European Commission updates its advice to governments, businesses and citizens - and warns them that it is their responsibility to be fully prepared for Brexit

In our previous insight we worked through the latest European Commission advice to governments, business and citizens on preparing for Brexit. (see Insight Oct 29, 2018).

Given how little time remains for negotiations to conclude a Withdrawal Agreement - and for this to be ratified by UK Parliament, European Parliament, and the remaining 27 EU member states - and gulf that exists between the parties on a number of key issues, the EC is now asking all interested parties to focus on what they consider to be the 2 most likely scenarios.

No-deal – a “cliff edge” point of exit at 23:00 GMT on 29 March 2019   

  • The United Kingdom becomes a ‘third country’ and Union law ceases to apply to and in the United Kingdom;

  • There would be no specific arrangement in place for EU citizens in the United Kingdom, or for UK citizens in the European Union;

  • EU countries must apply EU regulations and tariffs at borders with the UK as a third country - including checks and controls for customs, sanitary and phytosanitary standards and verification of compliance with EU norms.  Transport between the United Kingdom and the European Union would be severely impacted.  Customs, sanitary and phytosanitary controls at borders could cause significant delays, e.g. in road transport, and difficulties for ports;

  • The UK becomes a third country whose relations with the EU would be governed by general international public law - including rules of the World Trade Organisation.  In particular, in heavily regulated sectors, this would represent a significant drawback compared to the current level of market integration;

  • Depending on the circumstances leading to the withdrawal without an agreement, the EU may wish to enter into negotiations with the UK as a third country;

  • UK entities would cease to be eligible as Union entities for the purpose of receiving EU grants and participating in EU procurement procedures.  Unless otherwise provided for by the legal provisions in force, candidates or tenderers from the UK could be rejected.

  • The United Kingdom will be a third country and Union law ceases to apply to and in the United Kingdom;

  • There would be no specific arrangement in place for EU citizens in the United Kingdom, or for UK citizens in the European Union;

  • The EU must apply its regulation and tariffs at borders with the UK as a third country - including checks and controls for customs, sanitary and phytosanitary standards and verification of compliance with EU norms.  Transport between the United Kingdom and the European Union would be severely impacted.  Customs, sanitary and phytosanitary controls at borders could cause significant delays, e.g. in road transport, and difficulties for ports;

  • The UK becomes a third country whose relations with the EU would be governed by general international public law - including rules of the World Trade Organisation.  In particular, in heavily regulated sectors, this would represent a significant drawback compared to the current level of market integration;

  • Depending on the circumstances leading to the withdrawal without an agreement, the EU may wish to enter into negotiations with the UK as a third country;

  • UK entities would cease to be eligible as Union entities for the purpose of receiving EU grants and participating in EU procurement procedures.  Unless otherwise provided for by the legal provisions in force, candidates or tenderers from the UK could be rejected.

 Withdrawal including transition period until 31 December 2020:

  • The United Kingdom will be a third country as of 23:00 GMT on 29 March 2019;

  • In general, EU law would continue to apply during the transition period;

  • The United Kingdom would from 23:00 GMT on 29 March 2019 no longer participate in EU decision-making, EU institutions, governance of EU bodies and agencies;

  • The role of EU institutions in the supervision and enforcement of EU law in the United Kingdom would continue;

  • The EU should negotiate with the UK an agreement on the future relationship which should ideally be in place (agreed, signed and ratified) at the end of the transition period and apply as from 1 January 2021.

In their call to governments, businesses and citizens to prepare for Brexit, the European Commission set out some sample illustrations of the challenges and actions needed to prepare for Brexit by sector:

Transport, including aviation

Customs

Financial services

Food safety

Pharmaceuticals

Personal data

Professional qualifications

Transport, including aviation – Brexit preparedness

Depending on the mode of transport (air, road, rail, maritime, inland waterway), the EU sets rules for the safety, security, and access to the EU market.  These rules usually create distinctions between EU operators and third country operators and provide access to those who comply with EU requirements.

EU transport businesses should carefully assess whether the change of status of the United Kingdom from a Member State to a third country impacts their operations, and should take the necessary preparedness measures.

The Commission has published 10 notices relevant for the area of transport (air transport, aviation safety, aviation and maritime security, road transport, rail transport, seafarer qualifications, maritime transport, consumer protection and passenger rights, inland waterways, industrial products), which set out in clear terms the implications of the United Kingdom's withdrawal from the EU's legal and regulatory framework, e.g. in the area of aviation safety, in the absence of any particular arrangement, thus providing stakeholders with the requisite clarity on the baseline situation to which they were advised to adapt.

The Commission will adopt in the foreseeable future two proposals to amend existing Regulations where the changes would be necessary under any scenario. Amending the Regulation concerning the recognition at the Union level of organisations entrusted with duties in relation to the inspection and survey of ships will increase legal certainty, secure business continuity for the affected ship owners and preserve competitiveness of EU-27 Member States' flags.  The proposal to amend the Regulation establishing the Connecting Europe Facility aims at rectifying the situation following the United Kingdom's withdrawal, when the transport infrastructure of the latter will no longer be situated in the Union to ensure continued connectivity of the EU network.

Customs – Brexit preparedness

When the United Kingdom becomes a third country, and in the absence of an agreement providing otherwise, the customs administrations in the EU, i.e., national customs authorities, will have to enforce EU rules for both exports to and imports from the United Kingdom.  This means that the formalities that currently apply to trade with non-EU countries will apply, including the submission of customs declarations for goods shipments and the related controls to ensure compliance.  Duties and taxes (notably VAT and excises) will have to be accounted for.  This is in contrast with the current situation where no such formalities or charges apply at the borders for trade between the United Kingdom and the rest of the EU. 

Customs formalities have implications in terms of additional documentation and data requirements for businesses, processing and controls for customs, and infrastructure requirements for both, including IT and physical infrastructure to allow appropriate risk-based controls.

All stakeholders concerned should prepare for a situation where shipments of goods from and to the United Kingdom are subject to customs procedures and controls.

National administrations have started preparing for this new situation, in particular by planning new recruitments.

On its side, the Commission has looked carefully at the current legal framework and its application.  It has also focused its efforts on alerting Member States to the EU law obligations in relation to trade with third countries, in parallel with its activity of publishing notices to stakeholders.  Technical seminars to raise awareness and to identify issues have been run with EU27 Member States, and discussions have taken place with trade interests, notably through the Commission's Trade Contact Group.

EU customs authorities depend greatly on sophisticated and joined up IT systems.  The Commission has started a process to ensure that the appropriate changes can be made both at EU level and in Member States to reflect the change in the status of the United Kingdom.

Finally, the Commission is facilitating the accession of the United Kingdom to the Common Transit Convention.  This would be an important trade facilitation measure which would allow goods to move quite freely under customs supervision across different jurisdictions and which is particularly relevant in the case of goods going from one part of the EU to another via the United Kingdom.

Financial services – Brexit preparedness

Over the years, the United Kingdom in general and the City of London in particular has become an important financial services centre, also thanks to the Single Market.  Many operators, including from third countries, have established themselves in the United Kingdom and operate in the rest of the Single Market based on the passporting rights enshrined in the EU financial services legislation. 

These passporting rights will cease to exist after withdrawal.  This means that the provision of financial services from the United Kingdom to EU27 will be regulated by the third country regimes in EU law and in the national legal frameworks of the respective Member State of the EU customers.  There will be no Single Market access.  Operators in all financial services sectors need to prepare for this scenario if they wish to ensure that there is no disruption in their current business model and that they are in a position to continue serving of their clients. In relation to contracts, at this juncture, there does not appear to be an issue of a general nature linked to contract continuity as in principle, even after withdrawal, the performance of existing obligations can continue.  However every type of contract needs to be looked at separately.

The Commission has published eight notices in this area.  The European Supervisory Authorities have provided extensive additional guidance to national competent authorities and to market participants through a series of Opinions.  The Commission has also proposed modifications to some of the current supervisory arrangements to cater for potential financial stability implications following the withdrawal of the United Kingdom.  The co-legislators are encouraged to adopt these proposals as rapidly as possible.

Given the potential implications for financial stability, a technical working group, co-chaired by the Bank of England and the European Central Bank, has been set up and is meeting regularly with a focus on risk management in the period around 30 March 2019 in the area of financial services.  Additional authorities are participating in analysis on an issue-specific basis.  The group will report on its work to the Commission and the responsible authority in the United Kingdom. 

Food safety – Brexit preparedness

When the United Kingdom becomes a third country, and in the absence of an agreement providing otherwise, the strict EU rules in relation to sanitary and phytosanitary (SPS) conditions and controls on animals, plants and their products, will apply to the United Kingdom as any other third country.

For imports of animals, plants and their products from the United Kingdom into the European Union, the following rules will apply:

  • Trade can take place once the sanitary and phytosanitary (SPS) conditions for the relevant agri-food products and the corresponding certification and control requirements are established.

  • Physical infrastructures will have to be put in place to allow all movements of live animals and animal products (including food of animal origin), and certain plants and plant products, to go through Border Inspection Posts (BIPs) at seaports, at airports or at land, as required by EU rules. The capacity of existing posts may need to be increased while new posts will also be necessary.

Ten notices have been published to raise awareness of business operators.  Similarly, a technical expert seminar with EU27 Member States and meetings with stakeholders were organised.

Pharmaceuticals – Brexit preparedness

EU pharmaceutical law requires the marketing authorisation holder for a medicine to be established in the EU.  Moreover, medicines manufactured in a third country undergo specific controls upon importation.

Marketing authorisation holders and actors in the supply chain have to prepare for this situation, in particular by ensuring that the necessary testing facilities are available in the EU.

Commission services, in close cooperation with the European Medicines Agency issued a notice and several additional questions and answers documents to provide guidance.  In addition, a technical expert seminar with EU27 Member States and meetings with stakeholders were organised.  Finally, the European Medicines Agency has carried out a survey of critical medicinal products as part of its broader preparedness planning.

Personal data – Brexit preparedness

Currently, personal data can flow freely between the Member States of the EU, when the GDPR (General Data Protection Regulation 2016/679) is respected.  Once EU law ceases to apply to the United Kingdom, the transfer of personal data from the EU to the United Kingdom will still be possible, but it will be subject to specific conditions set in EU law. 

Companies and Member States' authorities that are currently transmitting personal data to the United Kingdom should therefore be aware that this will become a "transfer" of personal data to a third country, and explore if it could be permitted under relevant provisions of EU legislation.  If the United Kingdom's level of personal data protection is essentially equivalent to that of the EU, the Commission would adopt an adequacy decision which allows for transfer of personal data to the United Kingdom without restrictions.  However, this decision could only be taken once the United Kingdom becomes a third country.  Companies should therefore assess whether, in the absence of an adequacy decision, measures are necessary to ensure that these transfers remain possible.  The Member States Data Protection Authorities should assist companies in this endeavour.

Professional qualifications – Brexit preparedness

EU law provides for a facilitated recognition of professional qualifications obtained by EU citizens in other EU Member States. 

Citizens holding a professional qualification obtained in the United Kingdom should consider whether it is advisable to obtain the recognition of a professional qualification in the EU27 while the United Kingdom is still a Member State.

The Commission published a notice on EU rules on regulated professions and the recognition of professional qualifications. It advises in particular EU nationals with UK professional qualifications obtained prior to Brexit to consult relevant nationals authorities on the need to obtain recognition ahead of 30 March 2019.


Reference

European Commission: October 2018

 
John ShuttleworthComment