Fork in the road: Brexit and the choice facing Britain in March 2019

Helena Raulus is Head of the Joint Brussels Office of the Law Societies, Chair of the British Chamber of Commerce’s (EU and Belgium) Single Market Task Force

 As the debate in the UK Parliament on the ratification of the draft Withdrawal Agreement begins, it is a useful time to analyse the consequences of the adoption (or non-adoption) of the Agreement from a legal perspective.

If the Agreement is not ratified, the main concern is that this could lead to a ‘no deal Brexit’, whereby the UK exits the EU without concluding any overarching deal (or deals) with the EU.

Due to the very different legal mechanisms governing international rules on trade and other areas of cooperation, both the UK and EU will face a distinct fork in a road at the end of March next year.

Ratification of the Agreement will ensure on the one hand that the UK leaves the EU on 29 March 2019 and, on the other hand, that its departure takes place in an orderly manner. The Agreement sets out the framework that provides for a transition period, during which time negotiations for a new EU-UK relationship can take place, in addition to new UK agreements with third countries.

The ratification also guarantees a package of rights for UK citizens in the EU and EU citizens in the UK, as well as the Northern Irish backstop after the transition period (the backstop will become applicable only if the new agreement requires specific measures to be taken).

A ‘no deal Brexit’, in contrast, will bring an immediate end to EU-UK cooperation and the existing legal framework. The trading and legal relationship will change abruptly and the UK will revert to a third country framework, where there are no special trade agreements to facilitate relations.

The pressing question in this situation is: what can be introduced quickly to help the continuation of trade and cooperation between the UK and EU? 

The first question is whether the Withdrawal Agreement could be applied in parts in this scenario. Doing so certainly would be useful to mitigate against the worst effects of a ‘no deal Brexit’. However, the possibility of doing so is doubtful as in this situation Article 50 will have run its course and will not be applicable anymore.

In this scenario a new UK-EU agreement would need to be negotiated under Article 218 TFEU. This comes consequences in that if a matter falls under national competences of member states, the new agreement will need to be ratified not only by the EU itself but also by all of the member states. This would be the case in particular with regard to the transition period, as it aims to replicate the full EU legal framework, and deeply covers both EU and member state competences. The Treaties are clear in that, for example, internal market rules fall under mixed competences, not under exclusive EU competences.

Consequently, any measures taken will need to be assessed through the prism of who has the power to adopt the initiatives agreed. This leaves three options.

The first is where the EU and UK can take unilateral measures to facilitate trade in a ‘no deal Brexit’. For example, the EU has the power to declare adequacy or equivalence with regarding to passporting for financial services and data flows.

However, where there is a requirement of reciprocity, things may not be so straight-forward. This is the case for example in relation to visas, where the EU declared that is willing to waive visas for UK citizens, but only if the UK does not require EU citizens to apply for visas.

Then there are areas where a specific agreement between the parties is generally required to provide for effective reciprocal arrangements between the two sides.

It is possible for the UK to conclude an agreement with the EU as whole, or with individual states, depending on the subject matter. It is also possible to conclude a mixed agreement, where the EU, the member states and the UK are all parties to the agreement.

The quickest form of agreement to ratify is one where there is an agreement between the EU and the UK. This type of agreement requires a reading in the European Parliament and the member states to sign off in the Council. However, this process can be used only where the EU has exclusive competence – for example with regard to the trade in goods and services. This process cannot be used to grant the UK access to the internal market.

In all other cases, where the EU does not have exclusive competence, it is possible to work out bilateral agreements with the member states. It would be possible to create a mixed agreement with the EU and all the member states, but the negotiations of these agreements are complex, not to mention the ratification which usually takes at least a couple of years. Therefore, bilateral negotiations may be the quickest route should the UK find itself in a ‘no deal’ scenario.

However, it must be kept in mind that any bilateral negotiations cannot breach or infringe upon the exclusive competences of the EU. Trade in goods and transport are of particular interest here, as one of the crucial priorities in a no deal situation would be to ensure that food and medicines can reach the UK market.

As a result, the consequences of a ‘no deal Brexit’ would set the UK on a very difficult and radically different path compared to that of the Withdrawal Agreement. This is a path from where it will take time to recover and to reach the agreements needed to fully resume trade between both blocs.

This article will also be published by the British Chamber of Commerce (EU and Belgium) on 3 December 2018.