Unless the British government withdraws its notice of intention to leave the European Union or the 27 remaining member states of the EU unanimously extend the notice period under art 50 (3) of the Treaty of European Union, the UK will leave the EU on 29 March 2019. There are two possible scenarios as to what will happen after that. If both sides sign a withdrawal agreement as contemplated by art 50 (2) arrangements between the UK and the remaining member states will continue more or less as they are now until 31 Dec 2020. That would give negotiators a breathing space to negotiate an agreement for a future partnership with the EU that will come into effect on 1 Jan 2021. If a withdrawal agreement is not signed by 29 March 2019 then the legal framework that has governed the UK's relations with its 27 closest neighbours, trading partners and allies will cease to exist with all sorts of unknown consequences.
A draft of the withdrawal agreement was published in February and 80% of it has been agreed according to Michel Barnier in his op-ed An ambitious partnership with the UK after Brexit2 Aug 2018 and the Rt Hon Dominic Raab MP, the new Brexit secretary, in his statement to the House of Commons on 4 Sept 2018. However, as in all commercial negotiations, nothing is agreed until everything is agreed and the sticking point up to now has been how to ensure that there are no customs formalities at the border between Northern Ireland and the Irish Republic after the UK leaves the single market and customs union. Two possible solutions have been offered so far neither of which is likely to be agreed. The Commission has proposed a backstop arrangement by which Northern Ireland remains in the customs union and customs and immigration checks take place at British and Irish sea and airports. The British government has suggested free movement for goods with a common rule book in its white paper on The Future Relationship between the United Kingdom and the European Union.
In his Commons statement Mr Raab described the Commission's proposals as "unacceptable, because they would create a customs border down the Irish Sea." The white paper proposals have already prompted the resignation of two cabinet ministers and have been described by a former minister as less popular than the poll tax. They are unlikely to survive a vote in the Commons let alone scrutiny by the Commission's art 50 task force. Mr Raab told the Commons that "we are determined to reach a solution that protects the Belfast Agreement and avoids a hard border on the island of Ireland" but gave no details as to what that solution could be.
"On geographical indications - 3000 geographical indications in the 28 countries of the Union - I expressed again my worry.
The EU's position is clear: Brexit should not lead to a loss of existing intellectual property rights.
We must protect the entire stock of geographical indications.
This protection is an international obligation, and seeing as it is one of the separation subjects, it must be clarified in the Withdrawal Agreement. We will come back to this subject, whose solution must be in the Withdrawal Agreement."
It is not clear why this is a problem as the UK is bound to protect geographical indications by section 3 of the TRIPs agreement and has always done so through the registration of collective and certification marks and the law of passing off.
Although Mr Raab stressed that he expected to reach a deal with the EU, that it remained the most likely outcome and the government's top and indeed its overriding priority, HMG had a duty as a responsible government to prepare for any eventuality. Accordingly it has started to publish guidance to businesses and individuals on how to prepare for withdrawal without an agreement which I discussed in And if there is no deal ................. on 24 Aug 2018.
Concern over the consequences of leaving without a withdrawal agreement appears to have begun a shift in attitude over Brexit. A number of opinion polls were published apparently showing growing disenchantment with Brexit and support for a second referendum (see Benjamin Kentish 2.6 million Leave voters have abandoned support for Brexit since referendum, major new study finds4 Sept Independent and Patrick Grafton-Green Brexit news latest: Brits would vote 59-41 to remain in EU if second referendum was held, new poll shows5 Sept 2016 Evening Standard). A number of politicians in the Labour and Conservative parties as well as the Liberal Democrats have called for a peoples' vote or second referendum on the terms of the UK's withdrawal from the EU and they have been joined by a growing number of business and trade union leaders. The prime minister has rejected those calls and they have not been endorsed by the leader of the opposition but these are uncertain times in which anything is possible.
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One European initiative upon which the United Kingdom has been consistently communautaire has been a single European patent for the whole European Union. Her Majesty's government was one of the signatories to the Community Patent Convention in 1975 and one of the reasons for the Patents Act 1977 was to give effect to that Convention. The Convention never came into force because other parties failed to ratify it. Several attempts have been made to revive the initiative or to launch other initiatives through the European Union or the European Patent Convention. The British government has supported all of those initiatives but they have all come to nought.
The reason why the United Kingdom has supported those initiatives is obvious upon consulting TaylorWessing's Patent Map. There is a comparison of the typical costs at first instance of an action for patent infringement in each of the jurisdictions of Europe and England and Wales is by far the most expensive. The cost of enforcement goes a long way to explaining why the United Kingdom consistently lags behind not only Germany and France with similar populations and GDP to ours in the number of European patent applications but also Switzerland with one eighth of our population and the Netherlands with a third (see European patent applications per country of originon the European Patent Office website). A single European patent covering the territories of the United Kingdom and those of its European partners with a single patents court for all those countries would level the playing field for British business.
As it did not prove possible to launch an EU patent because of objections from Spain and Italy the other member states decided to establish a single European patent for their territories by themselves through a procedure known as "enhanced cooperation" (see Jane Lambert The Community Patent is Dead - Long Live the Unitary Patent29 April 2018 NIPC Law). The result was the Agreement on the Unified Patent Court("the UPC Agreement") which was signed by Her Majesty's and other governments on 19 Feb 2013. The Agreement establishes a Unified Patents Court consisting of a Court of First Instance and a Court of Appeal and one of the sections of the Central Division of the Court Instance is to sit in London. The British government acquired premises for the new court in Aldgate and began to fit them out long before the Brexit referendum.
Art 89 of the UPC Agreement provides that it will come into force after 13 signatories including France, Germany and the United Kingdom ratify it. Over 13 states including France have already done that. On World Intellectual Property Day, which falls on 26 April. the Minister for Intellectual Property announced that the UK had also ratified the UPC Agreement (see Jane Lambert British Ratification of the UPC Agreement - Possibly the best thing to happen on World Intellectual Property Day26 April 2018 NIPC News). The last remaining condition for the implementation of that Agreement is German ratification but that is delayed by litigation in the German Federal Constitutional Court. The Alternative for Germany Party has also tried to repeal legislation to ratify the UPC Agreement that has been passed by both houses of the German Parliament and is now awaiting presidential assent.
It is not clear how long it will take for the Constitutional Court to determine the legal challenge to German ratification but it could easily exceed the time in which the UK will remain a member of the EU. After that it is by no means clear whether the UK can remain a party to the UPC Agreement. My own view is that it cannot but there is a contrary view held by, among others, the British government that the UPC Agreement is an international treaty that lies outside the EU. The reason for my scepticism is that such a treaty would be incompatible with EU law for the reasons given by the Court of Justice of the European Union in Opinion 1/09 of 8 March 2011(see Jane Lambert Court of Justice of the European Union holds European and Community Patent Court to be incompatible with EU Law8 March 2011 NIPC website).
Our chances of remaining party to the UPC Agreement will depend in large part on whether we leave the EU with a withdrawal agreement and on our future relations with the remaining member states. Although a lot of progress has been made in negotiations for a withdrawal agreement. Monsieur Barnier warned at the Hanover Trade Fair that it is not a done deal (see Jane Lambert Withdrawal Agreement - Not a Done Deal Yet26 April 2018). He emphasized at the All-Island Civic Dialogue in Dundalk on 30 April 2018 that a likely stumbling block is the Irish border (see EU press release Speech by Michel Barnier at the All-Island Civic Dialogueof 30 April 2018 on the Commission website). British ideas for "maximum facilitation" and a "customs partnership" appear not to have been agreed even by the British cabinet let alone the EU. There are reports in today's Guardian that British civil servants have drawn up plans for customs checks between Great Britain and Ireland which would be in line with the draft withdrawal agreement (see Daniel Boffey Brexit plan drawn up for border checks between NI and rest of UK4 May 2018 The Guardian).
Such a plan would be tantamount to the economic partitioning of the United Kingdom which could have all sorts of political and constitutional consequences beyond the obvious such as the withdrawal of DUP support for the Conservative administration and renewed requests by the Scottish government to remain in the single market and customs union. However, if it led to a free trade agreement that covered services it would be welcomed widely by the financial services industry. Such an agreement is on the table (see the memorandum from the art 50 task force to the EU 27 Topics for discussions on the future framework at forthcoming meetings4 May 2018). Monsieur Barnier made some encouraging remarks about London remaining an important financial centre after Brexit in his speech to the Eurofi think tank's high level seminar in Sofia on 26 April 2018 (see EU press release Speech by Michel Barnier at the Eurofi High-level Seminar 2018 at Sofia, 26 April 2018 on the Commission website).
Should anyone wish to discuss this briefing, the UPC Agreement or Brexit generally, he or she should call me on 020 7404 5252 during office hours or send me a message through my contact form.
Although nothing is agreed until everything is agreed and there are still a number of issues such as the border between Northern Ireland and the Republic of Ireland where the parties are as far apart as ever, March has been a quiet month in the Brexit negotiations. Contrary to initial indications, British negotiators were able to reach agreement with the Commission on many of the provisions of the draft withdrawal treaty. The other important development is that both the European Council and the Parliament have published guidelines for negotiations on the UK's future relationship with the EU.
In order to understand the significance of the draft treaty and the Council and Parliament's guidelines, it should be remembered that art 50 (2) of the Treaty of European Union requires the European Union to negotiate and conclude an agreement with a withdrawing state, setting out the arrangements for its withdrawal and taking account of the framework for its future relationship with the EU. The document published on 19 March 2018 is a draft of the agreement contemplated by art 50 (2). It covers the matters that were negotiated before Christmas, namely citizens' rights, the Irish border and the UK's financial contribution. It provides for a transitional or implementation period between 29 March 2019 and 31 Dec 2020 when the UK will cease to be a member of the EU but will continue to be bound by EU law. It makes arrangements for all kinds of matters from the protection of personal data to Community designs and EU trade marks. But it does not (and is not intended to) provide for the UK's relationship with the EU from 1 Jan 2021 though, of course. it is supposed to take account of it.
The draft agreement has attracted some criticism in the UK, especially for its Protocol on Ireland and Northern Ireland and the continuation of the common fisheries policy in British waters after 29 March 2019. Consequently, it is not a foregone conclusion that it will be signed. If the agreement is not signed, art 50 (3) makes clear that the EU treaties simply cease to apply to the UK on 29 March 2019 without anything taking their place. Despite the assurances that the government has given to businesses about a period of stability after the UK leaves the EU, my advice is to keep planning for the worst - that is to say, no agreement on anything after Brexit day - while, of course, hoping for the best - namely a withdrawal agreement substantially on the terms of the 19 March draft.
In the hope that we will conclude a withdrawal agreement in accordance with art 50 (2) the European Council which represents the 27 remaining member states published Guidelines for the negotiation of the future relationship between the UK and the EU on 23 March 2018. Paragraph 8 of those Guidelines states:
"As regards the core of the economic relationship, the European Council confirms its readiness to initiate work towards a balanced, ambitious and wide-ranging free trade agreement (FTA) insofar as there are sufficient guarantees for a level playing field. This agreement will be finalised and concluded once the UK is no longer a Member State. Such an agreement cannot however offer the same benefits as Membership and cannot amount to participation in the Single Market or parts thereof. This agreement would address:
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."
Other paragraphs cover continued cooperation in other areas such as law enforcement and security.
Over the last few months I have been focusing on the negotiations between the British government and the Commission and overlooked the European Parliament's role in the negotiations. I was reminded that the European Parliament's view matters by the Bar Council's representative in Brussels in the 141st Brussels News newsletter which was published yesterday. Under the heading "Why does the EP’s view matter?" the newsletter explains:
"The EP has a central role to play in the negotiations and how they turn out. Not only is its 6-member Brexit Steering Group in constant contact and influential with the Commission’s Task Force 50 (TF50), led by Mr Barnier, but the EP’s consent will be required for the final package: the Withdrawal Agreement (WA), including the transition period and the framework for the Future Relationship (FR). Indeed, leaving enough time for the EP to consider and vote on that package is one of the reasons the deal needs to be finalised by October of this year. Moreover, the EP’s formal consent is almost certainly going to be required, in accordance with the relevant Treaty articles (cited above), (cited above), to the detailed terms of the Future Relationship, whatever form it takes, (cited above), to the detailed terms of the Future Relationship, whatever form it takes, if and when we get that far."
Incidentally, the author adds:
"One should also not forget its potential influence on content: the EP sees itself as guardian of citizen’s rights, SMEs, consumers – basically any group that needs defending. Its presence in the negotiations therefore serves as a balance to big business interests that might otherwise dominate."
That short passage contains the answer to those who argue that the British market is so important to German car and Italian white goods manufacturers and French farmers that our negotiators can afford to play hard ball in order to pick some cherries or eat some cake. We may still be the 6th largest economy running a massive trade deficit with the 27 remaining member states but compared to those 27 the world's 6th largest economy is not all that big. In any case, there are interests to be considered other than those of big business.
foreign policy, security cooperation and development cooperation,
internal security, and
thematic cooperation.
On the first of those pillars, the European Parliament reiterates that continued membership of the single market and customs union would be the best option for both sides but, if that is not possible, it suggests at paragraph 14 an agreement based on the following principles:
"the level of access to the EU market must correspond to the degree of continued convergence with and alignment to EU technical standards and rules, with no provision for any sector-by-sector approach and preserving the integrity of the internal market,
the EU’s autonomy in setting EU law and standards must be guaranteed, as well as the role of the CJEU as the sole interpreter of EU law,
a level playing field is ensured and EU standards are safeguarded to avoid a race to the bottom and prevent regulatory arbitrage by market operators,
rules of origin are to be based on EU standard preferential rules and the interests of EU producers,
reciprocal market access must be negotiated in full compliance with World Trade Organisation (WTO) rules, including for goods, services, public procurement and – where relevant – foreign direct investment, and all modes of supply of services, including commitments on the movement of natural persons across borders (mode 4), and be regulated in full compliance with EU rules in relation to equal treatment principles, especially for workers,
regulatory cooperation should be negotiated, with a specific focus on SMEs, mindful of the voluntary nature of regulatory cooperation and the right to regulate in the public interest, while recalling that provisions on regulatory cooperation in a trade agreement cannot fully replicate the same frictionless trade as provided for by membership of the internal market."
As for services paragraph 16 underlines that under a free trade agreement ("FTA"). market access for services is limited and always subject to exclusions, reservations and exceptions. Paragraph 17 add that:
"..... leaving the internal market would lead to the UK losing both passporting rights for financial services and the possibility of opening branches in the EU subject to UK supervision; recalls that EU legislation provides for the possibility, in some areas, to consider third-country rules as equivalent based on a proportional and risk-based approach, and notes the ongoing legislative work and upcoming Commission proposals in this area; stresses that decisions on equivalence are always of a unilateral nature; stresses also that in order to safeguard financial stability and ensure full compliance with the EU regulatory regime and standards and their application, prudential carve-out and limitations in the cross-border provisions of financial services are a customary feature of FTAs."
Changing the subject dramatically, very little has been said about the Unified Patent Court Agreement o unitary patent up to now and I take that as a good sign. In One Year to Brexit - Are Rumours of the Death of the Unified Patent Court Agreement Greatly Exaggerated?29 March 2018 NIPC Law I noted that all the legislative hurdles to British ratification have been cleared. Also, there is only the challenge to the constitutionality and a motion in the federal parliament to rescind the ratification bills that have previously been passed that is delaying German ratification. It is still just possible that the UPC and unitary patent before 31 Dec 2020 if not 29 March 2019.
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"To my great surprise and joy our government's representatives achieved sufficient progress in their negotiations with the Commission on citizens' rights, the Irish border and the financial settlement for the Commission to recommend to the Council that "sufficient progress has been made in the first phase of the Article 50 negotiations with the United Kingdom" (see the Commission's press release Brexit: European Commission recommends sufficient progress to the European Council (Article 50)8 Dec 2017)."
Whether or not that is the case, Monsieur Michel Barnier, the Chief Negotiator for the Commission, does not appear to be buying any, In a speech that he delivered on 9 Feb 2018, Monsieur Barnier noted that both sides acknowledge the need to preserve the Good Friday agreement but added
"it is important to tell the truth. A UK decision to leave the Single Market and the Customs Union would make border checks unavoidable."
The British government appears to believe that there are "specific solutions to the unique circumstances on the island of Ireland" but it has not yet announced what they are. In the meantime, the Commission seeks to include in the withdrawal agreement a guarantee that there will be no hard border between Northern Ireland and the Irish Republic in any circumstances.
In the same speech, Monsieur Barnier made clear that the offer of a transition or implementation period between 29 March 2019 and 31 Dec 2020 "is not a given." He flagged up plenty of potential deal breakers of which the role of the Court of Justice of the European Union on the resolution of any disputes on EU law, the rights of EU citizens who enter the UK during the implementation period, the British government's insistence on rights to object to new laws affecting its interests and to opt into new laws on Justice and Home Affairs are just a few.
If negotiations break down, the country will exit the EU in just over 14 months time without a deal. That would be a problem for many in the remaining member states but not a disaster. For the UK it could well be worse. If the BuzzFeed disclosures are to be believed, that would be the worst possible outcome for many regions of the UK and much of British industry.
Anyone wishing to discuss this article or Brexit in general should call me on +44 (0)20 7404 5252 during office hours or send me a message through my contact form.
