Out-Law News | 12 Jul 2018 | 4:42 pm | 3 min. read
The proposals set out in the paper are worthy of "close consideration" by negotiators, but raise "a series of challenges which will need to be overcome if the deal is to have a chance of being concluded and ratified within the short period of time remaining", according to Brexit and EU law expert Guy Lougher of Pinsent Masons, the law firm behind Out-Law.com.
"Both sides of the negotiations know that the timeline for negotiations is exceptionally tight," he said. "There remains three months until the all-important European Council meeting in October which is officially the end of the EU's negotiating timeline. Major progress needs to be made by then if a deal is to be done and ratified by March 2019."
"If the challenges can be overcome, a deal may be possible. However, given the scale of the hurdles, businesses should consider that a 'no-deal' scenario remains a distinct possibility and should prepare accordingly," he said.
The UK has proposed a new "association agreement" between itself and the EU. This would incorporate commitment to a "common rulebook" on food and manufactured goods, but divergence on services and digital trade in order to "provid[e] regulatory freedom where it matters most for the UK's services-based economy". It is seeking a new 'facilitated customs arrangement' with no need for customs checks and controls between the UK and EU, but which would allow the UK to control its own tariffs for trade with the rest of the world.
The UK is also seeking continued participation in the various EU agencies which oversee the most highly regulated sectors, including the European Chemicals Agency, the European Aviation Safety Agency and the European Medicines Agency. It would seek to enter into new arrangements with these agencies that recognise that the UK would not be an EU member state, but would be bound by the rules of these agencies and contribute to their costs. The UK is also seeking continued membership of the Unified Patent Court and unitary patent system.
The proposals require the UK to commit to bringing EU rules on goods into UK law on an ongoing basis, although the paper states that this would apply to only those rules "necessary to provide for frictionless trade at the border". UK courts would be required to have "due regard" to the rulings of the Court of Justice of the EU (CJEU) on the interpretation of these rules, although as the UK courts would no longer fall within the jurisdiction of the CJEU they would no longer be able to make preliminary references of their own to the CJEU.
The paper also commits to "an open and fair trading environment" with the EU, including a common rulebook on state aid and "cooperative arrangements between regulators on competition". The UK has also committed to maintaining high standards on the environment, climate change, social and employment rules and consumer protection, including "non-regression provisions".
Disputes under the association agreement would be resolved through a 'joint committee' set up by the UK and EU, and in many areas through binding international arbitration.
EU negotiators will now analyse the paper "in light of European Council guidelines", chief negotiator Michel Barnier said in a statement. However, Lougher warned that the position set out in the policy paper may be considered in breach of those guidelines.
"The European Council negotiating guidelines expressly state that the four freedoms of the single market are indivisible, and that 'cherry picking' through participation in the single market based on a sector-by-sector approach is not permitted," he said.
"This is problematic because the proposals effectively maintain free movement of goods between the EU and UK, but limit free movement of people and free movement of services," he said.
UK prime minister Theresa May may also face problems getting the final deal through the UK parliament, where a number of Conservative MPs and the opposition parties of Labour, SNP and the Liberal Democrats are currently against it, he said.
There were also questions over how the proposed 'facilitated customs arrangement' between the UK and EU would work in practice, he said.
"This model proposes that the UK would apply the UK's tariffs and trade policy for goods intended for the UK, and the EU's tariffs and trade policy for goods intended for the EU," he said. "This raises a number of questions about how goods would be tracked after they have crossed the border - and the prospect of new infrastructure and technology which would need time to be put in place within two years of Brexit," he said.
Financial services expert Tobin Ashby of Pinsent Masons added that the document did not go into much detail about a proposed "new economic and regulatory arrangement for financial services" which would replace the single market 'passporting' rules.
"The key elements to take away from the section are an acceptance that passporting will not continue, clear references to autonomy of decision-making and legislation post-Brexit and the concept of 'enhanced equivalence'," he said.
"The proposed wider scope for equivalence and structured withdrawal arrangements could alleviate some of the concerns of relying on the current equivalence regime post-Brexit, assuming those details can be agreed with the EU. The section is also light on practical details, such as how existing cross-border business is to be treated, and any future plans for existing arrangements will be reliant on the UK and EU agreeing quite extensive enhanced equivalence in negotiations on the proposals," he said.