the UK or EU tariff". Goods which pay the higher rate of tariff for any reason "would be eligible for a repayment from the UK Government equal to the difference between the two tariffs".
    - The UK would continue to apply the EU's Union Customs Code "and rules related to safety and security".
    - The UK would seek to accede to the Common Transit Convention, and to agree "mutual recognition of Authorised Economic Operators" with the EU.
    - A proposal for common cross-border processes and procedures for VAT and Excise, which would be policed on a "risk-based enforcement" basis.
    - A commitment by the UK to the EU state aid regime and "co-operative arrangements" on competition.
    - "New arrangements on services and digital", and new regulatory arrangements for financial services. The White Paper does not expand upon this, save to note that the UK recognises that market access to the EU will not be the same as when the UK was a member of the EU.
    - The UK proposes "reciprocal recognition of equivalence under all existing third country regimes" for financial services.
    - Broad co-operation on transport and energy. Of note is the UK's aim to "explore" reciprocal arrangements for road hauliers and passenger transport operators.
    - A visa-free travel co-operation agreement to enable UK and EU citizens to continue to travel to each other’s countries, and continued access to the European Health Insurance Card scheme for UK citizens.
    - A new Air Transport Agreement to "maintain reciprocal liberalised aviation access between and within the territory of the UK and the EU".

    Security partnership proposals

    The UK is keen to maintain access to existing EU security agencies and a unified approach to address international criminal activity. The White Paper, in summary, proposes:

    - An agreement to ensure "existing operational capabilities" between the UK and the EU. This is proposed to cover "co-operation on the basis of existing tools and measures".
    - Continued participation by the UK in key agencies such as Europol and Eurojust. Again, the UK would agree to accept "the rules of these agencies and contributions to their costs under new arrangements".
    - The UK wishes to "maintain the UK’s and the EU’s capabilities on analysis of Passenger Name Records in aviation, based on the EU PNR Directive and its accompanying safeguards and rules".

    Wider co-operation, and governance

    Such is the depth of alignment between the EU and the UK, there are a wide variety of other areas where the UK seeks continued participation in existing EU structures as well as proposing new structures to regulate the new relationship:

    - To address concerns in relation to access to EU funding for universities, and research activity, the UK seeks "co-operative accords" across a range of existing EU programmes. The UK would agree to make an "appropriate financial contribution" for such access.
    - UK participation in EU research funding programmes.
    - A new UK-EU youth mobility scheme to replace ERASMUS+  
    - Fishing rights to be agreed, recognising the UK's status as an "independent country". The UK would leave the Common Fisheries Policy and the Common Agricultural Policy, and proposes to devise its own rules.
    - The UK proposes that it has access to the EU’s food regulation communications systems, such as "the Rapid Alert System for Food and Feed (RASFF), Rapid Alert System for Serious Risk (Rapex), and the Information and Communication System for Market Surveillance
    (ICSMS)"
    .
    - Continued alignment on data protection.
    - The UK wishes to maintain membership of the European Convention on Human Rights.
    - A new Unified Patent Court Agreement, with the UK intending "to explore staying in the Unified Patent Court and unitary patent system".
    - Mutual recognition of professional qualifications.
    - New arrangements for the Crown Dependencies, Gibraltar and the UK's Overseas Territories.
    - New governance arrangements. The UK seeks an organic, evolving relationship with the EU and proposes an Association Agreement to regulate how dialogue and disputes arising between the EU and the UK can be addressed. "Joint Committee" and "binding independent
    arbitration" routes are proposed, and in that way, the UK has rejected the concept of ongoing jurisdiction of the European Court of Justice (although judgments would still be considered to be persuasive to UK courts in areas where the UK continued to apply EU regulations).
     
  4. Comment from Clyde & Co

    The White Paper marks the clearest step yet of the UK's vision of the future relationship with the EU. It remains to be seen whether the policy document is accepted by the UK Parliament (either now, or at the point of the "meaningful vote" (which the Government is required to offer to Members of Parliament at the end of the negotiations). The Withdrawal Agreement and Political Declaration on the Future Relationship both need to be agreed by the European Council meeting in October 2018. It is also unclear whether the EU will accept some or any of the proposals, particularly in view of the selective nature of ongoing participation and co-operation which the UK seeks. This may be seen as "cherry picking", which the EU has stated consistently is not acceptable.

    There are a number of areas in the White Paper which do not fully address the complexities and the practical realities of international trade, for example, in relation to cabotage arrangements or ongoing validity of existing commercial contracts. Including the Withdrawal Agreement, there are more than 10 other agreements, accords and/or governance frameworks which the UK hopes to agree with the EU. Time is short to make progress on these frameworks which are essential to maintain ongoing free trade with the EU.

    Clyde & Co's firmwide Brexit group is monitoring developments and has produced a wide range of comment and reports for clients. For more information or advice on any of the issues contained in this summary, please email brexit@clydeco.com, or your usual contact at Clyde & Co.