European Commission puts Brexit into context – and calls for more robust response from all quarters.

Brussels

The Commission has formally written an open letter today addressed to  the European Parliament, the European Council (comprising the Prime Ministers of each of the 28 Member States), the European Central Bank, the European Economic and Social Committee and the European Investment Bank.

The communication is titled: “Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019”.

Summary

‘The withdrawal of the United Kingdom from the European Union has repercussions for citizens, businesses and administrations in both the United Kingdom and the European Union. These repercussions range from new controls at the EU’s (new) outer border, to the validity of UK-issued licences, certificates and authorisations all the way to new conditions for data transfers.

The European Union is working hard to reach an agreement on an orderly withdrawal, and looks forward to discussing a framework for the future relationship with the United Kingdom.

However, there is no certainty that an agreement will be reached. And even if an agreement is reached, the United Kingdom’s relationship with the European Union will no longer be one of a Member State and thus, will be in a fundamentally different situation. Therefore, everybody concerned needs to be prepared for the withdrawal of the United Kingdom from the European Union on 30 March 2019. This Communication is to be seen in the light of the call of the EU27 Leaders to intensify preparedness at all levels and encourages all stakeholders that may be affected by the United Kingdom’s withdrawal to take the necessary preparedness actions and to take them now.’

The note that it is currently planned that the Withdrawal Agreement would be agreed by the European Union and the United Kingdom in October 2018, accompanied by the political declaration on their future relationship.  This would provide just sufficient time to conclude the legal process in the European Union (Council with the consent of the European Parliament) and ratification in the United Kingdom. 

It does not allow time for businesses and citizens to prepare for Brexit.  They need to prepare now and with no certainty on the terms of a deal – or indeed a ‘cliff-edge’ exit with no agreed deal or transition period – the Commission implores institutions, businesses and citizens to make contingency plans for multiple eventualities…

…and each scenario has different consequences.

Main consequences of scenario 1: withdrawal on 30 March 2019 under the Withdrawal Agreement, including a transition period until 31 December 2020:

  • The United Kingdom will be a third country.
  • Continuation of the application of EU law in and to the United Kingdom: In general, EU law would continue to apply during the transition period.

  • Exit from the institutional set-up: The United Kingdom would from 30 March 2019 no longer participate in EU decision-making, EU institutions, governance of EU bodies and agencies.
  • Management of the transition period: The role of EU institutions in the supervision and enforcement of EU law in the United Kingdom would continue.

  • Negotiation of the future relationship: The European Union should negotiate with the United Kingdom 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.

Main consequences of scenario 2: withdrawal on 30 March 2019 without a withdrawal agreement:

  • The United Kingdom will be a third country and Union law ceases to apply to and in the United Kingdom9.
  • Citizens: There would be no specific arrangement in place for EU citizens in the United Kingdom, or for UK citizens in the European Union.

  • Border issues: The European Union must apply its regulation and tariffs at borders with the United Kingdom 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.
  • Trade and regulatory issues: The United Kingdom becomes a third country whose relations with the European Union 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.

  • Negotiations with the United Kingdom: Depending on the circumstances leading to the withdrawal without an agreement, the EU may wish to enter into negotiations with the United Kingdom as a third country.
  • EU funding: 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 United Kingdom could be rejected.

The difference between preparedness and contingency

Untangling a relationship built over more than forty years will inevitably result in significant changes in the interactions with the United Kingdom at all levels, including economically and legally.  Preparedness cannot prevent the occurrence of these changes, which are a consequence of the United Kingdom's decision, but aims at mitigating their impact.

While the European Union negotiates an orderly withdrawal with the United Kingdom, it aims to defend the interest of a Union of 27 Member States, and its citizens, businesses and Member States should also take action to prepare.  Preparation must therefore be stepped up immediately at all levels and taking into account all possible outcomes. 

Citizens, businesses and Member States will be affected to different degrees, and the extent of the disruption will depend on many factors, including on whether a withdrawal agreement comes into force, and on the future relationship between the European Union and the United Kingdom. 

Preparedness means envisaging all possible scenarios and assessing all relevant related risks, planning a response and reacting to potential outcomes.  All possible and necessary steps must be taken to ensure that a response is planned and that risks can be mitigated to the extent possible by stakeholders and public authorities in the Union.  Everyone must therefore prepare for the changes that the departure of United Kingdom will inevitably bring. 

When defining the actions that will have to be taken, the Commission distinguishes between two different kinds of measures: preparedness measures and contingency planning.

Everyone must prepare

It is important that businesses of all sizes, including small and medium-sized enterprises (SMEs), prepare and that they take action now.  

Business operators, executives and management need to take responsibility for their individual situation, assess the potential impacts of a ‘cliff-edge’ scenario on their business model, make the necessary economic decisions and take and conclude all required administrative steps before 30 March 2019.

Citizens who will be affected by the withdrawal of the United Kingdom, as well as the public administrations that serve them, should also prepare for 30 March 2019.

A few illustrations of legislative changes needed as a result of the United Kingdom’s withdrawal:

Proposal on the apportionment between the United Kingdom and the EU27 of tariff rate quotas included in the World Trade Organisation schedule of the Union.  This proposal is accompanied by a recommendation for a negotiating mandate from the Council to pursue negotiations with other WTO members (a mandate was adopted by the Council on 26 June 2018).  The apportionment is a necessary adaptation to ensure legal certainty and the continuous smooth operation of imports under the tariff rate quotas to both the Union of 27 and the United Kingdom.

Proposal for a Regulation complementing EU type approval legislation in the area of motor vehicles, etc.  This will allow holders of UK type approvals to apply for new type approvals with EU27 type-approval authorities for the same types on the basis of the documentation and test reports presented in the context of the earlier UK type approvals.

 On energy efficiency, the conversion of the Union's 2030 target (expressed in percent) into absolute values will need to be adapted to take account of the United Kingdom’s withdrawal. 

Amendment of the existing Regulation that lists both the countries whose nationals are required to be in possession of a visa when crossing the external borders of the Member States and the countries whose nationals are exempt from a visa requirement for stays of no more than three months.  The United Kingdom will have to be placed on one or the other list.

 Proposal to amend the Regulation on the Connecting Europe Facility to adjust the alignment of the North Sea-Mediterranean corridor and design a new maritime route to link Ireland with the continental part of the corridor.

 Proposal to amend the Regulation on common rules and standards for ship inspection and survey organisations to ensure that the task of participating in the regular assessment of two recognised organisations is transferred from the United Kingdom to the EU27. 

Brexit Partners continually monitor and update impact assessments and the consequential action needed by businesses to ensure  that their contingency and operational planning is adequate and timely.

We note that the European Commission is increasingly concerned at the lack of preparedness and that in today’s communication, they place the responsibility for being prepared and compliant with business owners and managers. 

Some industry sectors and topics are highlighted by the European Commission because if the severity of impact and criticality to the economic and social wellbeing of all citizens.  These are: Transport, including Aviation; Customs; Financial Services; Food, including food safety; Pharmaceuticals; Personal Data; and Professional Qualifications.

Contact us today for more information.


Context for Brexit

The UK will leave the EU at 23:00 GMT on 29 March 2019.

For the time being, the United Kingdom remains a full member of the EU and rights and obligations continue to fully apply in and to the UK.

If no agreement on future rights and obligations is reached between the UK and EU by 29 March 2019, the UK will exit the EU in its entirety (referred to by the EU as a ‘cliff-edge exit’).

UK and EU may jointly agree a transition period if a deal is close but not finalised.  The EU has proposed that this could continue no longer than 31 December 2020 – the end of the present EU budget cycle.  The rights and obligations of the UK and EU applicable during any transition period will need to be jointly agreed before 29 March 2019.

In practical terms, any deal between UK and EU – whether it is the final settlement or transition arrangements – must be jointly agreed.  This means formal approvals of UK Parliament, the European Council and 27 EU Member States.  In order to meet the 29 March 2019 deadline, this means all approvals must be completed by the end of 2018.  An EU Council, comprising the 27 Prime Ministers, is scheduled for

Background

The United Kingdom (UK) is a constitutional monarchy with a parliamentary democracy with a head of government - the Prime Minister - and a head of state - the Monarch.

The UK consists of 4 countries: England, Scotland, Wales and Northern Ireland. The last 3 have devolved administrations with varying powers.

The UK also has varying degrees of links with 3 crown dependencies - the Isle of Man, Guernsey and Jersey. These are not part of the UK, but the British government is responsible for their defence and international representation.

The UK has 14 overseas territories which are not formally part of the UK or (except Gibraltar) the EU.

Trade and economy

The most important sectors of the UK’s economy in 2016 were wholesale and retail trade, transport, accommodation and food services (18.6 %), public administration, defence, education, human health and social work activities (18.2 %) and industry (13.0 %).

Intra-EU trade accounts for 47% of the United Kingdom’s exports (Germany 11%, France and the Netherlands and Ireland all 6%), while outside the EU 15% go to the United States and 5% to Switzerland.

In terms of imports, 51% come from EU Member States (Germany 14%, the Netherlands 7% and France 5%), while outside the EU 9% come from both the United States and China.

United Kingdom’s role in the EU today

There are 73 UK members of the European Parliament.  The EU has a European Parliamentary office in London.

The UK communicates with the EU institutions through its permanent representation in Brussels.  The UK’s "embassy to the EU" is tasked with ensuring that the country's interests and policies are pursued as effectively as possible in the EU.

Budgets, Funding and Breakdown of the UK's finances with the EU in 2016:

Member countries' financial contributions to the EU budget are shared fairly, according to means.  The larger your country's economy, the more it pays – and vice versa.  The EU budget doesn't aim to redistribute wealth, but rather to focus on the needs of all Europeans as a whole.

Total EU spending in the UK: € 7.052 billion

Total EU spending as % of the UK’s gross national income (GNI): 0.30 %

Total UK contribution to the EU budget: € 12.760 billion

The UK’s Contribution to the EU budget as % of its GNI: 0.55 %