On 14th November 2018, the UK and EU published the draft Withdrawal Agreement. The EU then approved the draft Agreement on 25 November 2018. The Agreement was due to go before the House of Commons on 10th December to decide whether it is approved in the UK. However, the Prime Minister called off the vote so she can go back to Brussels and ask for changes to the Agreement.
The reaction in the UK to the Withdrawal Agreement has been divided – just like the country was on the issue of Brexit.
The draft Withdrawal Agreement is 585 pages long – a lengthy read! It sets out how the UK is to leave the European Union, scheduled for 29th March 2019.
The draft agreement is however is supported by business leaders here in the UK and the EEF as well as the other business advisory bodies believe this is a good deal for businesses going forward. The fear of a no deal is still however a real one and who knows what no deal may mean which is why many business organisations are now behind the withdrawal agreement as the ‘ best we are going to get’.
The key points of the current Withdrawal Agreement are set out below.
The draft Agreement sets out the calculations for the financial settlement that the UK will have to pay for coming out of the EU. This is commonly known as the “divorce bill”. Interestingly, although no figure is actually mentioned in the document, it is thought to be at least £39 billion payable over a number of years. This year, the UK’s contribution is expected to be net £10.8 billion.
The Government had to sort out the cost of the divorce bill first before it could make progress on all the other issues.
The transition period begins on 29th March 2019 and will last until 31st December 2020.The Government calls the transition period the “implementation period”. During the transition period, the UK will need to abide by all of the EU rules and regulations. However, it will not have the benefit of the EU institutions. The transition can be extended, but only for one or two years at the most. If there is to be another extension, this must be agreed before 1st July 2020.
Whilst the Government says that it will be taking back control, the reality is that it will in effect be ceding control for the transition period and if that is extended maybe even longer. At all of the European institutions – the European Parliament, the European Commission and the European Court of Justice, there will be no UK presence. However, the main advantage of the transition period is that it buys more time for both the government and businesses to prepare for a new way forward. During the transition period, the UK will still have continued access to EU databases on security whilst negotiations continue which is beneficial.
The draft Withdrawal Agreement enables UK citizens in the EU and EU citizens in the UK to retain their residency and social security rights in the UK. There are some three million EU citizens living in the UK and this will come as a relief to them. There are estimated to be one million UK citizens living in the EU. Any citizens who decide to take up residency in another EU country during the transition period will be allowed to stay in that country after the transition period. After 5 years of residence in an EU country, they will then gain permanent status. The Government calls it “settled status” and ‘ non settled status’ for those under 5 years residence. The Government has already put in place measures to enable EU citizens to apply for settled and no settled status in the UK and this will go live before 30 March 2019 and there will be a fee for applying for this in a similar way you might apply for a passport. This will enable EU nationals who work for businesses to stay in the UK beyond December 2020.
There are still some uncertainties on the issue of recognition of professional qualifications and access to university education across the EU. However it is hoped that this will be clarified shortly.
The UK and EU will try and agree a long term trade deal during the transition period. If no long term trade deal has been agreed by the end of 2020 that avoids a hard border between Northern Ireland and the Republic of Ireland (and also if there is no extension to the transition period) then a backstop will be triggered of a “single customs territory between the EU and UK. Whilst the backstop is in operation, the UK will have a level playing field with the rest of Europe. This is so that it cannot have a competitive advantage when in the customs territory.
Surprisingly, the Agreement doesn’t make any references to services. During the transition period, market access for UK and EU services will be maintained. After that, there is a “clean slate” but it is still hoped that there will be a framework to allow future market access for services.
Laws and disputes
During the transition, the UK will remain under the jurisdiction of the European Court of Justice. If, however the backstop is triggered and the UK forms a single customs territory with the EU, the European Court of Justice will not be able to resolve disputes between the UK and EU directly. In its place there will be an arbitration panel to resolve disputes. If any dispute is about the interpretation of EU law however, the arbitration panel will refer the case to the European Court of Justice for a binding decision. Therefore the European Court of Justice will continue you have an indirect influence on the UK for some while to come.
As far as data is concerned, the General Data Protection Regulation will continue to apply during the transition period. It will apply after the transition period in so far as any EU originating personal data continue to be processed within the UK where the relevant data commenced before the end of the transition.
EU legislation on the law applicable to contractual obligations will apply to contracts concluded before the end of the transition period. Similarly, EU legislation on recognition and enforcement of judgments will apply to cross border civil and commercial, family and maintenance cases that are commenced before the end of the transition period.
The draft Withdrawal Agreement says that a separate agreement will have to be reached on access to EU fishing in UK waters so there may still be stormy waters ahead on this issue. Fishing rights is always a highly emotive issue with recent arguments in local waters which was highly publicised in the news.
The draft Agreement gives London’s financial centre only a basic a level of access to the EU’s financial markets similar to that enjoyed by Japan and the US firms.
What happens next?
The Prime Minister now faces a tougher challenge getting Parliament to approve the deal. There is opposition in the Conservative party and other parties from the Brexiteers who wanted full independence from the EU including full control of laws and borders and an end to the jurisdiction of the European Court of Justice.
If MPs from across the political spectrum do not get on board, it makes the chance of a “no deal” Brexit a very real possibility. Both the UK and the EU have issued guidance on their preparations for a “no deal” scenario.
What is a ‘no deal’ Brexit?
It means quite simply that the UK and the EU would be unable to reach a withdrawal agreement. If no agreement can be made, it means there would be no 21-month transition period and uncertain times ahead for the government, businesses and consumers as well as for the rest of Europe potentially, this is why business leaders are so opposed to a no deal because it could see major funding from other countries being pulled from the UK. At a manufacturing forum we attended last week, American investors in one company were talking of closing their UK operations entirely in the event of a “no deal” which could be catastrophic for local areas if it means the loss of hundreds of jobs.