The Key Information on Brexit
Our article helps cut through the political noise to explain the key points around Brexit that have been agreed.
With the final withdrawal agreement published, we look at the highlights of this, as well as a sector-by-sector breakdown of what the future relationship could look like.
The final withdrawal agreement and the draft political declaration on the future relationship were agreed by the leaders of all 28 EU countries at an extraordinary summit of the European Council, in November.
This represents a key milestone in the Brexit process. However, the UK Parliament must now vote to accept the deal before it is ratified in both the UK and the EU.
As we well know by now, ‘nothing is agreed until everything is agreed’, and uncertainty in UK domestic politics has the potential to change the direction of Brexit.
The lion share of the withdrawal agreement was largely agreed earlier this year.
Of key importance to businesses across sectors is the transition period, which will begin on 29 March 2019 and will last until 31 December 2020. The Agreement also provides for the extension of this, but only until the end of 2022 at the most.
Both the UK and EU must agree to any extension and the decision must be taken before 1 July 2020.
During the transition, the UK will have left the EU but will remain within the Single Market and Customs Union, meaning that the free flow of goods, capital, services and people can continue under EU law.
The UK will have no presence in the European Parliament, the European Commission or the European Court of Justice (ECJ). It will therefore have no formal say in making or amending EU rules and regulations but will still have to follow these and will remain under ECJ jurisdiction for this period.
A transition period has been a key ask of businesses throughout the Brexit process, giving more time to prepare for the new regime and avoiding the much feared ‘cliff edge’ scenario. However, it will only be legally certain once the withdrawal agreement is ratified. If the UK Parliament vote down the deal in December, there is still a risk that the UK could leave the EU with no deal and with no transition.
The other key point of the withdrawal agreement is the Northern Ireland backstop.
If no long-term trade deal has been agreed by the end of the transition period that avoids a hard border between Northern Ireland and the Republic of Ireland, then a backstop consisting of a “single customs territory between the EU and the UK” will be triggered, or in other words, a temporary customs union.
Northern Ireland will be in a deeper customs relationship with the EU than the rest of the UK and will be more closely aligned with the rules and regulations of the EU Single Market.
As long as the backstop is in operation, the UK will be subject to “level playing field conditions” to ensure it cannot gain a competitive advantage while remaining in the same customs territory, and – crucially for Conservative MPs – the UK cannot leave the backstop independently, rather this must be decided with the EU. This means that while the backstop applies, the UK cannot implement any trade deals with other countries around the world that involve removing tariffs on goods.
More broadly, the withdrawal agreement sets out calculations for the financial settlement, UK and EU citizens’ rights, a dispute resolution mechanism for the Agreement, and protocols on Gibraltar.
The political declaration covers a wide range of economic and security issues and intends to establish the “parameters of an ambitious, broad, deep and flexible partnership across trade and economic cooperation, law enforcement and criminal justice, foreign policy, security and defence and wider areas of cooperation”.
The final document is a statement of intent rather than a legally binding treaty. Formal negotiations on everything it contains can only begin after exit day on 29 March 2019. However, the declaration does contain plenty of aspirations involving shared interests, close partnerships and ambitious cooperation.
It also states that the UK and EU will approach the relationship with “high ambition with regard to its scope and depth” and that they recognise that this “might evolve over time”.
We have broken down the key points of interest across our 12 headline sectors below.
While financial services is given its own heading in the political declaration, the content is limited. The ambition as set out in the declaration is grounded within the parameters of the current equivalence regime.
On the basis of the statements, the detail around any ‘enhanced’ provisions will need to be negotiated post March 2019, although it is worth noting that the declaration says nothing about expanding the existing equivalence regimes – it simply says it will keep these “under review”.
Both parties will begin equivalence assessments as soon as possible post Brexit, with the aim of concluding before the end of June 2020. The UK and EU are mindful of the need to ensure that the UK’s ‘equivalence’ status is in place immediately following the end of the transitional period, aiming to address some of the ‘cliff-edge’ issues that could rise at the end of transition.
The UK and EU also agree that it is in their mutual interest to ensure “close and structured cooperation on regulatory and supervisory matters” and that such cooperation should be based on principles of regulatory autonomy, transparency and stability.
The declaration goes on to explain that this cooperation should include “appropriate” consultation in the process of adoption, suspension and withdrawal of equivalence decisions, information exchange, regulatory initiatives as well as their issues of mutual interest. The use of the word “appropriate” could allow for little, or comparatively extensive, consultation.
In the whole, the UK and EU have also made commitments to preserve financial stability, market integrity, investor protection and fair competition, and to respect each other’s regulatory and decision-making autonomy.
It’s worth noting the strong prudential carve-out language, allowing each party to take “any” measures necessary for prudential reasons.
For services, the UK and EU will seek to conclude “ambitious, comprehensive and balanced arrangements on trade in services and investment in services and non-services sectors” that seek to go “well beyond” the parties’ WTO commitments and build upon recent EU Free Trade Agreements. These arrangements are intended to have substantial sectoral coverage, covering both professional and business services – however the devil will be in the detail!
In terms of market access, the declaration makes clear that the arrangements on services should include provisions on market access, national treatment under host-state rules and performance requirements imposed on investors. This on the face of it would be a very different situation to what applies under EU membership and implies a substantially lower level of cross-border market access.
The declaration also discusses regulatory aspects of the future relationship between the UK and the EU on services. Regulatory approaches would be "transparent, efficient, compatible to the extent possible, and which promote avoidance of unnecessary regulatory requirements".
Such approaches would include "appropriate" arrangements on professional qualifications which are in the UK and the EU's mutual interest and are necessary to the pursuit of regulated professions. This is conservative language that could result in limited or more extensive access depending on the commitments made.
The declaration does not address mutual recognition of judgments or other co-operation on civil justice issues, which had been a focus of attention for the legal services sector.
While the declaration sets the ambition for the agreement to include “zero tariffs, no fees, charges or quantitative restrictions across all goods sectors” and an aim for a trading relationship that is as “close as possible”, it also leaves the future relationship vague enough that it will not be tied to one model or another.
However, the Single Customs Territory that is outlined in the withdrawal agreement is set to be the basis of the future relationship, albeit with both parties aiming to “build and improve” on this.
This could prove to be a sticking point for Theresa May, as it will anger Conservative Brexiteers who fear that the UK will be effectively tied to the Customs Union and therefore limited in its ability to sign free trade agreements with the rest of the world.
In relation to customs facilitation, the declaration also says that the UK and EU will have “ambitious customs arrangements” which make use of “all available facilitative arrangements and technologies”. This could signal a return to the ‘max-fac’ solution – a technological solution that would ensure the border between Northern Ireland and the Republic of Ireland remains invisible.
Whatever form this arrangement takes, it will be important for Theresa May and the UK in seeking to avoid reverting to the Irish backstop.
The declaration also leaves open the extent of checks and controls for goods entering and leaving the UK and EU. It acknowledges that “the extent of the [UK’s] commitments on customs and regulatory cooperation … would be taken into account in the application of regulated checks and controls” and combined with the use of available facilitative arrangements, could lead to a variety of outcomes for checks and controls.
In terms of transport, the UK and EU have agreed to make arrangements that allow comparable market access for freight and passenger road operators, to ensure passenger and cargo air connectivity through a Comprehensive Air Transport Agreement, and that bilateral arrangements should be established for cross-border rail services, including services through the Channel Tunnel.
Passenger and cargo connectivity in the maritime transport sector will be underpinned by the international legal framework, and the parties will make appropriate arrangements on market access for international maritime transport services, as well as facilitating cooperation on maritime safety and security.
On defence, the EU and UK have committed to coordinate, with the UK negotiating clauses in the declaration that would allow it to participate in EU joint defence projects, known by the acronym PESCO.
The UK Government has already introduced an Agriculture Bill into the UK Parliament. The Bill provides the legal framework for the UK to leave the Common Agriculture Policy (CAP) and establish a new system based on public goods for farmers and land managers.
Measures are included in the Bill for farmers to continue to receive payments during the transition period, however powers are set out in the legislation to simplify and phase out direct payments and delink these payments from land.
The declaration contains little on agriculture more broadly, however fishing rights were one of the most hotly contested parts of the declaration. This is because the fishing industries of eight EU Member States are dependent on access to British waters, while UK fishermen export much of their catch to the bloc.
The outcome in the text appears to be in many regards a stalemate. Britain makes clear it will be an “independent coastal state” after Brexit, with control over access to its waters. But Britain also commits to finding a fisheries agreement that offers the EU access to its waters and a share of the UK catch. The parties aim to conclude and ratify this new fisheries agreement by July 2020 in order for it to be in place in time to be used for determining fishing opportunities for the first year after the transition period.
The reference to the context of an “overall economic partnership” in relation to the new fisheries agreement is significant. The EU is insisting that a satisfactory deal on fish is the condition of a comprehensive trade agreement covering all sectors of the economy.
Furthermore, alongside the publication of the withdrawal agreement and political declaration, the remaining EU 27 leaders published a separate statement vowing to protect their own interests, including an emphasis that a fisheries agreement that builds on “existing reciprocal access and quota shares” is a matter of a priority.
While several EU leaders have highlighted fishing as a particularly sensitive issue, French President Emmanuel Macron gave the starkest warning, stating that the EU’s position on fishing forms part of its position on future relationship talks and that without sufficient progress on this, the Irish backstop would have to be implemented: an outcome Theresa May is desperate to avoid.
The declaration contains commitments to open and fair competition covering, among other things, environmental standards and climate change. The details of this will need to be fleshed out in negotiations following exit day, and with 70% of environmental regulation having an EU source, the question of how far EU environmental protections are removed from UK law remains.
The declaration also states that the parties “should consider” cooperation on carbon pricing by linking a UK national greenhouse gas emissions trading system with the Union’s Emissions Trading System. On leaving the EU, the UK will no longer be bound by the Renewable Energy Directive, which creates legally binding targets for decarbonisation. However, the UK and EU’s reaffirmation of commitment to the Paris Treaty in the declaration creates a strong incentive to meet decarbonisation targets.
The UK Government is passing a separate Environment Bill, which will be published in part before Christmas and in part in Q1 2019. The Bill will set out a legal framework for the Government’s promise for a ‘green Brexit’ that will leave the environment in a better state over the next 25 years.
The Government has also consulted on its intention to require ministers to produce – and then have regard to – a statutory and comprehensive policy statement setting out how they will apply core environmental principles as they develop policy. This would seek to provide an alternative to the principles currently underpinned by the European Commission.
The UK and EU have committed to cooperating in matters of health security in line with existing EU arrangements with third countries.
The parties also aim for cooperation in international fora on prevention, detection, preparation for and response to established and emerging threats to health security, and regulatory cooperation between the European Medicines Agency and the UK Medicines and Healthcare products Regulatory Agency.
The free trade agreement approach of the declaration means that medicines and other medical products will be able to flow freely between the UK and the EU.
While the intent in the declaration has been welcomed by the industry, it is distinctly light on detail. Concern has been raised that there is no explicit reference to the importance of securing long-term, extensive cooperation around the regulation of medicines. The UK’s role in the licensing system will be reduced, but exactly how far it is so will depend on how closely the UK chooses to remain aligned with EU law.
In relation to protecting citizens from infectious disease and counterfeit medicines, the European Centre for Disease Control is not explicitly mentioned in the withdrawal agreement. Cooperation involving data sharing in a range of health contexts could continue after transition as long as the UK remains aligned with the EU on data protection, but if the UK diverges then this could prove more challenging.
There is a weak reference to “consider addressing social security coordination in the light of future movement of persons”, which suggests that reciprocal healthcare arrangements will only continue if the UK accepts a significant degree of free movement.
Calls have also been made for close collaboration on science and innovation. While the declaration envisages the UK participating in EU-funded programmes on terms yet to be agreed, the level of the UK’s influence could be limited. There is a concern that without close cooperation in regulation and scientific research, the UK and EU will not be able to compete with the US and China in terms of life sciences investment.
In terms of the health and social care workforce, the withdrawal agreement covers the positions of EU citizens in the UK and visa versa.
The implication is that retention of NHS and social care workforce already in the UK will be less easy than if the UK were to remain in the EU, but much easier than under a no-deal Brexit, and the possibility to attract EEA nationals up to the end of transition will be in place. This is important, given current reliance on EEA nationals, especially in nursing, and particularly in some parts of the country.
However, the political declaration envisages an end to free movement and does not include any specific conditions for entry and stay related to health in particular or public service in general (although it does for research, study and training).
Therefore, if the NHS or social care services are to employ health and social care staff from EU countries after transition, this will be on the basis of domestic immigration law only.
The UK Government is due to publish its White Paper on immigration before Christmas, which should provide more detail on the shape of the UK’s future immigration policy.
For the hospitality and leisure industry, the main provisions in the political declaration of interest relate to travel. Measures on migration would be reciprocal and are intended to include short term visa-free travel, a move that will be welcomed. In line with their applicable laws, the parties will explore the possibility to facilitate the crossing of their respective borders for legitimate travel.
The UK and EU have also agreed to negotiate a “Comprehensive Air Transport Agreement” covering safety, security, air-traffic control, consumer protection, as well as market rules for aviation companies. However, the text remains short and aspirational, and leaves questions for British-controlled airlines including whether EU aviation agreements such as the transatlantic Open Skies deal will apply and how the UK will cooperate with the European Aviation Safety Agency.
Another key issue for hospitality businesses will be related to the workforce. If businesses are to employ workers from EU countries after transition, this will be on the basis of domestic immigration law only.
The UK and EU will cooperate to support the delivery of cost efficient, clean and secure supplies of electricity and gas, based on competitive markets and non-discriminatory access to networks.
In addition, the declaration includes the establishment of a framework to facilitate technical cooperation between electricity and gas network operators and organisations, such as the European Networks of Transmission System Operators for Electricity and Gas, in the planning and use of energy infrastructure connecting their systems.
The framework should also include mechanisms to ensure as far as possible security of supply and efficient trade over interconnectors over different timeframes.
As part of the General Agreement on Trade in Services, the UK and EU are aiming for broad sectoral coverage, which would include telecommunications services.
In addition, the parties aim to provide, through sectoral provisions in telecommunication services, for fair and equal access to public telecommunication networks and services to each other’s services suppliers, and to address anti-competitive practices. The UK and EU will also work together to establish a dialogue to exchange information, experience and best practice relating to emerging technologies.
A consequence of Brexit important for UK consumers will be the potential changes to roaming charges. The UK will no longer be able to rely on the Roaming Regulation in respect of their use of international roaming services when travelling within the EU.
The flip side is that UK operators will also no longer be subject to regulated roaming tariffs at the wholesale level. The issue of roaming charges for UK users across the EU will be a matter of individual operators’ commercial arrangements and any agreements that may be made between UK mobile operators and their counterparts in the EU.
The declaration demonstrates a commitment on both sides to data flows and data protection, which will be welcomed. On data protection, adequacy decisions will start once the UK is a third country and both sides will endeavour to adopt an adequacy decision by December 2020, when the transition period ends.
As expected, the Information Commissioners Office (ICO) will not have a role on the European Data Protection Board, however some kind of cooperation platform will be established.
The declaration also reiterates a commitment to a reciprocal immigration system to allow for skilled workers to move between the UK and EU, which will be welcomed by the technology sector looking to ensure people can fill the growing number of roles in the industry.
Beyond the movement of goods, the political declaration has little of direct relevance in relation to retail and wholesale.
However, it is worth noting that the UK and EU aim to establish provisions to facilitate electronic commerce, address unjustified barriers to trade by electronic means, and ensure an open, secure and trustworthy online environment for businesses and consumers, such as electronic trust and authentication services or on not requiring prior authorisation solely on the grounds that the services is provided by electronic means.
The declaration identifies education as an area of shared interest, with the UK and EU committing to “engage in dialogue and exchanges” in relation to these, with a view to identifying opportunities to cooperate, share best practice and expertise and act together.
Beyond these warm words, questions remain for the sector. UK universities fear losing access to valuable EU research funding, currently only guaranteed until 2020, and the declaration offers no details about how future arrangements might work. Similarly, it is still unclear what role EU academics will be able to play at UK universities after 2020 or what the financial implications will be for EU students who want to study here.
Real estate is less directly affected by the declaration. However, economic uncertainty remains, with the Government’s comparative economic analysis indicting that, compared to current arrangements of EU membership, the UK’s future GDP would be 7.6% lower if there is no deal, 4.9% lower on the basis of an average FTA and 0.7% lower on the basis of the Government’s Chequers proposals.
The uncertainty in terms of outcome could therefore have an impact on both real estate investment, and on demand and supply in particularly cities, resulting in price movements. Additionally, wider economic pressures from finding the right people to work in the construction sector, office occupancy and confidence of consumers in the market will all have an impact on the sector.
Our article helps cut through the political noise to explain the key points around Brexit that have been agreed.
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