The view from Brussels: a deal is closer than we think

Out-Law Analysis | 18 Oct 2018 | 10:11 am | 8 min. read

ANALYSIS: UK prime minister Theresa May has told EU leaders that she will consider extending the Brexit transition period, a move that will cause political ripples at home but could bring London and Brussels closer to a deal.

As we enter what some believe to be the endgame of Brexit negotiations, colleagues who have spent time with senior figures in the Brussels establishment this week report that three forces are working behind the scenes to shape the EU’s negotiating position.

These give grounds for optimism as UK prime minister Theresa May has called for "cool, calm heads" amid rumours that the parties are not far apart.

First, notwithstanding the public posturing, the political will exists to get a deal over the line. As the EU grapples with problems around migration, rule of law in Eastern Europe and upcoming Council elections, there is an appetite for a swift conclusion to Brexit.

Second, the EU27 - including Ireland - are as keen as the UK to avoid a 'hard border' between Northern Ireland and Ireland. There is recognition of the importance and centrality of the Good Friday Agreement to peace as well as economic benefit.

Third, the EU has been known to make a deal to reach a deal. In this case that looks like extending the transitional period. The EU is willing to do so until 2021 or even 2022, while May confirmed on Thursday morning that any extension would only last a matter of months.

A final deal was not struck this week, as had been hoped. But flexibility on the transition period at least brings an agreement closer.

The prospects of a deal

Despite the political posturing and concerns growing over a ‘no deal’ scenario, there is a suggestion that UK and EU27 negotiators behind the scenes are closer than might appear externally to reaching a so-called 'withdrawal agreement' on the terms of the UK's exit from the EU.

The Irish border issue, post-Brexit role of the Court of Justice of the EU (CJEU), and details of how citizenship process will operate have still to be ironed out, including in relation to whether UK citizens who live in another EU country currently will continue to enjoy freedom of movement post-Brexit.

Agreement is also still needed on mutual recognition of geographical indications and in respect of the governance of overall withdrawal arrangements.

The prospect of a deal had moved closer, though, as EU officials sought to turn their attention to other matters. The forthcoming EU elections in 2019, problems in relation to the rule of law in the likes of Poland and Romania, and continuing issues over migration are encroaching on an agenda that has otherwise been dominated by Brexit in recent times. The result has been a softening in rhetoric and an increased willingness to compromise. It remains to be seen, however, whether the disagreement over the last weekend is a short term hiccup or something more substantial.

A withdrawal agreement is also likely to contain an implementation period to help smooth the Brexit process for businesses. It has been envisaged that this implementation period would expire at the end of 2020 but EU chief negotiator Michel Barnier had floated the idea of an extension of a further 12 months, to the end of 2021. Theresa May told EU leaders this week that she would consider this proposal. It will upset some of her hardline Brexit Conservative Party colleagues but does open the way to compromise on a deal. The plan shows a willingness from EU leaders to extend the implementation period to buy time for Brexit issues to be ironed out.

Timings

As we move towards Brexit day, the pressure to reach an agreement that can be ratified and implemented by 29 March 2019 is increasing.

An agreement is now likely to be announced in November at the earliest. From the EU side, any agreement will need to be ratified by each of the EU27 countries and approved by the European Parliament. To this end, the EU's chief Brexit negotiator, Michel Barnier, has been keeping European leaders and MEPs onside with regular trips and briefings.

An agreement will contain two components – a high-level political agreement and the more technical details of the UK's withdrawal.

Meanwhile, the European Commission is still preparing for a potential 'no deal' scenario. This work is being led by a separate team from 'Taskforce 50' – the unit set up to lead the EU27's negotiations on Brexit with the UK.

In recent times, as the 'cliff edge' 29 March deadline has been approaching amidst a stalemate in talks, attention has turned to whether the deadline triggered under Article 50 could be extended. The EU believes it would take a unanimous decision from all EU27 countries and the UK for the 29 March 2019 deadline to be extended.

The remote prospect of the triggering of Article 50 being revoked has also been brought into the Brexit narrative as a consequence of a legal case before the CJEU. A court in Scotland has asked the CJEU to clarify the powers of the UK parliament to reverse Brexit unilaterally. The EU understands that revocation could only happen if all EU countries agree, but admits Article 50 is silent on any reverse procedure.

A fudge over Ireland?

To achieve a withdrawal agreement, it is possible that UK and EU27 negotiators will land on a solution that kicks the Irish border issue into the long grass.

The Irish border issue stems from drawing together political sensitivities relating to Northern Ireland with the EU's requirements in relation to border controls. Brexit has brought these matters into sharp focus.

To avoid treating Northern Ireland differently from the rest of the UK, and to maintain the support of politicians keen to preserve the union of the four countries of the UK, the UK government has publicly stated that it is unwilling to put in place border controls between Northern Ireland and the rest of the UK.

In addition, both the UK and EU27 are keen to avoid a 'hard border' between Northern Ireland and Ireland, in mutual recognition of the role of the Good Friday Agreement in ensuring that people and supplies can flow seamlessly over the border currently. Barnier has to date stood together with Ireland on its calls to ensure a seamless border on the island.

Against the sensitive political and cultural backdrop, though, the EU27 has been insistent that relevant checks are carried out when people and goods cross into the EU territory. Checks are required in relation to VAT, excise, customs, security and on general standards relating to goods. The EU has been working to see exactly where the checks could be carried out.

One view is that most checks would take place in the marketplace itself, but a transit procedure is also being considered which would involve scanning bar codes for goods in trucks as they cross the border.

In this scenario, the only checks that would need to be carried out at ports in Northern Ireland would be in relation to animal products. Currently, around 10% of animals imported to Northern Ireland are subject to checks, but Barnier has been clear that Brexit will mean checks are needed in every case unless the UK and EU27 can reach a deal to mitigate the need for such a comprehensive framework. This might be achieved through a special deal on standards around veterinary medicine, for example.

On a commercial level, it is common for goods and supplies to criss-cross the border multiple times before being sold or exported. An example of this is in the dairy market, where virtually all raw liquid milk collected in Northern Ireland is processed in the south. There are fears that SMEs in Ireland's agri-foods sector could be put out of business if customs duties are imposed when supplies cross the border. Food security is also at risk if trucks and supplies face delays at ports and this leads to panic buying.

If no agreement is reached to deal with the Irish border issue, 'backstop' proposals are likely to be implemented. The current difference of opinion is over UK demands that the backstop be time-limited rather than open-ended.

During this time, Northern Ireland would remain within the EU's single market for a temporary period. However, its single market membership would be only to the extent required to provide for a seamless border with the south – in this scenario Northern Ireland would be outside the scope of a range of rules otherwise tied to the single market and customs union membership, including in relation to social security, healthcare, immigration and the environment.

The CJEU and Northern Ireland

The role of the CJEU in post-Brexit UK still needs to be bottomed out, but its role in Northern Irish affairs, particularly in any backstop period, is clear, according to Eleanor Sharpston, advocate general to the Court of Justice of the EU (CJEU).

"This court [the CJEU] decides what the single market rules are," Sharpston said. "If one wants to have frictionless trade it is necessary that a common rulebook is interpreted in the same way over a frictionless border. Without it you can no longer have frictionless trade."

It is not certain yet that Sharpston, together with the UK's two other representatives at the CJEU, will leave the court on Brexit day. It would be a curious, perhaps singular situation under international law, for the UK, or a part of it, to be effectively bound by the decisions of the CJEU but have no participation through judges.

Geographical indications

One of the stumbling blocks to a deal that has been identified publicly in recent times is agreement over the treatment of geographical indications (GIs).

GIs are designations given to certain goods synonymous with particular areas of Europe and are given special protection under EU law. Scotch whisky, Parma ham and champagne are among the products with a protected geographic indication, meaning products can only be referred to as such if they are produced in accordance with strict rules and within certain areas.

The EU position is that the existing stock of around 3,000 GIs should be protected within the withdrawal agreement, including the batch of GIs specific to goods synonymous with parts of the UK. However, there is no agreement yet on this from the UK, with the feeling in Brussels that UK GIs are being used as a negotiating chip in the Brexit talks. It is unlikely, however, that the stalemate on GIs will persist if agreement can be achieved on the other remaining issues.

Data flows

According to the EU, from Brexit day, unless a withdrawal agreement says otherwise, the UK will be considered a 'third country' to the EU. This scenario has major implications for the free flow of personal data between businesses in the UK and EU27. This is because EU data protection law places restrictions on the transfer of personal data outside of the European Economic Area (EEA).

The European Commission operates a so-called 'adequacy' framework where it designates certain third countries as having achieved equivalence with the EU's data protection regime, thus making it easier for businesses to send their data to those jurisdictions.

The UK government has said it hopes to benefit from an 'adequacy plus' arrangement, given its current alignment with EU data protection standards, but the Commission has suggested the UK will have to go through the adequacy process like any other country to obtain its designation.

The prospect of a lengthy process – Japan negotiated with the European Commission over obtaining an adequacy designation for about a year, and the process is still not complete – raises the real prospect of disruption to UK-EU trade. Data protection has therefore been addressed in Brexit negotiations.

Indications from Brussels are that the EU is treating existing data flows in place at the moment and potential future data flows as two distinct elements subject to different Brexit-related negotiations. The former falls subject to negotiations relevant to the withdrawal agreement, while the future position on data protection is something that will be dealt with as part of future trade talks between the UK and EU.

Guy Lougher is a specialist in Brexit at Pinsent Masons, the law firm behind Out-Law.com.