Saturday, 30 June 2018

The Best that can be achieved from the Withdrawal Agreement Negotiations and the Likelihood of achieving it

Jane Lambert

In Hope for the best but prepare for the worst 22 June 2018, I advised businesses of all kinds to make risk assessments and draw up contingency plans for the UK's departure from the EU without a withdrawal agreement.  Comparing what needs to be done before 29 March 2019 with what has been achieved to date it has become increasingly unlikely that such an agreement can be concluded and ratified in time. 

The remaining 27 member states appear to be of a similar view.  In a statement following the Council meeting of 28 and 29 June 2018 President Tusk said:
"On Brexit. The EU27 has taken note of what has been achieved so far. However, there is a great deal of work ahead, and the most difficult tasks are still unresolved. If we want to reach a deal in October we need quick progress. This is the last call to lay the cards on the table."
This was amplified in the  Conclusions of the Council of 29 June 2018. 

While the governments of the remaining 27 member states welcomed the progress mentioned in the  joint statement from the negotiators of the European Union and the United Kingdom Government on progress of negotiations under Article 50 TEU on the United Kingdom's orderly withdrawal from the European Union, they noted that "other important aspects still need to be agreed, including the territorial application of the Withdrawal Agreement, notably as regards Gibraltar." They expressed concern that no substantial progress had been achieved on a backstop solution for the Irish border despite British commitments made in December 2017 and March 2018, and that negotiations can only progress as long as all commitments undertaken so far are respected in full.

The remaining member states also concluded that work must be accelerated with a view to preparing a political declaration on the framework for a future relationship between the UK and EU.  Such a political declaration would have to appear in a withdrawal agreement because the EU 27 made plain in paragraph 6 of their Guidelines of 15 Dec 2017 that an agreement on a future partnership can only be concluded after the UK leaves the EU.  In paragraph 8 of their Guidelines of 23 March 2018 the 27 remaining states emphasized that although they were prepared to countenance a  "balanced, ambitious and wide-ranging free trade agreement" such an agreement could not offer the same benefits as EU membership and or allow participation in the single market or parts thereof.  

It could, however, cover such matters as:
"i) trade in goods, with the aim of covering all sectors and seeking to maintain zero tariffs and no quantitative restrictions with appropriate accompanying rules of origin. In the overall context of the FTA, existing reciprocal access to fishing waters and resources should be maintained;
ii) appropriate customs cooperation, preserving the regulatory and jurisdictional autonomy of the parties and the integrity of the EU Customs Union;
iii) disciplines on technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures;
iv) a framework for voluntary regulatory cooperation;
v) trade in services, with the aim of allowing market access to provide services under host state rules, including as regards right of establishment for providers, to an extent consistent with the fact that the UK will become a third country and the Union and the UK will no longer share a common regulatory, supervisory, enforcement and judiciary framework;
vi) access to public procurement markets, investments and protection of intellectual property rights, including geographical indications, and other areas of interest to the Union."
There could also be collaboration on climate change, sustainable development and pollution control. Agreement could be reached on free movement of people, recognition of professional qualifications and judicial cooperation, transport and scientific research and development.

Such an agreement would go a long way towards ensuring the continuation of integrated manufacturing in industries like motor manufacturing and aerospace and the provision of financial and professional services by the city of London. That is the best possible outcome that could be hoped for.  Both sides want it but it is increasingly unlikely that they will be able to deliver it by the end of March.

Anyone wishing to discuss this article or Brexit in general should call me on +44 (0)20 7404 5252 or send me a message through my contact form.

Friday, 22 June 2018

Hope for the best but prepare for the worst

Author Ienac
Licence reproduced with permission of the author
Source Wikipedia

Jane Lambert

It is important for businesses to remind themselves of the plain words of art 50 (3) of the Treaty on European Union:
"The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period."
In other words, unless a withdrawal treaty is agreed by the teams led by Michel Barnier and David Davis and ratified by the British and European Parliaments and the legislatures of the other 27 EU member states by the 29 Feb 2019, the the whole legal framework that has been constructed on the Treaty on European Union and the Treaty on the Functioning of the European Union will fall away.

On 19 June 2018 the negotiators for the European Union and the United Kingdom published a joint statement from the negotiators of the European Union and the United Kingdom Government on progress of negotiations under Article 50 TEU on the United Kingdom's orderly withdrawal from the European Union.  Agreement has been reached on the following articles since 19 March 2018:
  • Title I – Goods placed on the market: Article 42 (Making available of information held by notified bodies established in the United Kingdom or in a Member State); 
  • Title III – Ongoing value added tax and excise duty matters: Article 47 (Value added tax); - 
  • Title IV – Intellectual property: Article 56 (Pending applications for supplementary protection certificates in the United Kingdom); 
  • Title VI – Ongoing judicial cooperation in civil and commercial matters: Article 63 (Jurisdiction, recognition and enforcement of judicial decisions, and related cooperation between central authorities); 
  • Title VIII – Ongoing public procurements and similar procedures: Article 72 (2) (Rules applicable to ongoing procedures); Article 73 (Review procedures); 
  • Title IX – EURATOM-related issues: Article 79 (Ownership and rights of use and consumption of special fissile materials in the United Kingdom); and 
  • Title XI – Administrative cooperation procedures: Articles 94 (Administrative cooperation for matters related to indirect tax); Article 95 (Mutual assistance for the recovery of claims relating to taxes, duties and other measures).
Agreement has also been reached on several annexes.  However, Monsieur Barnier has warned that serious divergences remain on the protocol on Ireland, that any withdrawal agreement must contain a fully operational backstop solution on the border and while there has been a step forward in the withdrawal negotiations a lot more work needs to be done before October.

Comparing what needs to be done over the next 4 months with what has been achieved to date it seems to me increasingly unlikely that agreement will be achieved.   In a speech to that he gave to both houses of the Irish parliament on 21 June 2018, President Juncker remarked:
"Of course, it is in everyone's interest for the United Kingdom and the European Union to stay as close as possible. We will be friends, partners, allies.
The reality is that there is no arrangement outside the European Union which is as good as membership. This simply does not exist. Instead, our goal is to secure the next best option for both sides.
But with pragmatism comes realism. As the clock to Brexit ticks down, we must prepare for every eventuality, including no deal. This is neither a desired nor a likely outcome. But it is not an impossible one. And we are getting ready just in case."
The Commission is not alone in preparing for a failure for such an outcome.

In a Risk Assessment published on 21 June 2018, Airbus SE noted:
"Aerospace operates in a unique, safety driven and heavily regulated environment. The design, production, maintenance, repair & overhaul and use of parts follow tight regulations and can only be executed by certified organizations under EASA, such as Design Organisation Approval (DOA), Production Organisation Approval (POA) and Maintenance Organisation Approval (MOA). More than 10,000 original aircraft parts originate in the UK.
In the absence of a Brexit agreement, UK aerospace companies will not be covered anymore under existing regulatory approvals including EASA approvals. All UK companies will need to transfer their DOA, POA and MOA into the EU. This means that should a single supplier not be certified, its parts cannot be installed and consequently prevent the delivery of aircraft. It is therefore vital that the EU supply chain gets duly prepared.
This is why Brexit imposes additional major risks to the aerospace sector compared to other industries and Airbus is getting increasingly concerned by the lack of progress on the Brexit process. "
Even if a withdrawal agreement can be agreed Brexit will impose costs and introduce inefficiencies. If the UK withdraws from the EU without an agreement Airbus the consequences for Airbus SE would be even worse.  Accordingly, the company has announced that until it knows and understands the new EU/UK relationship, it will carefully monitor any new investments in the UK and refrain from extending its UK suppliers/partners base here. The extent of Airbus's involvement in British industry was considered in a report by Oxford Economics entitled The Impact of Airbus on the UK Economy which was published a year ago.

Airbus's announcement has been criticized in some quarters but it seems to me to be prudent for  businesses to make risk assessments and draw up contingency plans for a disorderly Brexit.  It will affect different businesses in different ways.   Some believe that they could benefit from it. Whether or not that is so, it is sensible to consider the legal as well as business issues that would arise on Brexit.  If, for example, you fear that your imports or deliveries abroad could be disrupted, check your supply and distribution agreements (particularly force majeure clauses) and insurance cover. Also, your trade mark and design registrations, licences and joint venture agreements.  If you find that you are at risk you still have time to do something about it.   I you wait until a problem arises it may be too late to do anything about it.

Should amplification or clarification be required, call me on +44 (0)20 7404 5252 during office hours or send me a message through my contact form.

Monday, 11 June 2018

Brexit Briefing - May 2018


Jane Lambert

Although there has been a lot of interest in the UK in the cabinet debate over the relative merits and demerits of maximum facilitation and the customs partnership and in the Lords' amendments to the European Unions (Withdrawal) Bill, there has not made much progress in the negotiations for a withdrawal agreement or a future partnership with the EU since April's Brexit Briefing. The stumbling blocks are, as they have always been, the border between Northern Ireland and the Irish Republic and the governance of any agreement that may be concluded between the UK and the remaining member states.

At the beginning of the month Ed Balls and Peter Sands of the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School published On the Rebound:Prospects for a US-UK Free Trade Agreement which concluded that a free trade agreement with the USA would be difficult to negotiate and probably not worth doing even if negotiations were successful (see Jane Lambert What Sort of Trade Deal (if any) could the UK negotiate with the USA? 8 June 2018). The imposition of tariffs on imported steel and aluminium and the recriminations at the G7 meeting do not offer much reason for optimism.

It is stressed that nothing is agreed until everything is agreed.  If an agreement over the stumbling blocks cannot be reached there will be no transition or implementation period.   Without a withdrawal agreement, he UK will be in no more advantageous relationship with its former partners than any other third country and in a rather less advantageous position than some.  There have already been warnings over the consequences of dropping out without an agreement such as shortages of food and medicines (see  Civil Servants Warn of Food, Fuel, Medicine Shortages Without Brexit Trade Deal 3 June 2018 Bloomberg) and the exclusion of British products  under preferential rules of origin (see Notice to Stakeholders Preferential Rules of Origin  6 June 2018).

If there is to be an agreement with the EU it has to be reached by the Autumn otherwise there will be insufficient time for the parliaments of the member states and the European Parliament to consider it. It is by no means certain that that deadline will be met. While I continue to hope for the best it is increasingly important for clients and other readers to prepare for the worst.

Should amplification or clarification of this article be required, call me on 020 7404 5252 during office hours or send me a message through my contact form

Friday, 8 June 2018

What Sort of Trade Deal (if any) could the UK negotiate with the USA?

The Prime Minister with President Trump at the White House
Author Shealah Craighead
Licence Copyright waived by the US government
Source Wikipedia

Jane Lambert

The argument for quitting the single market and customs union is that it will enable the British government to negotiate trade deals with countries outside the EU. On the face of it it is an attractive proposition as the economies of many of the countries in Asia and the Americas are growing more rapidly than those of our European neighbours.

Despite the rapid growth of China and India the largest of those countries remains the USA. With a GDP of US$19.4 trillion its economy is even larger than that of the EU and is currently growing more rapidly. It shares our language, common law and political traditions. We have been close allies since 1941 despite upsets like Suez and Grenada. It ought to be easy to negotiate a trade deal with the USA. Especially as the current incumbent of the White House has declared himself in favour of one.

At least that is what one might think but how far (if at all) is it a realistic expectation?   Not very, according to On the Rebound:Prospects for a US-UK Free Trade Agreement, a report by Ed Balls and Peter Sands of the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School.  Together with a team of research students from Harvard and King's College, London the authors interviewed senior British and American civil servants, experts, academics and business leaders and made the following findings:

  1. "The UK needs a deal, but it is unclear how committed the US is",
  2. "There is a clear power imbalance between the US and UK." Such imbalance lies not just in the relative economic disparity of the two countries but in the lack of experience of British officials in conducting trade negotiations.
  3. "The UK must strike a deal with the EU before it can negotiate an FTA with the US."
  4. The UK will have little to gain and will have to concede more on tariff reductions than the EU offered in the Transatlantic Trade and Investment Partnership negotiations."
  5. "The US demands on non-tariff and regulatory issues will be politically contentious and difficult for the UK to meet."
  6. "Negotiating non-tariff and regulatory issues will force the UK to choose between regulatory alignment with the US or EU."
  7.  "The US cannot, or will not, concede on many British non-tariff and regulatory objectives."
The researchers concluded that "a US-UK FTA is only going to happen if the UK makes concessions that are unlikely to be politically acceptable and in any case, promises relatively limited upside for UK business."

If Ed Balls and Peter Sands are right, there is no reason to suppose that negotiating a trade deal with the USA will be any easier than the negotiations over the withdrawal agreement and future partnership with the remaining EU countries.  Even if terms can be agreed they are unlikely to be as favourable as those we enjoy with other EU states.  Distance and freight costs will prevent manufacturers in the UK taking full advantage of the economies of scale that we enjoy right now. In other words even if an FTA with thre USA can be agreed it may not be worth the effort and concessions.

Should anyone wish to discuss this article or Brexit generally, call me on +44 (0)20 7404 5252 during office hours or send me a message through my contact form.  

European Council Decision of 11 April 2019 extending the Period under art 50 (3) of the Treaty of European Union to 31 Oct 2019

Donald Tusk Author   Platformy Obywatelskiej Licence Creative Commons Attribution-Share Alike 2.0 Source Wikipedia European Council...