Documents considered by the Committee on 23 January 2019 Contents

4Brexit: EU contingency planning in a ‘no deal’ scenario

Background and Committee’s conclusions

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny; drawn to the attention of the Business, Energy and Industrial Strategy Committee, the Environment, Food and Rural Affairs Committee, the Exiting the European Union Committee, the Northern Ireland Affairs Committee, the Transport Committee and the Treasury Committee

Document details

(a) Communication from the European Commission: Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019—a Contingency Action Plan; (b) Communication from the European Commission: Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019: Implementing the Commission’s Contingency Action Plan

Legal base

Department

Exiting the European Union

Document Number

(a) (40190), 14272/18 + ADD 1, COM(18) 880; (b) (40299), 15775/18, COM(18) 890

4.1The UK is due to leave the European Union on 29 March 2019. The Government has repeatedly insisted that, in the process of withdrawing from the EU, “no deal would be better than a bad deal”. Although a draft Withdrawal Agreement has been finalised, ratification is not assured due to widespread concerns over its substance within Parliament, especially in relation to the Northern Irish ‘backstop’. A vote on the Agreement was postponed in December 2018, and a second attempt on 11 January resulted in a resounding defeat for the Government.

4.2Whether the Agreement is ratified or not, the UK will leave the EU by automatic operation of law on 29 March 2019 when the two-year deadline under Article 50 expires unless the Government secures an extension of the negotiating period (which requires the agreement of every Member State). Without the Withdrawal Agreement in place, the UK would abruptly leave the EU’s customs union and internal market overnight on that date. That would immediately place the UK outside the legal and economic structures that have allowed goods to pass between the other EU Member States without physical border controls and inspections since the advent of the Single Market in 1992.

4.3The EU’s Member States have been clear that, whatever the Government’s own contingency plans to keep trade flowing, UK goods entering their territory would immediately face the customs, VAT and regulatory controls at the border which are applied to all other ‘third country’ imports. UK companies would also automatically lose the right to provide a range of services—including financial, legal and transport services—throughout the Single Market from their home base, with little or no World Trade Organization baseline to fall back on.

4.4Absent the implementation of specific contingency measures, the Government, Committees of both Houses of Parliament and private sector stakeholders have warned there would be immediate and severe disruption of trade and transport links between the UK and the EU.11 To mitigate this, both the EU and the UK have been making preparations for a ‘no deal’ eventuality. However, as we noted in our previous ‘No Deal’ Report of 18 December 2018, the approach taken by both sides are radically different, with the EU’s contingency measures far more limited in nature and scope than the UK’s approach.

The EU’s Brexit preparations

4.5Both the European Commission and the UK Government have published a series of ‘no deal’ notices covering different policy fields, attempting to outline the consequences of such a scenario for businesses and citizens in a range of areas. The Commission started doing so in late 2017, with the Government only following in August 2018.

4.6As we described in our previous Report on ‘no deal’,12 the EU’s preparations for the UK’s withdrawal can be broadly categorised into ‘preparedness’ and ‘contingency’ measures. The former aim to modify EU law as necessary to take into account the UK’s withdrawal and would need to be adopted “irrespective of whether the UK’s withdrawal is orderly or otherwise”. They have included for example the relocation of EU bodies, institutions and infrastructure from the UK to the EU-27; the proposed division of UK and EU tariff rate quotas for the purposes of their respective World Trade Organization schedules; and the transfer of vehicle type approvals granted by the UK under Single Market legislation to one of the remaining Member States.13

4.7The European Commission published a first ‘no deal’ policy paper in July 2018, which summarised some of the key consequences of failure to ratify a Withdrawal Agreement but did not propose any contingency measures to address them. This was followed by a more expansive Communication in November 2018, the day before the finalised Withdrawal Agreement was published, in which the Commission for the first time set out some of the contingency measures the EU was prepared to take to avoid the very worst of the disruption. These would specifically aim to mitigate the immediate impact of a disorderly UK withdrawal from the EU in March 2019, if the Withdrawal Agreement is not ratified. While it recognises that these preparations would also “be the same with or without a Withdrawal Agreement providing [for] a transition period”, much like the preparedness measures referred to above, they are considered contingency measures because they “would need to take place at a much faster pace”.

4.8At that point, the Commission identified seven priority areas that required “specific attention”, including the residency rights of UK nationals in the EU, air transport links, and the provision of certain financial services by UK companies to EU-based customers. However, even in the areas singled out as priorities, the Commission did not necessarily commit to specific new EU legislation to avoid disruption in trade and transport with the UK. It also made very clear the EU’s contingency measures would not be in the form of ‘mini’ or ‘side deals’ agreed jointly with the UK Government: the Commission’s proposals would be adopted unilaterally by the EU and be temporary in nature.

4.9On 19 December 2018, the European Commission published a third Communication with details on the actual implementation of the EU’s “contingency” plans for a ‘no deal’ Brexit. This provided substantially more detail on the policy measures announced the month before, as well as adding certain new areas where contingency action is now foreseen that was not included in the previous Communication. In particular, the Commission announced that it had decided to publish legislative proposals for ‘grace periods’ in a number of areas, primarily the provision of specific cross-border services, where UK companies would have more rights to operate within the EU than in a ‘no deal’ scenario, but fewer than they do at present as part of the Single Market.

4.10On 17 January 2019, the Department for Exiting the EU submitted an Explanatory Memorandum on the Commission’s most recent ‘no deal’ plans.14 As summarised by the Government, the most important proposals put forward by the Commission in December 2018 are as follows:

4.11The contingency measures relating to road and air transport (including aviation safety) are formal legislative proposals for consideration by the Council and the European Parliament, and therefore subject to scrutiny in their own right. We will report our detailed assessment of them to the House in the coming weeks.

Additional technical contingency measures

4.12In addition to the substantive policy proposals made by the Commission as described above, it has also announced—or already adopted—a number of technical measures to prepare the EU for a UK withdrawal without a transitional period in March 2019.

4.13Other Brexit-related technical measures announced or adopted by the Commission relate to the allowances, auctioning, and the exchange of international credits with effect from 1 January 2019; an “appropriate annual quota allocation” to UK companies for accessing the EU-27 market for emission allowances for fluorinated greenhouse gases; and a proposal to move ground infrastructure for the EU’s satellite navigation programme Galileo from the British Overseas Territories (the Falklands and Ascension) to other Member States.

4.14The Explanatory Memorandum submitted by the Department for Exiting the EU summarises the intended purpose of these measures, but does not provide any substantive analysis of their shortcomings or practical impact for the UK compared to the current situation as an EU Member State. It references Brexit preparedness legislation which has received Royal Assent so far, such as the 2018 Withdrawal Act itself and the Haulage Act (which would provide the UK legal basis for relying on the quota permit system for hauliers carrying goods into the EU referred to in paragraph 10 above).22 However, the Memorandum does not mention the many Bills which are still before Parliament and which may not make it on to the Statute Book on time, including the Fisheries, Agriculture, Financial Services and Trade Bills.23 In addition, of course, many aspects of the likely disruption to trade and transport would be of a cross-border nature and not within the Government’s gift to address unilaterally. We have therefore made our own assessment of the EU’s contingency plans in paragraphs 15 to 27 below.

4.15Based on information provided by the European Commission so far, we have set out a fuller list of the EU’s most important Brexit contingency and preparedness measures in the Annex to this chapter. The Commission’s latest Communication also notes that “it will continue to monitor the need for additional action”.

Limitations to the EU contingency measures

4.16For various reasons, the EU’s approach to a ‘no deal’ Brexit to limit some of the disruptions to trade and transport resulting from a ‘no deal’ Brexit offer only partial or marginal relief to businesses and citizens.

4.17Firstly, with respect to the contingency measures the EU is looking to put in place by March 2019, political and legal considerations limit the extent to which they can be relied on to keep trade and transport flowing. This is for a number of reasons:

4.18An overarching caveat to the impact the contingency measures may have in a ‘no deal’ scenario is that most of the substantive proposals—on road transport, air traffic and aviation safety—are still subject to consideration by Member States in the Council and by the European Parliament. Depending on the applicable EU legislative procedure, these institutions can approve, reject and in some cases amend the draft legislation (for example to modify restrictions on UK companies’ market access or impose different expiry dates). As such, there is at present no guarantee that the emergency legislation as put forward by the Commission will take effect precisely as proposed.

Areas not covered by the EU contingency measures

4.19As we noted in our previous Report on ‘no deal’, published on 18 December 2019, many areas of likely disruption in March 2019 are not covered by the EU’s contingency measures.

4.20The most prominent example is citizens’ rights, with the Commission having decided against proposing EU legislation that would regularise the legal status of UK nationals already resident in the EU-27 in the event of a ‘no deal’. While the EU would have had competence to take such a horizontal approach, the Commission instead called on individual Member States to ensure that “all UK nationals legally residing in a Member State on 29 March 2019 will continue to be considered as legal residents of that Member State without interruption”.26 Effectively, this means that those with residence exceeding five years would in principle be eligible for long-term residence status (analogous to the UK’s indefinite leave to remain) irrespective of the Member State they live in, while those with less than five years residency “will be subject to Member State rules and decisions taken by them on a unilateral basis”.

4.21This is an aspect of the EU’s contingency planning explicitly criticised by the Government in its latest Explanatory Memorandum, which argues the “UK is clear that this [approach] does not offer sufficient protection” and therefore the Government “will continue to encourage the EU and all its Member States to reciprocate our offer for EU citizens in a no deal in full, ensuring that all our citizens can continue living their lives broadly as they do now in any scenario”. The Government has also urged the Commission to drop its opposition to individual Member States entering into negotiations with the UK on a bilateral arrangement on social security coordination, including the provision of healthcare (for example with France and Spain, whose Governments are reimbursed by the UK for healthcare costs incurred by UK pensioners under EU law).27

4.22Secondly, as we described in paragraphs 16 to 18 above, the trade and transport contingency measures put forward by the Commission do not replicate UK companies’ current market access rights under Single Market legislation. With respect to trade in goods, the EU is making no provision for waivers for the immediate imposition of customs, regulatory and fiscal controls on UK exports to the EU as they are applied to goods arriving from any other ‘third country’. While these border controls may often be cursory documentary checks, they are currently absent altogether.

4.23The effect of these changes will vary from sector to sector. As the Secretary of State for the Environment repeated recently, for meat and fisheries exports the impact of new border checks at EU ports could be very significant indeed. At present, with the UK in the Single Market, such checks are absent because the UK is part of the EU’s food safety and animal health control systems, underpinned by European law and overseen by common institutions like the Food & Veterinary Office of the European Commission and jurisdiction of the Court of Justice. The UK’s exit from the Single Market means it leaves those systems, structures and laws on 29 March 2019 in a ‘no deal’ scenario, and the Commission has insisted from the very start of the Brexit process that sanitary controls would be re-imposed in full on UK food imports from ‘day one’.28 In a ‘no deal’ scenario therefore, all UK exports of animal and plant products to enter the EU via designated Border Inspection Posts only, and be subject to sanitary and phytosanitary controls (which in some cases requires physical inspections for 50 per cent of consignments, for example for poultry, eggs and honey).29 Conversely of course, the Government’s Fisheries Bill aims to restrict the access of EU fishermen to British waters if the UK leaves the Common Fisheries Policy in March 2019.

4.24Overall, these newly-imposed customs and regulatory checks are likely to cause significant delays, especially on the cross-Channel routes where turn-around times are at present very quick. This will have a knock-on effect on the capacity for goods and vehicles generally, including those not subject to physical inspections. None of the Commission’s contingency measures would reduce this new trade friction, which will impact on the capacity of EU ports to clear incoming traffic from the UK and have a knock-on effect on congestion at British ports. The Department for Transport’s recent decision to pay for additional ferry capacity to absorb some of the traffic likely to be displaced from Dover and the Channel Tunnel shows the risk is considered significant, although the extent to which other ports can meaningfully replace the UK’s major trade artery at short notice is doubtful.

4.25As we noted in our previous Report on a ‘no deal’ Brexit, the UK Government is going considerably further than the EU in taking unilateral steps to avoid disruption if the Withdrawal Agreement is not ratified, particular in the context of importation of goods. In areas like food and pharmaceutical safety, product standards and VAT liability on imports, the Government has said that it will continue to waive the need for border controls on imports from the EU.30 The Treasury has put in place a unilateral transitional period for EU financial services firms (a ‘temporary permissions regime’) enabling them to continue operating in the UK for a period of time after they lose their right to do so under the EU Treaties, going far beyond the scope of the equivalence decision proposed by the Commission in relation to clearing of derivatives. The Government appears to have calculated that the European Union would reciprocate until the Commission’s Communication of 13 November 2018 put this matter beyond doubt.31

4.26The narrow scope of the EU’s emergency measures in its post-Brexit relationship with the UK are also not limited to trade and transport. For the provision for many other types of services, where EU law currently gives UK operators a right to operate across Member State borders—including by setting standards for certain financial and broadcasting services and requiring the mutual recognition of a range of professional qualifications—such firms will in the future need to establish EU-based subsidiaries, or comply with the specificities of each Member States’ domestic legislation regulating market access by ‘third country’ firms.

4.27Moreover, as we pointed out in our previous report, the Commission has not mentioned any contingency plans in terms of continued structural cooperation with British authorities under the range of justice and home affairs measures in which the UK currently participates. In any event, if it ceases to be bound by EU law on 30 March 2019, British civil and commercial court judgements, arrest warrants and confiscation orders would no longer be automatically recognised by the authorities of the remaining Member States and, most likely, vice versa. In addition, UK law enforcement agencies would lose access overnight to databases like the Schengen Information System (which aids law enforcement and border control cooperation), European Criminal Records Information System (ECRIS) (which holds information on criminal convictions throughout the EU) and Eurodac (fingerprint data for asylum applicants). To what extent existing bilateral agreements between the UK and EU Member States superseded by EU measures can be revived to minimise this impact is questionable, and would in any event result in a patchwork of structures rather than the horizontal mechanisms that are in place at present.

4.28There is another notable omission from the Commission’s contingency plans, which is likely excluded for internal political reasons: the impact of a ‘no deal’ Brexit on the EU budget. The UK is one of the largest net contributors to the EU’s finances, and a departure without a Withdrawal Agreement means the provisions on the financial settlement would not be applicable.

4.29While the Government has hinted that it would still pay for a share of outstanding EU expenditure commitments made during the UK’s membership, the modalities, timetable and size of such payments would be highly uncertain.32 That in turn means the European Commission would have to request additional contributions from the remaining Member States, reduce planned EU expenditure in 2019 via a Draft Amending Budget, or both. The Communication of 19 December is silent on how the Commission would approach this problem if the ‘no deal’ scenario arises. It is similarly silent on what financial support from the EU budget might be available to cushion the impact of an economic shock caused by disruption in trade with the UK, both for particularly exposed countries—like Ireland, the Netherlands and France—but also for specific sectors, such as the fishing industry (which would abruptly lose access to British waters by the end of March).

4.30Finally, it appears the biggest gap in the European Commission’s contingency planning is any public recognition of the problems the EU’s approach would cause at the border between Ireland and Northern Ireland. It is unclear to what extent the European Commission and other Member States would expect Ireland to conduct border controls on goods entering from Northern Ireland as of 30 March 2019, given the Irish Government has explicitly stated it has not planned for the reintroduction of physical infrastructure at the border.33 However, given that the EU has insisted so far that the choice is an open border based on alignment with EU goods and customs legislation, or a ‘hard’ border, there are only a few possible outcomes: Ireland would have to implement the necessary border infrastructure; the UK and EU agree on some form of regulatory and fiscal alignment during fresh negotiations after its formal withdrawal; or Ireland keeps the border open, which—if done without the agreement of the other 26 Member States—could lead to ‘third country’ controls on exports from Ireland to the continent.

Our conclusions

4.31The European Scrutiny Committee has been examining the implications of the UK becoming a ‘third country’ vis-à-vis the EU since the referendum, focussing not only on the impact of new EU legislation but also on the way in which the existing European acquis would alter the parameters of UK relations with the European Union once it ceases to be bound by such legislation and the jurisdiction of the Union’s institutions.

4.32Despite the fact that the senior figures in the Government, not least the Prime Minister herself, have stated repeatedly that “no deal” with the EU would be better than a “bad deal”, it has been clear for some time that the necessary preparations to avoid the disruption of the abrupt departure from the Single Market and Customs Union, to the extent that it could ever be fully avoided, are unlikely to be fully in place. The Government only recently contracted three ferry companies to compensate for “severe congestion” at Dover and the Channel Tunnel leading to a “significant reduction in capacity at ports on the short straits”, which without intervention would “cause delivery of critical goods to be delayed and cause significant wider disruption to the UK economy”.34 The National Audit Office has also warned crucial ‘no deal’ preparations are unlikely to be finalised in time by the Department for Transport, HM Revenue and Customs, and the Department for Environment, Food and Rural Affairs.

4.33The crux of the matter is, however, that many elements of the likely disruption could never be avoided unilaterally by the UK. Where they concern cross-border trade, transport or cooperation, this is by definition not within the gift of the Government.

4.34The European Commission’s recent Communications on the EU’s preparations for a ‘no deal’ Brexit are therefore a stark reminder of the consequences, especially at ports, on 30 March. Despite the UK’s requests, and in some cases unilateral action, in many areas the EU is planning no contingency measures at all to avoid trade and transport disruption. Instead the UK will abruptly go from ‘EU member’ to ‘third country’, without anything resembling the transition period and separation provisions contained in the draft Withdrawal Agreement.35 The EU has said it intends to impose tariffs, import VAT and excise duty, as well as regulatory controls, at the border from ‘day one’. Although to what extent it will force Ireland to do so at the land border remains unclear, the French, Dutch and Belgian Governments have all said they will be required to enforce EU ‘third country’ rules against UK goods from 30 March 2019 if there is no transition.

4.35Even where the Commission has now proposed specific ‘no deal’ contingency measures, they are limited in time and scope, often binding the UK to continued adherence to EU rules if it wants to benefit from them at all. Moreover, many of the EU’s most important emergency initiatives are yet to clear its legislative processes—for example in the areas of aviation and road transport. There is thus no certainty or stability on the basis of which businesses and citizens can plan trade with, or transport to, the EU in less than three months.

4.36The consequences of ‘no deal’ for British food and drink exports, particularly meat products, could be especially serious. The EU has not yet listed the UK as a safe ‘country of origin’ for such products, without which a trade ban would automatically take effect on 30 March (although the Commission has committed to doing so). In any event, these exports will face some of the highest tariffs the EU still maintains, and the imposition of border controls for sanitary checks will reduce the competitiveness of those products further (as well as potentially affecting the viability of some exports where freshness of the goods could be jeopardised by delays at the border).36

4.37The Government’s continued and persistent failure to provide timely and comprehensive analysis to Parliament of the EU’s approach to ‘no deal’ is extremely worrying. It is an approach that was exemplified by the inadequate sectoral ‘impact assessments’ published at the behest of the Exiting the EU Committee in late 2017; the lack of any public communication on the implications of ‘no deal’ until August 2018; and again by the Department’s Explanatory Memorandum on the European Commission’s previous ‘no deal’ Communication of 13 November 2018, which was shorn of any substantive analysis of the implications of the EU’s ‘no deal’ preparation as described in that document.37 The latest Government Memorandum, received on 17 January 2019, constitutes somewhat of an improvement but still glosses over many of the practical realities of the EU’s contingency measures being proposed: the clear deterioration in trading arrangements for UK businesses dealing with EU customers or suppliers; the new ‘cliff edge’ they contingency measures create when they expire or are withdrawn early; and the unilateral demand the UK continue adhering to EU law in the fields of aviation, road transport and competition.

4.38Moreover, the Government’s lack of candour about its Brexit preparations and the areas where unilateral action will be insufficient is disappointing. A number of crucial Bills have not received Royal Assent, and many of the Statutory Instruments that need to be made under the 2018 Withdrawal Act are yet to make it onto the Statute Book. It is noteworthy in this respect that even at this late stage, the Government’s Explanatory Memorandum can only offer assurances that Departments are working to make sure that the preparations for exit from, […] the EU are on track”. This falls far short of a guarantee that such preparations, where the UK can make them unilaterally, will be completed by the end of March.

4.39The clear difficulty the Government has had in preparing properly for a ‘no deal’ exit is important not only because it affects how Parliament views the different options open to it as the deadline of 29 March 2019 approaches. The issues identified in the ‘no deal’ notices issued by both the Government and the European Commission will not disappear the day after the UK leaves the EU. Geographic proximity and the volume of trade flows practically dictate that new treaties will at some stage be needed to give form to the UK’s post-Brexit cooperation with the European Union. Our assessment of the Commission’s contingency measures, narrow in scope and limited in duration, merely reinforce the point that there would be a vast range of long-term issues that would remain unresolved in a ‘no deal’ scenario. As we have pointed out in many of our Reports since June 2016, these include arrangements on customs and trade, VAT and excise, cross-border transport, food safety and animal health, ‘equivalence’ in financial services, data protection, home affairs and security, and of course the Northern Irish border.

4.40We repeat in this regard that the disruption of a ‘no deal’ Brexit would obviously not fall solely on the UK side. EU businesses would also be affected across a range of economic sectors, and as we have noted the budget of the European Union would face a significant shortfall (given that it is unclear how the Government would approach the financial commitments vis-à-vis the budget that it has recognised in the absence of the formalised financial settlement contained in Part Five of the Withdrawal Agreement). As such, both sides would have an interest in returning to the negotiating table sooner rather than later to develop a joint approach to the UK’s withdrawal from the EU. We consider it likely that, even in a ‘no deal’ scenario, the EU reiterate its key demands in the negotiations so far: a legally-agreed way of keeping the Irish border open (whatever actions are or are not taken at the border in the immediate aftermath of ‘no deal’), the resolution of the UK’s financial obligations to the EU budget for expenditure agreed during its membership, and the status of EU and UK citizens resident in each other’s territories.

4.41A new complication would be that any new UK-EU agreements negotiated after March 2019, even if they replicate the substance of the Withdrawal Agreement in a given area, would probably need a different legal basis on the EU side. Article 50, which gives the EU an unusually wide exclusive competence to enter into agreements with a future non-Member State, would have ceased to have effect. Instead, new agreement(s) would now need to be agreed in accordance with Art 218 TFEU and in line with relevant EU sectoral law and policy. This raises the prospect of some post-exit deals with the UK requiring not only approval by a qualified majority of Member States and the European Parliament (as is the case for the Withdrawal Agreement). Depending on the substance of the new arrangements, they may require unanimity among Member States and—in certain cases—even ratification by the EU’s national and regional parliaments.

4.42In view of the outcome of the House of Commons vote on the Withdrawal Agreement on 15 January 2019, we consider the European Commission’s Communications on the EU’s ‘no deal’ preparations to be of the highest political importance and therefore report them to the House. We also draw them to the specific attention of the Business, Energy and Industrial Strategy Committee, the Environment, Food and Rural Affairs Committee, Exiting the EU Committee, the Northern Ireland Affairs Committee, the Transport Committee and the Treasury Committee. As the EU’s most important individual contingency measures—for road and air transport—have been deposited for scrutiny individually, we are content to clear the Commission Communications from scrutiny. We will report our assessment of the implications of the specific proposals to the House on a case-by-case basis as soon as possible.

Full details of the documents:

(a) Communication from the European Commission: Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019—a Contingency Action Plan: (40190), 14272/18 + ADD 1, COM(18) 880; (b) Communication from the European Commission: Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019: Implementing the Commission’s Contingency Action Plan: (40299), 15775/18, COM(18) 890.

Previous Committee Reports

See: Fortieth Report HC 301–xxxix (2017–19), chapter 10 (17 October 2018) and Forty-eighth Report HC 301 xlvii (2017–19), chapter 4 (12 December 2018).

Annex: Overview of EU Brexit preparedness and contingency measures

4.43The table below shows an overview of the most important Brexit preparedness and contingency measures proposed by the European Commission. These broadly fall into three categories in terms of legislative procedure:

Policy area

Description

Entry into force

Decision-making procedure

Status

Energy and climate change

Amending the EU emissions trading system

29 March 2019

Delegated Act

Still subject to veto by the Parliament and Council

Reporting on the sales fluorinated greenhouse gases

29 March 2019, or at the end of the transition

Implementing Act

Completed. Approved by the Member States in December 2018.

Adaptation of the EU’s energy efficiency targets

29 March 2019, or at the end of the transition

Ordinary legislative procedure

Not yet adopted by the Parliament and Council

Aviation emissions: responsible Member State

29 March 2019

Implementing Act

Not yet tabled by the Commission

Policy area

Description

Entry into force

Decision-making procedure

Status

Financial services

Central clearing of derivatives

29 March 2019

Implementing Act

Completed. Published in the Official Journal on 19 December 2018

Depositories for securities

29 March 2019

Implementing Act

Completed. Published in the Official Journal on 19 December 2018

Novation of derivatives contracts to an EU counterparty

29 March 2019, or at the end of the transition

Delegated Act

Still subject to veto by the Parliament and Council

Margin requirements for derivatives contracts novated to an EU counterparty

29 March 2019, or at the end of the transition

Delegated Act

Still subject to veto by the Parliament and Council

Home affairs

Waiver of visa requirement for UK nationals after Brexit

29 March 2019, or at the end of the transition

Ordinary legislative procedure

Not yet adopted by the Parliament and Council

Institutional

Relocation of the European Banking Authority

29 March 2019

Ordinary legislative procedure

Completed. Adopted by the Parliament and Council in December 2018

Relocation of the European Medicines Agency

29 March 2019

Ordinary legislative procedure

Completed. Adopted by the Parliament and Council in December 2018

Ireland

Continued funding for the PEACE programme in Ireland and Northern Ireland

29 March 2019

Ordinary legislative procedure

Not yet adopted by the Parliament and Council

Manufacturing

Transfer of UK vehicle type-approvals to the EU

29 March 2019, or at the end of the transition

Ordinary legislative procedure

Agreed by the Council and Parliament in November 2018

Policy area

Description

Entry into force

Decision-making procedure

Status

Research

Relocation of European Research Infrastructure Consortia headquarters 38

Unclear

Implementing Act

Not yet tabled by the Commission

Space programme

Relocation of Galileo infrastructure from British Overseas Territories 39

29 March 2019

Implementing Act

Not yet tabled by the Commission

Statistics

EU balance of payment statistics

29 March 2019, or at the end of the transition

Delegated Act

Still subject to veto by the Parliament and Council

EU tourism statistics

29 March 2019, or at the end of the transition

Delegated Act

Not yet tabled by the Commission

Trade

Export of dual-use items to the UK

29 March 2019, or at the end of the transition

Ordinary legislative procedure

Not yet adopted by the Parliament and Council

Time limit for lodging export declarations for goods shipped to the UK

29 March 2019, or at the end of the transition

Delegated Act

Not yet approved by the Parliament and Council

Division of UK and EU tariff rate quotas at the WTO40

29 March 2019, or at the end of the transition

Ordinary legislative procedure

Agreed by the Council and Parliament in December 2018

Support measures for EU outermost regions

29 March 2019, or at the end of the transition

Implementing Act

Not yet tabled by the Commission

EU approval of UK accession to the Government Procurement Agreement

29 March 2019, or at the end of the transition

Proposal for a Council Decision

Not yet tabled by the Commission

Transport

Limited air traffic rights for UK airlines

29 March 2019, if there is no Withdrawal Agreement

Ordinary legislative procedure

Not yet adopted by the Parliament and Council

Limited recognition of UK aviation safety measures

29 March 2019, if there is no Withdrawal Agreement

Ordinary legislative procedure

Not yet adopted by the Parliament and Council

Temporary continued recognition of UK road haulage licences

29 March 2019, if there is no Withdrawal Agreement

Ordinary legislative procedure

Not yet adopted by the Parliament and Council

Support for a new shipping route between the continent and Ireland

29 March 2019, or at the end of the transition

Ordinary legislative procedure

Not yet adopted by the Parliament and Council

Ship safety inspections

29 March 2019, or at the end of the transition

Ordinary legislative procedure

Not yet adopted by the Parliament and Council


11 See for example, the Department for the Environment, Food & Rural Affairs has noted that all UK exports of animals and animal products would cease in a ‘no deal’ Brexit unless the EU takes specific measures to remedy this. The Public Accounts Committee warned in November 2018 that “there is a real prospect of major disruption at our ports” because of the sudden introduction of customs and regulatory controls, especially at EU ports preventing hauliers from returning promptly; and the Road Haulage Association said in December 2018 that “parliamentary approval for a deal that includes a transition period is essential to avoid crippling the supply chain”.

12 See ‘Previous committee reports’ hereafter

13 Some take effect on 29 March 2019 even if the Withdrawal Agreement is ratified and the transitional period becomes operational; others will have their date of application deferred until the end of that period, mostly where they relate to the UK’s participation in the EU’s economic and trading structures during transition.

14 Explanatory Memorandum submitted by the Department for Exiting the EU on 17 January 2019 (not yet available online).

15 The ECMT system is explained in more detail on the website of the International Transport Forum.

16 If the Commission determines the UK has deviated from those rules, it can by means of Delegated Act restrict or suspend access to the EU market for UK haulage firms within the 9-month grace period.

17 The equivalence decisions were approved by a qualified majority of Member States at a meeting of the European Securities Committee in December 2018. They were not notified to the European Scrutiny Committee by the Treasury before adoption and as such they have not undergone the parliamentary scrutiny process.

18 To further facilitate the transfer of clearing of derivatives to the EU from the UK, the Commission has also tabled two Delegated Regulations to ensure that existing derivatives contracts can be novated from UK-based counterparties to EU-based alternatives without triggering clearing and margining obligations under European Market Infrastructure Regulation (EMIR) from which they would have remained exempt if the UK had not left the EU.

19 The European Commission produced a Questions & Answers document on Brexit on 19 December 2018, which states: “The contingency measures announced in the Commission Communication of 13 November 2018 foresee that the UK will be added to the lists for live animals and animal products, subject to providing guarantees that all applicable conditions under the veterinary or sanitary legislation will be fulfilled. In a no deal scenario, the listing of the United Kingdom should enter into force on 30 March 2019” (emphasis added).

20 EU law places restrictions on the export, transit and brokering of dual-use items so the EU can “contribute to international peace and security and prevent the proliferation of Weapons of Mass Destruction”.

21 The Commission proposal requires the EU and UK to agree an arrangement on expenditure controls and audits. In absence of such an agreement, the Commission can suspend payments because of a “serious deficiency in the management and control system” for the funds. In a ‘no deal’ scenario, the UK will automatically cease to be part of the other 13 EU regional cooperation programmes in which it currently participates.

22 The Explanatory Memorandum submitted by the Government also states that “critical international agreements have also been signed, including a new bilateral Nuclear Cooperation deal with the US (May 18), Australia (August 18) and Canada (November 18)”. It does not refer to the many hundreds of other international treaties to which the UK is part by virtue of the EU which have not yet been ‘rolled over’.

23 Similarly, according to the Hansard Society, as of 18 January 2019 the Government has only laid 321 of the 600 Statutory Instruments necessary to adjust UK law ahead of 29 March 2019 in the event of a ‘no deal’ Brexit, and of those only 76 have passed the parliamentary scrutiny process.

24 An additional problem in relation to sanitary and phytosanitary controls on UK exports of meat and plant products to the EU is that the capacity of bordering EU Member States to conduct such checks at current points of entry is often limited, causing bottlenecks.

25 The air traffic and safety grace period would expire in March 2020 and the road haulage grace period on New Year’s Eve 2019. The equivalence decisions for clearing services for derivatives and depositories for securities would last until 2020 and 2021, respectively.

26 There have since been reports that an overarching EU approach could be taken on the basis of draft legislation put forward by the Commission, but there has been no formal proposal and the time left to adopt such measures is limited.

27 See for more information on the coordination of social security and the implications of Brexit our Report of 23 May 2018. We will be issuing a further Report on this matter in February 2019.

28 See for example the European Commission’s June 2017 position paper on “Goods placed on the Market under Union law before the withdrawal date”, page 3.

29 See http://apha.defra.gov.uk/documents/bip/manual/bip-manual.pdf, annex f. Live animals are subject to a 100 per cent physical inspection rate when entering the EU.

30 See for example the draft Trade in Animals and Related Products (Amendment) (EU Exit) Regulations 2018, through which the Government has proposed to continue exempting animals and animal products entering from an EU country without the food safety and animal health controls that apply to such imports from other countries. Similarly, the Government will accept the testing and safety approvals of existing medicines carried out in an EU country.

31 For example, the first Secretary of State for Exiting the EU (David Davis) told the Exiting the EU Committee in October 2017 that ‘no deal’ would in practice most likely mean falling back on “WTO arrangements but [with] a bare-bones deal on […] aviation, data and maybe nuclear”. He went on to describe a “complete failure to agree” any deals ahead of 29 March 2019 as “so incredible that it is off the probability scale”. His successor (Dominic Raab) went a step further in August 2018, when he said that the Government hoped that the EU would offer mutual recognition of regulatory standards and permissions for UK goods and services in the absence of the Withdrawal Agreement, effectively making them equivalent to those issued within the Single Market.

32 In evidence to the House of Lords EU Committee on 29 August 2018, the previous Secretary of State for Exiting the EU (Dominic Raab) said there was still a “question around quite what the shape of those financial obligations were” if the UK left with no deal, and that the UK “always pays its dues”. Similarly, Chancellor Philip Hammond is reported to have told Cabinet that the EU could have a strong legal case for demanding payments under international law.

33 However, even if no such inspections are carried out at the Irish border, they would still have to take place at sea ports taking in UK exports like Dublin, Dunkirk, Rotterdam and Zeebrugge. While it might technically be possible to avoid the controls by moving goods to Northern Ireland, then into Ireland and onward to other EU Member States, it is not feasible for UK exporters to avoid controls on any meaningful scale by re-routing their trade in this way, given the limited capacity on this trade route across the Irish Sea and from Ireland to the continent.

34 Department for Transport, Contract Award Notice for shipping operations 2018/S 249–575971 (accessed 4 January 2019).

35 The separation provisions in the Withdrawal Agreement govern for example the grandfathering of mutually-recognised professional qualifications, exchange of information on historic VAT and customs matters, and the recognition of civil and commercial judgements rendered before the UK leaves the EU.

36 On 15 January 2019, the UK’s Farming Roundtable said a “no deal Brexit must be avoided at all costs”.

37 When the previous Commission Communication on the EU’s ‘no deal’ preparations was published in mid-November 2018, the Department for Exiting the European Union did not provide an Explanatory Memorandum on the document within the normal timeframe of the parliamentary scrutiny process of EU affairs. It eventually produced one on 19 December 2018, the day of our last meeting before the Christmas recess. We had by that point already taken the unusual step of considering the Commission document and its implications for the UK without a Government Memorandum, and reported our findings to the House on 18 December.

38 European Research Infrastructure Consortia (ERICs) are organisations established under EU law to deliver major international science and research collaborations. Their headquarters must be in an EU Member State or an ‘associated country’. There are currently 20, of which two—Instruct ERIC on structural biology and the European Social Survey—are based in the UK. It is unclear if the UK could host ERICs for the duration of any post-Brexit transitional period until 31 December 2020. In the event of a ‘no deal’ the UK would also cease to be a member of ERICs in which it currently participates as there would be no legal agreement to govern its involvement.

39 The Galileo satellite navigation programme has ground infrastructure on the Falkland Islands and Ascension.

40 This preparedness measure also encompasses a number of Commission Implementing Regulations related to tariff rate quotas on agricultural products. These have not been listed separately.




Published: 29 January 2019