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Is the Brexit endgame clearer in the light of the UK Brexit White Paper? Goods and services in a post transition EU/UK future?


This is part of an occasional series on the legal aspects of Brexit. It is not a comprehensive survey. This article should be associated with the two presentations at FIDE on 5 June. Links are provided to those presentations.



Churchill and the EU (Parliament Square, June 2018 – Christopher Muttukumaru).
Churchill and the EU (Parliament Square, June 2018 – Christopher Muttukumaru).
The UK White Paper
  1. Where does the Brexit endgame now stand in the light of the publication of the UK Government’s White Paper, dated 12 July 2018 [see link to the White Paper here]? [1] The White Paper, entitled “The future relationship between the United Kingdom and the European Union”, sets out the UK’s proposals for a future economic partnership, security partnership and cross-cutting cooperation. In many respects, the White Paper restates previous policy; in other areas there is obvious evolution in UK Government thinking.
  2. This short paper will first summarise some aspects of the new White Paper. It will then provide some illustrative comments which expose fault lines in its legal coherence and will identify a few of the legal risks which the UK’s preferred policy would involve if it were accepted by the EU as it stands. But this is a negotiation. It sometimes seems like a mysterious game of chess – the Brexit negotiation has had a series of opening gambits; the moves have been complex; but there will be only one endgame and time is running out for the denouement.
  3. The EU27 will now subject the White Paper to detailed scrutiny, not least on the question of (a) whether the UK proposals amount (in their view) to cherry picking which could undermine the legal integrity of the Single Market and (b) whether, whatever the starting point, the risk of future regulatory divergence between the UK and EU is inevitable; and if so, the consequential risks that that would entail
  4.  In the UK, there is no political consensus within or outside the Conservative Party on the UK Government’s policy aims. It is therefore not clear whether a negotiated outcome which reflects the White Paper would be acceptable to a majority in the UK Parliament. That too would pose risks to both the EU and the UK if it were to result in “no deal”. In the UK, the Government’s preparations for a “no deal” scenario are now being openly discussed.
  5. For its part, on 19 July 2018, the European Commission published a Communication entitled “Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019”. The communication advises businesses, citizens, Member States and EU institutions to prepare for all scenarios, including a “no deal” scenario. The Commission’s advice is not alarmist but realistic [2].
  6. The White Paper runs to 104 pages. Therefore, this is necessarily a summary. But of course, the devil is often in the detail.
  7. The tacit assumption underlying the White Paper is that the UK’s new proposals on cross-border movement of goods will help to unlock the impasse in the negotiation of the draft Withdrawal Agreement in respect of the preservation of an open border between Northern Ireland and the Republic of Ireland. If of course a Withdrawal Agreement is concluded see link to the FIDE presentation on the Withdrawal Agreement on 5 June [here ], a transition period will begin on 29 March 2019 and end on 31 December 2020. Therefore, the White Paper is largely focused on the future beyond that.
  8. A common “rulebook” for goods. One of the most obvious developments in UK Government thinking is that the UK is prepared to accept, by treaty, that there should be a free trade area for goods, maintaining a common rule book for goods, including future harmonisation if and when the EU changes those rules. But it will cover “only those rules necessary to provide for frictionless trade at the border”. By way of illustration, the White Paper says that “in the case of manufactured goods, this would encompass all rules necessary to provide for frictionless trade at the border, as they set out the requirements for placing manufactured goods on the market and includes those rules which set environmental requirements for products, such as their energy consumption”.
  9. In order to enforce the suggested regime, there would be a Facilitated Customs Arrangement which would remove the need for customs checks and controls between the UK and EU as if in a combined customs territory. At the same time, the UK would be free to conclude agreements for trading goods with the rest of the world.
  10. In relation to manufactured goods which expose consumers to higher risks, such as medicines or aircraft parts, the UK proposes different regulatory solutions. For example, it affirms its wish to become a third country member of the European Aviation Safety Agency see paragraphs 24-33 of the FIDE Aviation presentation on 5 June - [here ].
  11. How would services be covered? The most surprising feature of the White Paper is the omission of any UK proposal to retain current levels of access to the EU’s services markets. For example, the UK will seek new arrangements on services and digital “providing regulatory freedom where it matters most for the UK’s services-based economy, and so ensuring the UK is best placed to capitalise on the industries of the future…, while recognising that the UK will not have current levels of access to each other’s markets”.
  12. In respect of financial services, the UK accepts that it can no longer operate under the EU’s passporting regime since it will no longer be a member of the Single Market. The White Paper notes the existence of the EU’s third country equivalence regimes. Given a starting point of identical rules and “entwined supervisory frameworks”, the UK seeks an evidence-based judgement of the equivalence of the respective regulatory and supervisory regimes and recognition accordingly. This could take effect at the end of the transition period. For the future, the UK and EU would set out a shared intention to avoid adopting regulations that produces divergent outcomes. The UK proposes a system of regulatory dialogue and supervisory cooperation.
  13. As to horizontal obligations to preserve a level playing-field, by way of illustration the UK White Paper states that:
  • In the environmental field, it will uphold its obligations under multilateral international treaties and it will give effect to its domestic regulatory choice to “maintain high regulatory standards”;
  • It will make “an upfront commitment to maintain a common rulebook with the EU on state aid, enforced [by the UK Competition and Markets Authority]”;
  • In respect of consumer protection, the UK will “commit to maintain reciprocal high levels of consumer protection [with] cooperation on enforcement”.
  1. Socio economic cooperation. The UK notes that there is already close integration in areas such as transport, energy and civil judicial cooperation. It concedes that it will not be possible to replicate these regimes. But it seeks close cooperation. By way of example, in the aviation sector, the UK states that:
  • It will explore options for “maintaining reciprocal liberalised access through an air transport agreement. “This would, it adds: “ permit EU and UK carriers to operate air services to, from and within, the territory of both the UK and EU on an equal basis”.
  • This could be supported by an “approach to ownership and control that avoids introducing additional barriers to business”,
  • it will seek participation in EASA;
  • manufacturers should only need to undergo one series of tests in either market, reducing regulatory barriers and ensuring continued high standards across Europe;
  • As to aviation security, close collaboration should continue.
  1. Institutional arrangements The UK’s starting point (as has been previously been said by the UK Prime Minister) is that:
  • The EU institutions and the CJEU will no longer have powers to make laws for the UK;
  • The principles of direct effect and supremacy of EU law will no longer apply.
  1. Instead a tripartite structure is proposed to oversee the arrangements as follows:
  • A Governing Body (leaders and UK and EU ministers to set the direction of future development of policy);
  • A Joint Committee, accountable to the Governing Body, to ensure that the agreements operate effectively, and that future legislative change is managed properly;
  • A three pillared structure to support the Joint Committee – economic partnership, security partnership and cross-cutting cooperation.
  1. A distinction is drawn (paragraph 4.4.1 – paragraphs 27-32) on the process to be followed where, in future, legislative changes are proposed which amend the common rulebook and those which, as a result of an EU or UK legislative change, affect an equivalence regime. The details are not presently relevant, not least because the EU will doubtless have its own views on how future law making should be handled in the context of an agreed common rule book and an equivalence regime. There is, however, a critical point to consider. The White Paper recognises that, ultimately, the UK Parliament would have to scrutinise any amendments to the common rule book or the equivalence regime. It could refuse to give effect to proposed rule changes in domestic law, even if agreed in line with the EU/UK agreements. While noting that the UK intends to comply with its future obligations, this could, the White Paper expressly concedes, place the UK in breach of its international obligations.
  2. The question of consistent interpretation of rules is also covered in the White Paper. The UK’s starting point is that the rights arising from the EU/UK relationship would be enforced in the UK by UK courts and in the EU by EU courts. But “when courts in the UK or EU interpret provisions of national legislation intended to give effect to the agreements, they could take into account the relevant case law of the courts of the other party”.
  3.  Dispute resolution There is, moreover, suggested provision for a mechanism to manage inconsistent interpretation and to resolve disputes. The Joint Committee would have the primary role of keeping under review any inconsistency of approach between the senior UK courts and the CJEU. The Committee could also be empowered to act to preserve the consistent interpretation of the agreements. The Committee would also have the role of determining disputes. In some cases, a case might be referred to arbitration.
  4. There are two points of special interest in circumstances where the UK has hitherto resisted the conferral of any role on the CJEU:
  • In cases where the interpretation of the common rule book is in dispute, the UK accepts that the EU27 can only be bound if there has been a ruling of the CJEU. So, an arbitration panel or the Joint Committee could be given power to refer matters of interpretation of the common rule book to the CJEU. It seems clear that the proposal does not cover cases where a point of interpretation on equivalence requires a determination (“the CJEU would only have a role in relation to those EU rules to which the UK had agreed as a matter of international law” –ex hypothesi, in equivalence cases, the UK will not have adopted the EU’s rules). It would then be for the Joint Committee or the panel to give effect to the ruling of the CJEU;
  • If the UK were permitted to participate in the agencies to which reference has been made, such as EASA, the UK would respect the remit of the CJEU. Thus, if there were a challenge to a decision made by an agency that affected the UK, this could be resolved by the CJEU, “noting that this would not involve giving the CJEU jurisdiction over the UK”.
Is the Brexit endgame in sight?
  1. There are some significant questions to which the EU27 will have to address themselves. A few of those questions are raised here.
  2. There is no doubt that the proposal on a common rule book in respect of goods (but not services) could provide a starting point for a solution to the Ireland border conundrum. But Article 26 (2) of the TFEU makes it clear that the internal market is “an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured.” The internal market involves “the elimination of all obstacles to intra [Union] trade in order to merge the national markets into a single market”. Therefore, does the proposal amount to cherry picking (and a breach of the integrity of the Single Market)? If so, would this breach an EU27 red line? Moreover, a separate series of questions also arises in respect of whether the enforcement regime that is proposed is practicable.
  3. Another significant issue for the EU27 is the question of future regulatory divergence. The UK has set a red line in respect of sovereignty over future law making. Whether in relation to the common rule book or in respect of equivalence regimes, the UK Parliament has the right to reject whatever is agreed under the EU/UK agreements. That is the necessary consequence of the UK constitutional doctrine of parliamentary sovereignty and the statutory commitment to adherence to EU law in the European Communities Act 1972 will be repealed on Brexit day. Furthermore, as the well-known constitutional expert, Professor Vernon Bogdanor said on 24 July 2018 (the Guardian), “it is becoming clear that that there is no sure majority for any of the various forms of Brexit on offer”. Realistically, therefore, in the context of the UK Government’s deregulatory ambitions and a volatile UK Parliament (as presently exists), the EU27 would have to make a judgment about the reliability of the proposed arrangements.
  4. Will the confidence of the EU27 be undermined by closer scrutiny of the promises made by the UK? As an example, let’s scrutinise the details of three of the UK’s promises on maintenance of a level playing-field. They are qualitatively different to one another. What do the differences imply and what risks flow for the EU’s interests? On the face of the drafting of the White Paper, the rules on state aid will apparently be based on an upfront commitment to a common rule book. But the rules on environmental and consumer protection will not. In respect of the rules on consumer protection, there is a promise to maintain reciprocity of high levels of protection. But in respect of the environment, while there is a commitment to comply with obligations in multilateral treaties, it is a matter of “domestic choice” what the so-called high levels of protection should amount to. In short, reciprocity (consumer protection) provides some degree of assurance; an assertion of the future right to exercise domestic choices (environment) does not.
  5. The implications of the suggestion that the UK should participate in some EU agencies remains a puzzle. For example, in respect of EASA, the UK will need to address some of the questions posed in the FIDE Brexit presentation on Aviation (ibid) on 5 June. Article 66 of EASA’s governing regulation (Regulation 216/2008) requires any state wishing to be a participant in EASA “to have entered into arrangements with the [EU] whereby they adopted and apply [EU] law in the field covered by this Regulation and its implementing rules.” The EU27 may ask themselves: does the UK White Paper promise continued and comprehensive future alignment – in other words, does the UK Government accept that all the rules in EASA’s governing regulation which cover safety of aircraft parts and a raft of operational matters (including mutual recognition) will continue to be honoured? If so, would that amount to acceptance of the continued application of some Single Market rules whereas, elsewhere in the White Paper, the UK suggests that it wishes to have flexibility to depart from the EU’s rules in the services sector? It has to be remembered that the context is that, as provided in Article 2 of the Regulation, an objective of the regulation in the fields covered by the Regulation is to “facilitate free movement of goods, persons and services”.
  6. As to the future role of the CJEU, the UK White Paper seeks to propose an elegant response to the question whether the UK should be subject to CJEU jurisdiction (a UK red line) and protection of the autonomy of the role of the CJEU (an EU red line). As to the UK red line, the White Paper observes that the UK would not be subject to the CJEU; rather it would be subject to a ruling by the Joint Committee or an arbitration panel which would apply the ruling of the CJEU. Is this a distinction without a substantive difference? Yet the most obvious practical question is: why should the role of the CJEU be limited to cases which concern the common rule book? If, in cases where the UK gains access to the Single Market through a promise to maintain equivalence and if a question of interpretation of what equivalence means across all 28 countries which are party to the arrangements arises, it is not clear why the UK should deny CJEU jurisdiction. [3]
  7. The Brexit endgame has not yet begun. The UK White Paper raises as many questions as it provides answers. The future political and regulatory risks are unquantifiable, but they need to be resolved.  The moves in the negotiations are as labyrinthine as those in the best chess games. But businesses and citizens need policy and legal clarity quickly, not an endless maze of questions to navigate.
 
27 July 2018
 
[1] Command Paper 9593. A White Paper is the UK Government’s mechanism for publishing its policy position on any given topic.
[2] European Commission Communication of 19 July 2017: COM (2018) 556 FINAL
[3] The Times (25 July 2018) has recently reported that UK Treasury officials, briefing the City on equivalence in the financial services sector, have asserted that a concession has been made, accepting that the CJEU will be the final arbiter of equivalence. But it is not obvious how the White Paper and officials’ assurances (if given) can be reconciled.
 

Christopher Muttukumaru

CB, DL, barrister and a member of FIDE’s Academic Council. Muttukumaru was a member of Monckton Chambers in Gray's Inn in London from 2014 to 2018. Christopher was previously General Counsel to the UK Department for Transport where he was the Chief Legal Adviser to eight successive Secretaries of State for Transport between 2001 and 2013. As General Counsel he was also a member of the DfT Executive Board. Earlier in his career, he was Legal Director at the Department for Environment, Transport and the Regions, as well as at the Department for Culture, Media and Sport. He was the principal legal adviser on EC Law issues in the Attorney-General’s office. He has been involved in advising Ministers on Public Law issues, as well as European and International Law issues, over many years. For example, in the Attorney’s Office, he was involved in the Factortame litigation; in DfT he handled the UK Government’s application for state aid approval for the funding of Network Rail; and, as Deputy Legal Adviser at the Ministry of Defence he was a senior member of the UK diplomatic delegation which negotiated the establishment of the International Criminal Court at the United Nations. Christopher was educated at Oxford University and is a Bencher at Gray's Inn (the Governing Council of the Inn). He holds a doctorate of laws (honoris causa) from City University (part of London University). He was vice chair of the Advisory Board of the Law Faculty of City University for many years. Christopher has written extensively, and spoken in the UK and EU, about matters such as international legal cooperation and Brexit legal issues. He is a deputy to the Lord Lieutenant for Greater London. Member of Fide´s Academic Council (based in London). 
















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