Brexit White Paper Summary

Transcription

1 16 July 2018 Action: For information Prepared by: Patrick Brown, Economic Partnership Free Movement of Goods Arrangements 1. On the basis of the Chequers Agreement struck, the UK will leave the Single Market and Customs Union, but will seek to attain a new economic partnership with the EU. The main feature of this arrangement is a free trade area for goods, which enables avoidance of the return of a hard border between Northern Ireland and the Republic of Ireland, as well as avoiding delays to consignments of goods across the continent. It is here that the first potential flashpoint with EU negotiators will exist, since the negotiating guidelines that Michel Barnier the EU s chief Brexit negotiator, has from the European Council do not encompass differential treatment of the Four Freedoms (of goods, services, capital and people). Clearly, the approach offers some benefits for real estate in terms of industrial occupiers, retailers who transport goods to and from the continent and in respect of building materials in the construction supply chain. 2. One flaw is that it is difficult to separate trade in goods from trade in services (e.g. guarantees and maintenance contracts), and the White Paper does not mention how this issue is to be resolved. General Principles of Free Movement of Services 3. The new arrangements on services and digital will consist of cooperation in the following areas (although it is unclear from the White Paper if this an exhaustive list or not): 3.1. General provisions that minimise the introduction of discriminatory and non-discriminatory barriers to establishment, investment and cross-border provision of services 3.2. A system of mutual recognition of professional qualifications, which again helps to foster free movement of talent and the ability to provide services across the UK and EU. It also avoids issues relating to the 142,000 EU qualifications the UK has recognised since 1997 and responds to a specific request in the European Council s March 2018 Guidelines, but in so doing it goes beyond what existing trade agreements (with the Canada Europe Trade Agreement (CETA) representing the extreme) have sought to do. This makes this uncharted territory and strains at the brief that Barnier has been given to negotiate.

2 A new economic and regulatory arrangement for financial services This approach explicitly accepts current passporting arrangements will not be possible given that the UK is leaving the Single Market and accepts that the EU should decide on access by UK firms to the EU market. Yet it does argue that a third country equivalence regime will be insufficient to deal with markets that are as intertwined as those of the UK and EU. Given that neither the existing regime nor existing paradigms are deemed sufficient by the UK Government, the paper proposes a new economic and regulatory arrangement based on autonomy with regard to access to its market, and a bilateral framework of treaty-based commitments to underpin the operation of the relationship, ensure transparency and stability and promote cooperation. This would be based on expansion and enhancement of the existing autonomous frameworks for equivalence, with the existing regime of equivalence for third countries standing as the baseline or stopgap at the close of the Transitional Period. The White Paper details also an intention to seek to agree common heads of terms and objectives for the governance of the future equivalence relationship, presumably with the intention of ensuring that rules are not subverted for political ends and that there are suitable institutions to foster collaboration between the two regimes such as regulatory dialogue and supervisory cooperation. Disputes would be handled under separate arrangements we will come on to later in this document. Economic, Social and Environmental Governance 4. The UK s proposals include, with the intention of seeking reciprocation in most cases: 4.1. committing to a common rulebook on state aid, to be enforced and supervised in the UK by the Competition and Markets Authority (CMA). It is unclear whether this would extend to adoption of a continued or similar approach toward procurement as is currently observed for high value contracts (such as via the main tenets of the OJEU process); 4.2. maintaining current antitrust prohibitions and the merger control system with rigorous UK enforcement of competition law alongside strong cooperation with EU authorities; 4.3. committing to high regulatory environmental standards through a non-regression requirement; 4.4. maintaining high standards on climate change, noting the UK s world leading ambitions via the Climate Change Act 2008; 4.5. committing to high levels of social and employment protections through a non-regression requirement for domestic labour standards (and accompanying commitments to stay the course on the 25 year environmental strategy); and 4.6. committing to high levels of consumer protection an Air Transport Agreement which seeks to maintain reciprocal liberalised aviation access between and within the territory of the UK and the EU, alongside UK participation in EASA; 4.8. exploring options for road transport, including reciprocal access for UK and EU road hauliers and passenger transport operators; 4.9. close cooperation on maritime, including with the European Maritime Safety Agency (EMSA); bilateral rail agreements with relevant Member States to support the continued operation of services through the Channel Tunnel and on the Belfast-Dublin Enterprise line;

3 4.11. exploring options for our future energy relationship maintaining the Single Electricity Market (SEM) across the island of Ireland in any eventuality; a new civil nuclear relationship based on a comprehensive Nuclear Cooperation Agreement (NCA) between Euratom and the UK (which is pertinent for energy security of the UK as a whole); seeking to join the Lugano Convention, and exploring a new bilateral agreement with the EU on civil judicial cooperation, covering a coherent package of rules on jurisdiction, choice of jurisdiction, applicable law and recognition and enforcement of judgments in civil, commercial, insolvency and family matters (particularly pertinent for ensuring that there is clarity on cooperation between regimes in relevant cases, and what resources must be supplied); 5. At one point, there had been suggestions that the UK might reposition itself toward a maximum productivity standpoint in order to compete with the EU bloc, but this pledge appears to suggest that much of the UK s approach toward social and environmental governance will be maintained. Furthermore, it will be subject to additional scrutiny via the possibility of an independent body and procedures within Parliament. Free Movement of People (or not) 6. A standing objective of the Conservative Government has been to reduce net migration. The White Paper confirms the Government s intention to honour that objective and points to the future Immigration Bill as being subject to the will of Parliament. Yet: 6.1. We already know that UK citizens resident in other EU member states and non-uk EU citizens resident in the UK before the Transitional Period to enjoy their existing rights into the future, subject to obtaining approvals, and that individuals will be able to continue to move during the Transitional Period. However, there remains uncertainty about the ability of UK citizens overseas to move onward without losing their existing rights beyond the Transitional Period The precise details of the Immigration Bill will depend on the Migration Advisory Committee Report, due for publication in September, and to which the BPF contributed evidence. This leaves a significant degree of uncertainty as to whether construction workers from the continent will still be permitted to work in the UK easily post-brexit. 7. In the context of movement of professionals, the UK will seek a reciprocal arrangement with the EU, building on the WTO rules under the General Agreement on Trade in Services. Via this mechanism, the Government hopes to: 7.1. Preserve of the Common Travel Area between the UK and Ireland and Crown Dependencies; 7.2. Ensure continued movement of students and young people for study purposes, which is critical for the Purpose Built Student Accommodation Market; 7.3. Support businesses to provide services and move their talented people, on which the BPF received a clear signal that this was a priority for both real estate companies and corporate occupiers in talking to its membership

4 Digital 7.4. Permit leisure and temporary business travel throughout the EU without a visa (and presumably the associated costs) via a reciprocal arrangement and continued enjoyment of the EHIC regime. However, this will be dependent on other proposals within the White Paper for streamlined border arrangements and administrative procedures 8. The Government wishes to ensure the ability to continue to collect, share and process data to avoid economic damage stemming from inability to do so across European borders (and presumably to access the EU privacy shield with the US). This will involve: 8.1. Ensuring cross-border data flows, providing for the removal and prevention of barriers to the flow of data across borders; 8.2. protecting the free, open and secure internet, working with EU partners to lead the global effort to ensure that the internet is safe and open; and 8.3. recognising equivalent forms of electronic ID and authentication, ensuring that these are secure, trustworthy and easy to use across borders. 9. Clearly, obstructions to the above would pose issues for online retail and services provision across EU borders and so the Government is right to prioritise it as part of a trade deal. The free flow of data is also important for future developments in the sector and proptech. Trade Policy 10. Under the terms of the Free Trade Agreement, the UK will be clear to negotiate, sign and ratify its own trade agreements during the Transition Period, and for them to take effect from January The Government confirms its intention to be bold in their negotiations on free trade agreements in services, given that they do not feature as heavily in international trade agreements compared to trade in goods. The UK would also push for greater liberalisation of global services, financial services, investment and procurement markets and seek ambitious digital trade packages. 11. The Government estimates its proposals on trade in goods will mean that up to 96% of UK goods will pay the correct or no tariff upfront. Yet this very much depends on the proposal by the Government to mirror the EU s customs approach at its external border to ensure that goods bound for the EU pay the correct duties. Determining and distinguishing between goods and destinations poses a significant challenge, and one that some suggest has not been adequately explained by the Government. The Government proposals a solution in the White Paper whereby a good arriving at the border, where its ultimate destination cannot be proven, would pay the higher of the UK or the EU tariff. Yet we would expect that the tariff would accrue to the EU authorities or UK authorities respectively, and do not see that issue being solved by this proposal. 12. There is perhaps a logical inconsistency between the maintenance of EU customs arrangements at the border with the UK, and the pledge to avoid a hard border between Northern Ireland and the Republic of Ireland (with the presumption that this provides a backdoor through EU customs checks into the free trade area). In short, the issues that suffused the Customs White Paper issued some time ago seem to remain unresolved.

5 13. A further issue is that the Government intends to rely on an independent trade remedies framework to prevent unfair practices, which suggests questioning the role of European Court of Justice jurisprudence in this space. The Government intends to rely on WTO s existing trade dispute settlement mechanism to resolve trade disputes; yet this seems to only extend to practical means to stop a particular practice, and not to remedies (as would be enjoyed under the jurisprudence of the ECJ). 14. The Government s proposal for the free trade area for goods will also mean the continued need for regulatory alignment on legislation relating to goods to avoid non-tariff barriers to trade. This is no surprise given that this was trailed in the Chequers Statement last week. Security Partnership 15. The Government has previously set out its vision for the UK s future security relationship with the EU via a speech to the Munich Security Conference in February this year, and elsewhere. The Security partnership is of limited applicability to real estate beyond the level of issues of main concern to citizens regarding safety and security and the rule of law. Yet one area is of pertinence, and that concerns ongoing coordination in cyber security. Members have expressed concerns about potential attacks on building infrastructure in the future. Building on the main tenets of the proposed Security Partnership, it seems that the basis for this will be a primarily intergovernmental relationship and evolve to meet emerging threats (both including and not limited to cybersecurity concerns). Cross Cutting and Other Cooperation Participation in Agencies 16. A number of EU agencies have been created under the Treaty and the UK Government expresses its interest in continued participation and willingness to contribute to their Budget, depending on the depth of continued cooperation. Continued Participation in Science and Innovation 17. The UK Government expresses interest in ongoing association in future research and innovation programs, including Horizon Europe. In so doing it draws on precedent such as Swiss participation in Euratom and seeks to encourage the use of the association agreement to discuss participation in the future. 18. Arguably, science, research and innovation is an area in which the UK is a net beneficiary (despite being overall a net contributor) to the EU Budget and this step is therefore not surprising. Yet it is important to the UK s continued pre-eminence that it strikes knowledge-based partnerships with key blocs such as the EU, with the latter also able to project soft power when it comes to research priorities and ethics. It is also critical to the continued pre-eminence of science and innovation hubs such as Cambridge and Oxford, where significant real estate investment and resource has been undertaken.

6 Institutional Arrangements 19. Within the final section of the White Paper, the UK Government proposes the means by which the arrangements will be achieved. Two particularly interesting points stand out. 20. The first is that there is explicit acceptance of the evolution of the agreement over time, including extension to new areas of cooperation. This is a far cry from the avoidance of Ever Closer Union that suffused earlier iterations of the Government s stance on Brexit. 21. Second, that the UK Government seeks an association agreement with the EU, which frequently cover nearneighbours to the EU and cover political, trade, social, cultural and security links via Article 217 of the Treaty on the Functioning of the European Union, and typically provide tariff free access to some or all EU markets. Many recently signed Association Agreements include a free trade agreement between the EU and the applicant country. The UK Government appears to be leveraging this precedent to attain an agreement that applies only to partial markets in the EU (i.e. goods but not services) and to use the architecture of the Free Trade Agreement to petition for a separate institution to handle dispute resolution under the Free Trade Agreement (thus avoiding the jurisdiction of the European Court of Justice insofar as administering the Free Trade Arrangement is concerned). Barnier has been on record warning that the UK should accept the ECJ s jurisdiction and this may represent another flashpoint between the UK and EU negotiators. 22. The Government accepts the principle of having regard to judgments of the ECJ when it comes to the common rulebook to be adopted between the UK and EU. 23. The external body would have a tiered structure, and would administer the Economic Partnership, the Security Partnership and Cross-Cutting Cooperation, supported by a Governing Body of leaders and ministers from the UK and EU to set direction and provide accountability. In situations where agreement could not be reached on this, the Joint Committee would make endeavours to try to maintain the functioning of the agreement, including the possibility of recognising the equivalence of the regulation. 24. The Governing Body would be supported by a joint committee of officials to ensure effective operation and manage the processes for effective change. Their duties would also involve reciprocal requirements to inform of prospective legislative changes, and where these were in the common rulebook to be adopted between the UK and EU, whether these changes should be harmonised and adopted. Yet it is clear that the vast majority of the common rulebook will be determined via existing precedent and is likely to change as the EU public policy process agrees new pertinent rules; as members of an association agreement, the UK will not have a formal role (or perhaps no role at all) in negotiating those rules, and as such risks being a rule-taker in return for access to the market. That s if the issues surrounding the mirroring of the EU customs border can be overcome. 25. This institutional structure is not a million miles away from the European Council and Council Secretariat and represents recreation of the existing regime. Yet, insofar as institutional creation is concerned, this represents a form of incomplete contracting and the Government has certainly considered eventualities that may arise and how these might be resolved (such as in the case of a mismatch in values and legislative proposals and how these might be resolved). As such, the proposals are not without some practical merit.

7 Next Steps 26. More negotiations start this week and will mark the first time that Dominic Raab meets with Michel Barnier to discuss Brexit terms. There is a European Council too, formerly due to start on Wednesday, but it will now start on Friday. 27. The White Paper proposals will face their first major domestic test in Parliament during the debate and voting on the Customs Bill on Monday 16 July where brexiteers are expected to make their displeasure with proposals known.