7.Under Article 50, the European Union Treaties will cease to apply to the UK on 29 March 2019, at which point the UK will become a “third country” vis-à-vis the EU. This means that, firstly, the UK will no longer be able to rely on a variety of public policy functions currently exercised wholly or partially by the EU (e.g. trade policy; state aid investigations; issuance of licences to airlines based abroad). This requires additional resources and infrastructure. Similarly, the Government has to convert all EU law into UK law, ready to take effect when the former ceases to apply, i.e. on 29 March 2019.
8.Secondly, as soon as it becomes a “third country” vis-à-vis the EU, the UK will have a fundamentally different relationship with the Union. This change will be most substantial for matters of trade. Within the EU’s internal market, there is an underlying principle of mutual recognition (especially for trade in goods), underpinned by statutory harmonisation on matters such as tariffs, VAT and regulatory standards. These structures are backed up by extensive powers for the European Commission and the European Court of Justice to monitor and enforce compliance with EU law. Mutual recognition, where it applies, allows goods and services produced or offered in one EU country to be sold in any other, without the need for the business to establish a separate legal entity in other Member States and — where goods are concerned — without customs and regulatory controls taking place at intra-EU borders.
9.When the UK leaves the EU, it will cease to have an obligation to implement EU law, and no longer be subject to the powers of the Commission or Court. Any goods exported to the EU would have to meet EU standards, with compliance subject to customs and regulatory controls when they enter the Union’s territory. Individual Member States have more leeway to permit, ban and regulate cross-border provision of services from non-EU countries since free movement of services is more complex and less developed within the EU than is the case with goods.
10.The impact of that shift to third country status would be that as a result of leaving the Customs Union, the UK and the EU will have to establish customs controls on goods going in either direction to collect customs tariffs and, in the future, apply rules of origin under any free trade agreement that may be negotiated and collect import VAT, since the UK will have left the EU’s common VAT system that allows VAT to be collected on cross-border purchases without border controls.
11.As a result of leaving the Single Market, broadly speaking, the UK will no longer benefit from the automatic recognition of its regulatory frameworks for goods and services by the remaining Member States. This in turn means that border controls on movements of goods (e.g. product safety checks for food, pharmaceuticals, chemicals and cars) will have to be reimposed unless there is mutual recognition of standards and/or of conformity assessment. Similarly, providers of services which are subject to Single Market legislation will lose their automatic ability to provide such services across the EU from a UK base, with ability to provide services cross-border instead of being determined on a case-by-case basis based on the legislation of the Member State of the customer.
12.To avoid these consequences, early in the negotiation process, the Prime Minister made it clear that she wished to seek a transitional arrangement.2 Negotiations on this began on 5 February 2018, with the aim of concluding before the European Council on 22-23 March. The period during which this arrangement would last has been referred to variously as a transition or implementation period. In this Report we generally refer to it as the implementation period.
13.It is fundamental in these negotiations that nothing is agreed until everything is agreed. We note the Secretary of State for Exiting the European Union’s comment that
It is always possible—highly improbable, let me be plain, but always possible—that the deal will come apart at the end, for some wholly unpredictable reason. You have to be ready. A responsible Government have to be ready for that outcome as a matter of good practice.3
14.However, the European Commission have adopted a unilateral approach and in February 2018 produced a draft legal text for the transitional arrangement, based on guidelines provided by the European Council in December 20174 and more detailed ‘negotiating directives’ by the General Affairs Council in January 2018. A discussion paper produced by the Government later that month effectively confirmed that the UK has accepted most of the EU’s propositions, while seeking modifications in specific areas. In relation to the European Council’s initial guidelines in April 2017, it is to be noted that they are proposing requirements on the UK which may not be wholly consistent with the UK’s rights under Article 50.
15.During the implementation period the UK accepts that it will in principle continue to be bound by EU law as if it were still a Member State, including new EU legislation which only takes effect during this time.5 Effectively, “the United Kingdom will continue to participate in the Customs Union and the Single Market (with all four freedoms6) during the transition”, as well as Euratom. Moreover:
16.We understand the Government’s desire for a transitional arrangement post March 2019. In this chapter we examine some of the issues which have yet to be resolved in this part of the withdrawal negotiations.
17.The European Commission’s final negotiating mandate for a transitional arrangement would allow the UK to send a representative to a meeting of expert groups and Comitology committees of the European Commission (or analogous committees within the EU’s agencies) at the EU’s explicit invitation, where UK attendance was considered necessary if one of two conditions was met:
18.We note, however, that there would be no generalised right to act as an observer or even to be consulted, and the UK would not have a vote where it was invited to attend. In addition, the exemptions would not apply to other EU bodies such as meetings of the Council or its working parties.
19.Subject to the condition that “Nothing is agreed until everything is agreed”, in principle, all EU law that takes effect during the implementation period will also have to be applied in the UK (even if it is adopted after the Government loses its seat on the Council of the EU). If the UK could effectively “freeze” the acquis as it applies on 29 March 2019 but retain access to the Single Market as if it were a Member State during the implementation period, it could in theory seek to gain a competitive advantage as it would not have to apply new regulations (an option not available to the remaining Member States).
20.When the Government published its proposals for the transitional arrangement in February, they included a safeguard mechanism embedded in a UK/EU Joint Committee. Among the specific tasks the Government proposes for this Committee are that it should:
consider (at the request of one or both of the parties) and if necessary take a decision concerning any of the following matters:
(a) determining whether new acts are within the scope of this Part;
(b) determining whether any further adaptations to new acts are necessary;
(c) resolving any other issues concerning the proper functioning of this Part.
In relation to (c) above, if the matter cannot be resolved, the Joint Committee should be tasked with examining all further possibilities to maintain the proper functioning of this Part and taking any decision necessary to this effect (within a specified period of time).8
21.The crucial element of the Government’s proposal for a UK-EU Joint Committee would be its power to decide that new EU legislation did not fall within the scope of the transitional arrangements (and would therefore not have to be applied in the UK), and to resolve “any other issues concerning the proper functioning of this Part”. This would include cases where the UK accepts that new EU legislation does fall within the scope of the transitional arrangements, but objects to its substance.
22.The Government’s text for the operation of this mechanism under the transitional arrangement is very vague, and does not make clear whether the UK is seeking a similar unilateral right to that under the EEA Agreement to refuse to implement new EU law.
23.By contrast, the European Commission draft for the Withdrawal Agreement, in article 165, provides that the EU could unilaterally “suspend certain benefits deriving for the United Kingdom from participation in the internal market” if the UK—in the EU’s view—has not “fulfilled” its obligations under a judgement from the Court of Justice (either as a result of an infringement procedure under article 258 TFEU or an order for interim measures under article 279 TFEU).9 The mechanism by which the EU would take such a ‘suspension’ decision is not described.10 This is in addition to a general “non-compliance” mechanism, under article 163, which allows both the UK and the EU to suspend parts of the Withdrawal Agreement if the Court of Justice makes a finding of non-compliance against the other Party.
24.When we asked the Chancellor of the Exchequer about the issue of new EU legislation during the implementation period, he assured us that “we have very good visibility of the pipeline of potential legislation, and, in this case, the relatively slow pace at which the EU sausage machine grinds works in our favour”.11 He considered it “quite unlikely that we will be presented with legislative proposals that come into force during the intended implementation period, and of which we are completely unsighted”. Nevertheless, he went on to say that:
One issue that we are seeking to clarify for the implementation period is a good-faith assurance that short-cut processes won’t be adopted to fast-track legislation that would clearly be discriminatory against us during this period. That I think is the only real, serious risk faced, and we think that the current duty of sincere co-operation would preclude such a course of action.12
25.We discuss the role of the CJEU in dispute resolution during the implementation period in chapter 5 below.
26.If the European Council were to succeed in its proposals, then during the implementation period, the UK would be under a legal obligation to continue applying EU law as if it were still a Member State. That includes legislation currently being negotiated, while the UK is still a member of the Council. However, it is questionable how strong the UK’s influence within the Council will be as the date of EU exit comes closer, which could lead to an increase in new legislation it has to implement during the transitional arrangements that the Government did not support (especially in instances where it can be outvoted under QMV).
27.New EU legislation during the implementation period will broadly fall into two categories:
28.Firstly, there is the question of EU legislation proposed before the UK’s exit, including proposals the Committee currently has under scrutiny. There will be two categories:
a)proposals which are adopted before 29 March 2019, over which the UK can exercise its full rights as a Member State (including a Qualified Majority Vote in the Council); and
b)proposals which the UK discussed within the Council of Ministers before its EU exit on 29 March 2019, but which have not yet been formally adopted by that point. These could then subsequently be adopted by the other Member States, whether or not the UK would have voted against them had it remained a Member State.13
29.We are concerned about the manner in which legislation is made behind closed doors and by consensus within the Council of Ministers, and our predecessor committee strongly objected to this in its report following its inquiry in 2016.14
30.As noted, the Government has addressed this by saying these laws would have been “drafted” while the UK was a Member State and the UK would have had “a say” in their formulation or been “sighted” of their contents. However, that in itself of course does not provide any reassurance that the UK’s position on each proposal was taken into account.15 For example, new EU legislation currently under consideration, but which is likely to be formally adopted or take effect during the implementation period includes:
31.There are similar examples of proposed EU legislation currently making its way through the legislative process in Brussels in many other areas, including intellectual property, agriculture, waste and the ‘Digital Single Market’. If these are adopted and take effect during the implementation period, the UK would have to implement them for the duration of the transitional arrangements. This could potentially be the case in areas such as tax where the UK currently has a veto.
32.According to the EurLex legislative database, there are currently 314 legislative proposals on which discussions are “on-going” (this excludes certain types of proposals, for example those relating to the ratification of international agreements, but includes proposals on which negotiations have effectively stalled).20 As of 27 February 2018, there were already 37 discrete pieces of EU legislation which have already been adopted but will not take effect until the implementation period.21
33.Secondly, there will be EU legislation which is proposed and becomes applicable during the implementation period, when the UK would have had no formal say at all. This will include EU tertiary legislation (i.e. the EU equivalent to subordinate legislation) which take far less time to be agreed, but would nonetheless be legally binding on the UK. Tertiary EU legislation is used for example in financial services law to set regulatory or technical standards. It is also used for important decisions in other areas, such as the fisheries discard plans.
34.Since the 2009 Lisbon Treaty, most EU tertiary legislation takes the form of delegated or implementing acts22 adopted by the European Commission under powers conferred onto it by secondary EU legislation (i.e. Directives and Regulations adopted by the Council and the European Parliament).
35.Implementing acts typically need to be endorsed by a qualified majority of the Member States in the so-called ‘Comitology’ committees. Delegated acts can be rejected by the European Parliament or by the Member States in the Council but automatically enter into force if they are not rejected (similar to the negative procedure in the House of Commons). Moreover, in certain cases, the Member States in the Council can also adopt tertiary legislation themselves (primarily in the field of foreign policy sanctions). Tertiary legislation usually takes effect within two or three months of the legal text being published by the Commission.
36.The number of tertiary acts which will take effect during the implementation period will be substantial. For example, in the period between the triggering of Article 50 on 29 March last year and 27 February 2018, over 2,000 pieces of EU legislation took effect. Some of these will be Directives and Regulations scrutinised by this Committee and voted on by the Government in Council. However, approximately half (1,078) were tertiary legislative acts which take effect very shortly after they are formally proposed.23 For example, according to the Register of Delegated Acts, 119 delegated acts were proposed by the European Commission in the last three months alone.24 We have already expressed our concern about the manner in which European legislation is effected by the Council.
37.The substance of much of this tertiary legislation will be technical, routine or straightforward, such as:
38.However, much could be substantial in nature. At present, the UK often has a weighted vote on EU delegated and implementing acts which allows it to block measures with sufficient support from other Member States. That will no longer be the case during the transitional arrangements.
39.In addition, there will also be more high-profile proposals for secondary legislation (i.e. Directives or Regulations) in the coming weeks, as the current European Commission finalises its legislative agenda before a new Commission is appointed in 2019. As the Government has not settled on a fixed length for the implementation period, it follows that the longer the transition, the larger the volume of new secondary EU law that would need to be implemented by the UK after Brexit.
40.The duration of the implementation period is part of the negotiations. The Government has not wanted to be pinned down on the exact length of the period. In September 2017, the Prime Minister stated it should be “around two years” (i.e. March 2019 to March 2021). At the Liaison Committee meeting on 20 December 2017, she said that the length would be a matter for discussion “because this is a practical issue about how long certain changes would need to take to be put in place”.25 For their part, the European Council has said it should be “limited in time”, and the European Commission has proposed that means it should end by 31 December 2020, to coincide with the end of the EU’s long-term budget (the 2014–2020 Multiannual Financial Framework).
41.As we concluded in our Report on the 2018 EU budget, to extend the implementation period beyond that date could require an additional financial settlement as the UK would be taking on a share of EU expenditure commitments beyond those covered by the financial settlement announced on 8 December 2017.26 This is the logical implication of the EU’s negotiating position, namely that during the implementation period all “budgetary instruments” continue to apply. However, the Chancellor of the Exchequer told us that:
We are clear that if there were a question about extending the implementation period beyond the end of the MFF, that could not be by way of Britain’s participating in the next MFF. That would create all sorts of potential problems and, conceivably, long-tail liabilities, which we would not be prepared to take on. If we were to entertain that possibility—we have not responded to the Commission’s proposal that 31 December 2020 should be the end of the implementation period—of an extension into the next MFF, that would be on the basis of a negotiated arrangement about any financial implications of that. It would not be by way of the UK’s adhering to and participating in the next MFF.27
42.The exact financial implications of an implementation period lasting beyond 31 December 2020 are therefore, in the Government’s view, a matter for negotiation.
43.The Chancellor also told us that both the Government and the EU believe that the implementation period “would have to be fixed and that there would be no appetite for an open-ended period”.28 He added that the Government “have no plans to make provision for extension”.29 Nevertheless, it is possible to foresee circumstances where an extension of the transitional arrangement may be considered necessary; for example, if there is no UK-EU free trade agreement which can be fully in force by the envisaged end date of the transitional arrangement to cushion the impact of the UK’s becoming a third country vis-à-vis the Single Market.
44.Early termination of the transitional arrangement in whole or part might also be considered in certain scenarios; for example,
45.It is not clear how early termination of the transitional agreement could be brought about. In the absence of a successor trade agreement, early termination would inevitably trigger the consequences of the UK becoming a “third country”. In addition, it might have consequences for the elements of the Withdrawal Agreement on the “phase 1” issues, for example the financial settlement if the UK withdrew from participation in EU funding programmes before the end of 2020.
46.The transitional arrangement means that no assumptions can be made during the pre-Brexit period about the post-Brexit application of draft legislation. We therefore recognise that there is a continuing need for effective scrutiny by Parliament and of close engagement by Government in the decision-making processes. Post-Brexit, if the transitional arrangement is implemented as described in the European Council and Commission papers, it would require continued intensive scrutiny of EU affairs by Parliament.
47.The exercise of scrutiny during such a period would be complicated by the fact that the UK would no longer be represented on the Council during the transition, meaning that the Government could not supply Parliament in the form of ourselves and the Lords EU Committee with updates on the Council’s internal deliberations as it does now. Nor could it present amendments to Commission proposals, or vote against or veto new legislation. The scrutiny reserve (under which the Government undertakes not to vote on documents still under consideration by this Committee) would become ‘toothless’, because we could no longer require the Government to abstain on a proposal, given that the UK would not have a vote in the first place.
48.It is likely that both Houses of Parliament will lose their ability to issue Reasoned Opinions to the European Commission, at least for the purposes of Protocol 2 of the Lisbon Treaty.31 Any Reasoned Opinions issued by either House would not count towards the threshold triggering reconsideration or withdrawal of a new legislative proposal.
49.Given the UK’s loss of influence within the EU institutions, it would be more pressing for Parliament to monitor developments at EU-level and to assess their implications for the UK. Additional efforts would be necessary to ensure that Parliament could effectively scrutinise EU policy-making from a “third country” position. The European Affairs Committees of the Norwegian and Swiss Parliaments may offer useful precedents for how it could be handled.
50.We support the Government in its efforts to seek greater rights of representation on EU committees during the implementation period.
51.More information is needed about the Government’s proposals for the Joint Committee during the transitional arrangement. In particular, we consider that greater detail is required on what unilateral safeguards would be available to the UK if it had to apply new EU law which it considered to be detrimental. The need for such safeguards will become more pressing the longer the actual length of the implementation period. We support the Government’s intention to seek assurances that new legislation would not be fast-tracked to the detriment of the UK during any transition period and ask how this could be contemplated given the repeal of the European Communities Act 1972 in the House of Commons.
52.We ask the Government to demonstrate how the Joint Committee will ensure a high level of transparency and accountability.
53.We also ask the Government to explain how the Joint Committee would deal with the large amounts of tertiary EU legislation which the UK would have to implement during the transition, given that the time between publication and entry into force of such acts is usually only a few months. This should include not only the manner in which these would be dealt with in the Joint Committee under the Withdrawal Agreement, but also how Parliament would be given a meaningful opportunity for scrutiny of these measures when it can no longer rely on the Government’s representatives to vote on these measures in the Comitology system and the Council.
54.The possibility of either an extension or an early termination of the implementation period raises the important question of how such a change would be triggered, including whether either step would require an Act of Parliament in the UK. We ask the Government to explain how legal provision could be made for early termination or extension of the transitional arrangement.
55.We will closely follow the financial provisions of the Withdrawal Agreement with respect to the UK’s obligations—if any—under the next Multiannual Financial Framework. We note that the Chancellor explicitly told us that such “financial implications” above and beyond the estimated £35 to £39 billion cost of the financial settlement agreement with the European Commission last December, are a possibility.32
56.We also note that the UK’s exclusion from the EU budget from 1 January 2021 would have knock-on effects on the transitional arrangement more generally, as it presupposes that alternative arrangements are in place by that date on areas of cooperation with the EU that require administrative arrangements and a financial contribution (for example with respect to the UK’s contributions to the administrative costs of the EU agencies, or the UK’s continued participation in EU-funded programmes, like the next Framework Programme for Research or the European Defence Fund).
57.We ask the Government to clarify if it is indeed its intention to have the various agreements necessary to be able to extricate itself from the EU budget in place by the end of 2020, thereby avoiding any interruption to the UK’s ‘standstill’ transition in EU market access terms and its participation in specific EU-funded programmes from January 2021 onwards.
58.We recommend that the Government engage in dialogue with us and our counterparts in the House of Lords on how parliamentary scrutiny of EU legislation may best be achieved during the transition period.
59.Further, we recommend that the Government seek to create a mechanism which amounts to an opt out during the implementation period for any new EU law which requires unanimity amongst the Member States.
60.We note the Secretary of State for Exiting the European Union’s position that to prepare for circumstances in which transition provisions were not to be effective on 30 March 2019 would be the act of a responsible Government, and we urge the Government to act responsibly by continuing actively to prepare border and other arrangements for the possibility of no deal having been reached and adopted by 30 March 2019 and make sure the necessary resources are available to do so.
2 In her Lancaster House speech of 17 January 2017, the Prime Minister said: “We believe a phased process of implementation, in which both Britain and the EU institutions and member states prepare for the new arrangements that will exist between us, will be in our mutual self-interest. This will give businesses enough time to plan and prepare for those new arrangements.”
4 The European Council of 27 adopted its initial guidelines for the Brexit negotiations in April 2017. It also included a single paragraph on a possible transition period: “To the extent necessary and legally possible, the negotiations may also seek to determine transitional arrangements which are in the interest of the Union and, as appropriate, to provide for bridges towards the foreseeable framework for the future relationship in the light of the progress made. Any such transitional arrangements must be clearly defined, limited in time, and subject to effective enforcement mechanisms. Should a time-limited prolongation of Union acquis be considered, this would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply.”
5 However, new non-amending JHA measures would not apply to the UK. It would only retain the right to opt into measures which amend an existing measure in which the UK already participates.
6 Goods, services, capital and workers.
7 Although the UK’s paper maintains the Commission proposal that “Union law (…) shall deploy in respect of and in the United Kingdom the same legal effects as those which it deploys within the Union”, but also states that “the UK also wishes to discuss the means by which Union law will apply to the UK during the Period, recognising that the UK will no longer be a Member State and its legislature will no longer be a national parliament of the EU”.
8 UK Government, Draft Text for Discussion: Implementation Period, 7 February 2018
9 Article 165 of the Withdrawal Agreement does not go as far as the Commission draft for the transition arrangement published two weeks prior, which included a footnote (on a safeguard mechanism saying that the EU should be allowed to “suspend certain benefits deriving for the United Kingdom from participation in the internal market where it considers that referring the matter to the Court of Justice of the European Union would not bring in appropriate time the necessary remedies” (our emphasis).
10 In an earlier Commission draft for the legal text of the transition, it included a footnote on a more draconian safeguard mechanism if the UK does not meet its obligations under the Withdrawal Agreement, including any decision not apply new EU law on the same basis as the remaining Member States. This would have allowed EU to shut the UK out of the parts of the Single Market for failure to respect its obligations on continued application of EU without needing a judgement from the Court of Justice first. At the time, Michel Barnier stated that was considered necessary “because in the case of a violation of European rules during the transition, our usual infringement procedures, which are applicable to all Member States today, risk taking too much time and will therefore not be operational to resolve any possible dispute between the UK and the EU during this very short period”.
13 An example of this was recently brought to the attention of the Committee: the Balance of Payments Facility Regulation. While its effects in the UK would be non-existent unless it sought macro-financial assistance from the EU during the transitional period, the Government blocked its adoption in 2013. The European Commission has recently stated it hopes to bring the new Regulation into law as a consequence of Brexit.
14 Second Report from the Committee, Session 2016–17, HC128, Transparency of decision-making in the Council of the European Union
15 Existing proposals to which the UK is opposed could be deferred until after March 2019 and then adopted when it loses its veto. For legislation subject to qualified majority voting, a blocking minority will be harder to achieve when the UK leaves given that the methodology is based in part on the population of the Member States opposing a measure.
16 See our Report of 21 February 2018 on prudential supervision of investment firms and our recent Banking Reform Report
17 See our Report of 22 November 2017
18 See our Report of 6 December 2017
19 See the Commission website
20 http://eur-lex.europa.eu/search.html?qid=1519744631816&LP_PENDING_FL=true&DTS_DOM=LEGAL_PROCEDURE&type=advanced&lang=en&SUBDOM_INIT=LEGAL_PROCEDURE&DTS_SUBDOM=LEGAL_PROCEDURE. The figure is arrived at by noting the COD, APP and CNS legislative procedures which are ‘on-going’.
21 http://eur-lex.europa.eu/search.html?qid=1519745196879&CASE_LAW_SUMMARY=false&DTS_DOM=ALL&type=advanced&lang=en&SUBDOM_INIT=ALL_ALL&date0=IF:30032019%7C31122020&DTS_SUBDOM=ALL_ALL
22 The exact delineation between ‘delegated’ and ‘implementing’ acts is an art, and not a science. Implementing acts help the Member States implement an EU law, for example by stipulating a harmonised format for a form or document required by EU law. Delegated acts supplement the secondary legislation from which they derive, for example by amending an Annex or other ‘non-essential’ elements of the legislation.
23 http://eur-lex.europa.eu/search.html?qid=1519810741924&CASE_LAW_SUMMARY=false&DTS_DOM=ALL&type=advanced&lang=en&SUBDOM_INIT=ALL_ALL&date0=IF:29032017%7C28022018&DTS_SUBDOM=LEGISLATION
24 https://webgate.ec.europa.eu/regdel/#/delegatedActs.
26 See our Report of 13 November 2017
30 This depends on whether there might be an EEA-style “right of reservation” to new EU legislation. See paragraph 103.
31 The Lisbon Treaty gives national parliaments a direct role in the EU’s legislative process. It provides that, if a third of national parliaments or their chambers present reasoned opinions objecting to an EU legislative proposal on the grounds that it does not comply with the principle of subsidiarity, the Commission (or other institution) would have to reconsider its proposal. (The principle of subsidiarity is that the European Union should act only if the objectives of a proposed action cannot be sufficiently achieved by the Member States and can be better achieved by the Union).
Published: 20 March 2018