Transitional arrangements for exiting the European Union Contents

4. Design and governance issues

122.The operation of Article 50 and the priorities of the negotiating parties have implications for the design and governance of a ‘standstill’ transition. Professor Catherine Barnard, Professor of EU law at the University of Cambridge, noted that reaching agreement on a ‘standstill’ transitional arrangement that was consistent with the Government’s objective of leaving the EU on 30 March 2019 gave rise to “really quite difficult terrain legally and structurally”.160 Some of the design and governance issues on which the Committee received evidence are considered below.

Transition and the Withdrawal Agreement

123.The Prime Minister’s Florence Speech envisages that transitional arrangements will be “agreed under Article 50”, meaning that they would form part of the Withdrawal Agreement, agreed by a qualified majority vote in the Council, and ratified by the European Parliament.161 The Article 50 negotiating directives also imply that transitional arrangements will be agreed within the Article 50 process, and state that “article 50 […] confers on the Union an exceptional horizontal competence to cover in this agreement all matters necessary to arrange the withdrawal”.162

124.Using Article 50 and the Withdrawal Agreement as the basis for transitional arrangements is important if it is to be negotiated quickly, since an agreement reached under a different legal basis could be classified as a mixed agreement, and require approval in the national legislatures of each EU Member State. However, some commentators have raised concerns that a ‘standstill’ transitional arrangement might exceed the EU’s competence under Article 50, such that it could not be negotiated as part of the Withdrawal Agreement.163 Were the ECJ, on referral from a Member State, the Commission, the Council or the European Parliament, to find that the Agreement exceeded the EU’s competence, it “may not enter into force unless it is amended or the Treaties are revised”.164

125.Professor Kenneth Armstrong, Director of the Centre for European Legal Studies at the University of Cambridge, wrote that “the more substantive and forward-looking that an Article 50 transitional agreement becomes, the greater the legal risk that it could be considered to be outside the limits of the Union’s competence under Article 50”.165

126.Professor Barnard told the Committee that if transition is to be agreed under Article 50, “it is going to have to be short and sharp”,166 but considered that it provided an adequate legal basis for ‘standstill’ transitional arrangements:167

Even though Article 50 makes no reference to transition, Article 49 on accession makes no reference to transition and yet it is standard practice to have transitional arrangements there. If you have transition for a soft entry, surely you can have transition for a soft exit.

127.Professor Sir Alan Dashwood QC, a barrister at Henderson Chambers and former Director in the Legal Service of the Council of the European Union, agreed that Article 50 did not represent “any impediment to a transitional deal”.168 He described two means by which ‘standstill’ transition could be incorporated into the Withdrawal Agreement:169

128.Professor Dashwood also noted the possibility of delaying the entry into force of the Withdrawal Agreement, meaning that the UK would “effectively continue to be a Member State of the Union” for the period of transition.173 Professor Barnard added that “extension of the two-year period” was another means of achieving a ‘standstill’ transition, although she noted that this would be “the least politically palatable” option.174

129.In written evidence, the UK Trade Policy Observatory was sceptical about the possibility of negotiating any kind of arrangement, and wrote that “transition needs to involve extending Article 50”.175 It added that:176

negotiating a bespoke transition that replicates such access [to EU markets] will be nearly as complex as negotiating full Brexit. So complex, in fact, that it looks more or less impossible.

Transition and UK law

130.Once it is agreed between the negotiating parties, the Withdrawal Agreement—including any transitional arrangements—must be given effect in UK law through the legislation. The Government has said that this will occur through Withdrawal Agreement and Implementation Bill, which will enshrine the Withdrawal Agreement in domestic primary legislation.177

131.It is not yet clear whether the Bill would make provision for the EU law that applies in the UK during transition to have direct effect and supremacy. Professor Barnard thought that:178

They [the EU27] will still require us to give effect to doctrines of direct effect and supremacy. That then raises interesting legal issues about how we deliver that because […] there is a question about how we disinter the turning off of direct effect and supremacy. That is quite a lot of negatives but we will have turned off direct effect and supremacy by repealing the European Communities Act and then we will have to turn them back on in some way.

132.Professor Dashwood said that the transition arrangements would not “necessarily have to entail switching on direct effect and primacy again”, adding that:179

a solution that is satisfactory, perhaps not ideologically but substantively, would be to […] apply the EFTA solution again here because the rules which the EFTA Surveillance Authority and the EFTA Court have to apply under the EEA agreement are the same ones as we would be seeking to extend the application of, at least so far as concerns the economic aspect of the package.180

133.Sir Ivan Rogers said that Professor Dashwood’s solution was “eminently rational”, but that it would lead to an “extremely complex negotiation inside the 27” that would not be conducive to a quick agreement on transition.181

134.In written evidence, Professor Armstrong set out two options for implementing transition in UK law, both of which would preserve the principles of direct effect and supremacy:

He added that “replicating the known constitutional device of the 1972 Act would likely be acceptable to the EU”.184

Scope and ambit

135.The reference in the negotiating guidelines to a prolongation of the acquis implies that transition will encompass not just EU law pertaining to the Single Market and Customs Union, but other areas, such as agriculture, fisheries, the environment, and justice and home affairs. Sir Ivan told the Committee that there could be “quite a difficult discussion inside the Government as to the scope and the ambit and the meaning of transition and what that does and does not permit you to do over the transitional period”.185

136.Discussing the scope of transition on 26 October 2017, the Secretary of State for Exiting the European Union told the Exiting the EU Committee that “I would expect all of the security and home affairs issues to continue [during transition]”.186 On the question of fisheries, he said that this was “a negotiating issue […] we have not come to a policy conclusion on that”.187

The role of the ECJ

137.In her Lancaster House speech in January 2017, the Prime Minister said that, on leaving the EU, the jurisdiction of the ECJ in the UK will “end”, and that “our laws will be interpreted by judges not in Luxembourg but in courts across this country”.188 The Government’s Future Partnership paper on enforcement and dispute resolution refers to “bring[ing] about an end to the direct jurisdiction of the Court of Justice of the European Union” (ECJ).189

138.However, the Government has indicated that it is prepared to be more flexible about the role of the ECJ during transition. Asked whether the UK “would accept the jurisdiction of the ECJ” during transition, the Secretary of State for Exiting the European Union told the Exiting the EU Committee on 25 October:190

certainly initially, yes […] by the end of it, we would want to be under alternative arrangements in terms of international arbitration, but that is something we would need to talk to the Commission about.

139.The Prime Minister told the House that during the implementation period:191

we [may] start off with the ECJ still governing the rules we are part of for that period, but we are also clear that we can bring forward discussions and agreements on issues such as a dispute resolution mechanism. If we can bring that forward at an earlier stage, we would wish to do so.

Dealing with new law

140.Professor Barnard told the Committee that it was “very likely that they [the EU27] will insist […] that we carry on accepting all of the EU rules that are adopted between 29 March 2019 and 2021”.192

141.The Government has not ruled out accepting new law during transition, on the grounds that it is unlikely that any EU legislation would enter force in the two-year period after March 2019 that the UK had not had the opportunity to influence as an EU Member State. The Prime Minister told the House that:193

Any new rules put on the table during the implementation period, given the way these things operate, are highly unlikely to be implemented during the implementation period.

EU agreements with third countries

142.The EU has signed free trade agreements with over 60 countries, and several hundred further agreements covering external commercial relations.194 On leaving the EU, in the absence of any negotiation, the UK will no longer be a party to these agreements. The Chancellor told the Committee that, in relation to the free trade agreements signed by the EU:

our planning expectation is that on day one after our exit from the European Union, we will have in place interim agreements with those third countries that the EU currently has trade agreements with that are effectively copy-outs of the EU-third country agreement, but as a UK-third country agreement.

He added that “this isn’t really a subject of negotiation, because we will simply take the EU agreement in its entirety, so that we have a patch, as it were, for day one”.195

143.Witnesses to the International Trade Committee agreed that extending the application of existing agreements for a transitional period, while freestanding trade agreements were negotiated, was a desirable approach, but noted potential difficulties, both practical and political, in doing so.196 In written evidence to the Treasury Committee, the UK Trade Policy Observatory noted that preserving market access on existing terms would require an agreement on “diagonal cumulation”.197 Their submission stated that “achieving such ‘diagonal cumulation’ is extremely unlikely”.198

Conclusions

144.An agreement between the UK and EU27 on transitional arrangements is now urgent. In his evidence to the Committee, the Chancellor argued that:

a transition arrangement is a wasting asset. It has a value today; it will still have a very high value at Christmas and early in the New Year. But as we move through 2018, its value to everybody will diminish significantly. Our European partners need to think very carefully about the need for speed in order to protect the potential value to all of us of having an interim period that protects our businesses and our citizens and allows investment and normal business activity.

The Committee supports this view.

145.In her Florence Speech on 22 September 2017, the Prime Minister outlined the Government’s objectives for a transitional deal, namely that: “people, businesses and public services should only have to plan for one set of changes in the relationship between the UK and the EU”; that “during the implementation period access to one another’s markets should continue on current terms”; that there should be a “strictly time-limited period” under “the existing structure of EU rules and regulations”; and that “how long the period is should be determined simply by how long it will take to prepare and implement the new processes and new systems that will underpin that future partnership”. If an agreement on these terms can be reached quickly, the Committee believes that such an arrangement will give people, businesses and public services the certainty they need to plan for the future and will also mitigate against the risk of a regulatory ‘cliff edge’ occurring during talks on the UK’s future relationship with the EU.

146.The operation of Article 50, the objectives of the negotiating parties, and the imperative for an early agreement, all constrain and condition the design and governance of transitional arrangements. In particular, the ‘standstill’ transition period must be sufficiently simple to negotiate within a matter of weeks. It must be consistent with the referendum result, in the sense that the UK should no longer be a Member State of the EU. It must also address concerns among the EU27 about preserving a balance of rights and obligations.

147.The Government has taken a pragmatic approach so far. It has accepted that the ECJ’s jurisdiction may continue; that the ambit of the arrangements may extend beyond EU law relating to the Single Market and Customs Union; and that the UK may follow new EU law implemented during transition.

148.The precise scope of transition, and whether the principles of direct effect and supremacy will continue to apply to the EU, are questions the Government has yet fully to address. The best outcome would be for transition to apply only to EU law pertaining to the Single Market and Customs Union, and for the transitional arrangements, along with the rest of the Withdrawal Agreement, to be implemented using domestic legal concepts, rather than in a way that retains the principles of direct effect and supremacy in the UK’s legal order.

149.But the best must not be the enemy of the good. The costs arising from the deferment, on a strictly temporary basis, of the repatriation of domestic powers to alter EU law, are outweighed by the economic benefits of avoiding a sudden reversion to WTO rules. The Government should not rule out a transition arrangement that encompasses EU rules beyond those pertaining to the Single Market and Customs Union, and retains, on a temporary basis, the principles of direct effect and supremacy, if that expedites the negotiations. Visible disagreement between the parties on points of principle would lead to a loss of confidence among businesses, and diminish the value of whatever is eventually negotiated. To prevent the arrangements becoming a ‘transition to nowhere’, and to address legitimate concerns over sovereignty, the Committee recommends that any transition should be capable of being unilaterally terminated by either side. Termination on the UK’s part should be subject to the approval of Parliament.

150.The two options presented by legal experts from whom the Committee heard—either to append relevant Treaty provisions to the Withdrawal Agreement, or for the Agreement to specify which provisions will continue to apply—are both reasonable ways of giving effect to ‘standstill’ transition. The other options available for the preservation of the ‘status quo’—the extension of the Article 50 period or the delaying of the entry into force of the Withdrawal Agreement—are not compatible with the Government’s objective of leaving the EU on 30 March 2019.

151.A core purpose of transitional arrangements is to allow planning for the UK’s future outside the EU to take place in an environment of stability and certainty. Given that the EU has exercised exclusive competence over trade policy for over 40 years, a key aspect of that planning is for the UK to establish independent trade relationships, both with countries which have an existing trade agreement with the EU and with those which do not. Notwithstanding that no trade agreements can enter force until the transition period has come to an end, nothing in the Withdrawal Agreement should prevent the UK from undertaking this work.


160 Q41

161 Prime Minister’s Florence speech, 22 September 2017

163 See, for instance, The Guardian, European parliaments ‘could get vote on transitional Brexit deal’, 26 April 2017

165 Professor Kenneth Armstrong (EUN0006), p.1

166 Q3

167 Q36

168 Q36

169 Q36

170 Professor Kenneth Armstrong (EUN0006), para 18

171 Professor Kenneth Armstrong (EUN0006), para 23

172 Professor Kenneth Armstrong (EUN0006), para 24

173 Q36

174 Q36

175 UK Trade Policy Observatory (EUN0004), para 1.1

176 UK Trade Policy Observatory (EUN0004), para 1.2

177 HC Deb 21 November 2017 col 977

178 Q44

179 Q63

180 Professor Dashwood provided further detail of the “EFTA solution”, as a model for the UK’s long-term relationship with the EU, in written evidence to the Committee (EUN0003, Para 16), which involves the UK accepting “the jurisdiction of supranational (but not EU) institutions like the EFTA Surveillance Authority and the EFTA Court”. The EEA Agreement provides for an extension of the Single Market to the EFTA states of Iceland, Liechtenstein and Norway (the EEA EFTA states). The EFTA Surveillance Authority and EFTA Court perform analogous functions to the European Commission and ECJ: namely, they monitor compliance with, interpret and enforce the rules of the EEA Agreement in the EEA EFTA states. The concepts of direct effect and supremacy do not apply in the same way to EEA EFTA States as they do to EU Member States.

181 Q63

182 Professor Kenneth Armstrong (EUN0006), para 38

183 Professor Kenneth Armstrong (EUN0006), para 39

184 Professor Kenneth Armstrong (EUN0006), para 40

185 Q64

188 The Government’s negotiating objectives for exiting the EU, speech by the Prime Minister at Lancaster House, 17 January 2017

191 HC Deb 9 October 2017 col 53

192 Q44

193 HC Deb 9 October 2017 col 53

194 See, for instance, the Treaties Office Database of the European External Action Service

196 Oral evidence taken before the International Trade Committee, 15 November 2017, HC 520-ii: Q14, Philippe De Baere: […] I am not saying that there would not be an interest in having a cut and paste, I am just saying that it is very difficult to do it in practice. You cannot just copy/paste the agreement. All the provisions will have to be gone through. For instance, in the agreement with Korea there is a reference to the protection of geographical indications of origin, which are identified by reference to the EU legislation on geographical indications of origin, which, after Brexit, will no longer apply. There has to be a substitute in the agreement for that. There are numerous examples of that.
Q12, Andrew Hood: In all of this there is some interest in countries on the other side who will want to have as much continuity in trade as possible, but the question is: what is their interest in doing so and where does the balance lie? In some cases, that may lie in agreeing to a rollover with all the technical changes that may have to come with that. In others they may say, “We would also quite like to just look at these one or two areas”. In others, it may be a more wholesale change they would like to see.

197 Diagonal cumulation arrangements allow originating inputs from each country within the arrangement to ‘count’ as originating inputs in the other countries. For instance, if both the UK and EU have (separate) trade deals with South Korea, a UK producer could import a South Korean product, and export it to the EU (with or without changing or adding value to it), and it would be treated by the EU as if it were of UK origin (and thereby qualify for any preferential tariffs under a UK-EU trade agreement).

198 UK Trade Policy Observatory (EUN0004), para 1.6




13 December 2017