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Time for a Rethink – What Did We Learn From Today’s Opinion on Revoking an Article 50 Withdrawal Notification?

In an Opinion published today, Advocate General Campos Sánchez-Bordona has recommended to the Court of Justice of the EU that it finds that it is legally possible for a Member State to revoke its Article 50 withdrawal notification and that it may do so unilaterally.

The Advocate General emphasised the unilateral nature of the notification of an intention to withdraw from an international treaty. For him, this continues throughout the Article 50 process meaning that the ‘intention’ to withdraw can change and a Member State may exercise its sovereignty to revoke its intention to leave the EU up until the expiry of the two-year period following the original notification. In short, the UK has up until 29 March 2019 to notify the European Council if it wishes to change its mind and the agreement of the other Member States is not required.

However, the powers of a Member State to revoke a notified intention to leave the EU are not unconditional. Firstly, a notification must be in accordance with national constitutional requirements meaning that the domestic constitutional rules and procedures are a limit on the power of a government to indicate a change of position. Secondly, the principles of good faith and sincere cooperation are applicable to avoid an abuse of the right of revocation.

Today’s Opinion arose from judicial review proceedings brought earlier in the year before the Scottish courts seeking to determine whether EU law permits the UK to revoke its notified intention to leave the European Union. The case was initiated by members of the Scottish, UK and European parliaments and was initially rejected on the grounds that it appeared to raise a largely hypothetical question as the policy of the UK government is not to revoke the Prime Minister’s letter of 29 March 2017 notifying the European Council of the UK’s intention to leave the EU.

On appeal, the Inner House of the Court of Session was mindful that in terms of section 13 of the European Union (Withdrawal) Act 2018, members of the UK Parliament have an opportunity to vote on the Withdrawal Agreement and Political Declaration negotiated between the UK and the EU as part of the Article 50 withdrawal process. With a parliamentary debate on the Brexit deal beginning today and ending in the so-called ‘meaningful vote’ on 11 December, the argument before the Scottish court was that in order to make up their minds, MPs also needed to know whether there was a legal option to revoke the Article 50 notification. The Court of Session decided it needed a definitive legal interpretation of whether revocation was permissible under Article 50 and, if so, whether it could be undertaken unilaterally or only with the agreement of the EU27.

The UK Government has opposed the attempt to involve the Court of Justice and even sought to appeal the decision of the Court of Session to the UK Supreme Court. But with the Supreme Court refusing permission to appeal to it, proceedings got underway before the Court of Justice. The Court of Session had requested that the Court of Justice handle the case with urgency and today’s Opinion comes very rapidly after the oral hearing on 27thNovember. At that hearing, the UK Government continued to oppose the admissibility of the case on the grounds that it would draw the Court of Justice into a political issue. Although the European Commission also thought that the Court of Justice could be justified in refusing the admissibility of the case it did recognise the exceptional and constitutionally significant nature of the question being asked before the Court. However, on the substance of the case, both the European Commission and the European Council believed that a state could not revoke an Article 50 notification unilaterally but rather needed the unanimous consent of the other Member States. That view was rejected by the Advocate General in today’s Opinion. However, it will still be for the Court to come to its own decision on the admissibility of the legal question posed before it and if so, whether it agrees that revocation is unilateral. The answers provided by the Avocate General to these questions are consistent with my own views expressed in an earlier blog on Verfassungsblog.

On the one hand , given the timing of the meaningful vote a week today and the uncertainty which inevitably arises from a non-binding Advocate General’s Opinion, an early final judgment of the Court is highly desirable. However, this case is only the fifth case to go to a Full Court composed of all judges in its modern composition of more than 20 judges. Getting a quick ruling will depend on whether a consensus has emerged on the admissibility of the case and on the answers to be given to the questions posed to the Court. The Court may also wish to avoid what might look like an overtly political intervention in the febrile domestic politics of Brexit.

On the other hand, a judgment after the Commons vote on 11 December is not necessarily irrelevant given the likelihood that the vote will see the Prime Minister’s deal rejected making a second vote or even a referendum a distinct possibility.

Remainers are likely to seize on the Advocate General’s Opinion in seeking to propel the Brexit debate towards a further referendum to include an option for the UK to change its mind and remain in the EU. Leavers are perhaps more likely to see today’s events as an unwanted interference in a domestic political matter.

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Is the ‘Backstop’ a Trampoline to the Future UK-EU Trade Relationship

Following the publication of the text of the Withdrawal Agreement on 14 November, the full text of the Political Declaration on the future UK-EU relationship is now keenly awaited (the outline was published on the same day as the text of the Withdrawal Agreement). It will set out the aspirations for an ambitious economic relationship between the UK and the EU to be negotiated once the UK has left the EU on 29 March 2019. EU leaders will consider these documents at a special summit to be held on 25 November.

The Withdrawal Agreement itself is not just the ‘divorce’ agreement but also sets out two routes to a new UK-EU relationship.

The apparently obvious route is to be found in the part of the Agreement establishing a ‘transition period’. In essence, the transition period is a legal ‘stand-still’ during which time the UK will remain bound by EU law obligations but without being a Member State and without any of the representation in the EU’s institutions that flows from EU membership. The transition period is intended to give the UK and EU time to negotiate agreements governing their future relationship. The transition period lasts until 31 December 2020 unless – before the end of July 2020 – the UK and EU agree to exercise an option to extend the transition period. Although the Withdrawal Agreement does not determine how long this extension might last, the use of the formulation ‘up to [31 December 21XX]’ suggests at least a year up until the end of 2021, although Michel Barnier has indicateda willingness to accept a transition period up until the end of 2022. Extending transition will entail making future budget contributions for the additional years that the UK remains in the transition period.

The longer that the UK remains in transition, the longer the UK and the EU have to negotiate a future relationship without the need for the provisions of the Protocol on Ireland and Northern Ireland – the ‘backstop’ – to be triggered. Until the transition period ends, frontier controls on the island of Ireland will continue to be eliminated because the UK will remain in the Customs Union and the Single Market. While offering a relatively smooth transition from EU membership – things would remain more or less as they are until the new agreement became applicable – an extended transition period has certain drawbacks.

A longer transition opens the UK Government to the accusation of delivering a ‘zombie’ Brexit that transgresses its own red lines. In transition the UK will have formally left the EU but will remain within the Customs Union, the Single Market – including free movement of people – and remain subject to the jurisdiction of the Court of Justice. Extending transition also entails additional budgetary contributions. The other less obvious but potentially significant problem with parking the UK in transition is that it doesn’t help identify what the UK would be transitioning towards and so might make it less easy for businesses to anticipate the adjustments they may need to make. That said, the political declaration ought to go some way towards illuminating the path towards the future relationship even if it stops short of building a direct legal bridge towards the ultimate destination.

The less obvious route to a future relationship with the EU is through the ‘backstop’. There are two reasons why we have perhaps not given sufficient thought to the backstop as an additional bridging device. The first is that we have tended to treat the ‘Irish problem’ as somehow distinct from the wider discussion about the UK-EU future relationship. This was odd given that it should have been clear that any solution to the border issues on the island of Ireland was always going to be a strong signifier of how the UK and the EU might structure their economic relationship to reduce any friction on trade. It would be a tall order to devise one solution to manage the border issues in Ireland as a ‘backstop’ and at the same time devise a different but equivalent solution for the future relationship. Nonetheless, with some factions pushing the Government towards a more minimalist free trade agreement – which would leave unresolved the Irish border issues – treating the backstop as an exceptional device became part and parcel of how we thought about it. Secondly, the language of ‘backstop’, or ‘insurance policy’ or ‘safety net’ has underscored the idea that this is a device which is not intended to be used.  Instead the focus has been on agreeing the future relationship to avoid ever having to invoke the backstop’s provisions.

However, when we consider what the UK and the EU have agreed as a backstop it becomes much clearer that this may be less a residual fall-back and more of a policy choice as a way of bridging the gap between EU membership and a future relationship. The backstop may turn out not to be a safety net, but a trampoline.

At the core of the backstop is the ‘single customs territory’ encompassing the customs territory of the EU and the customs territory of the whole of the UK including Northern Ireland. Good produced in either territory move without payment of any customs duties, as do goods from third countries that have paid the relevant tariffs applied by the EU and the UK to goods from outside the single customs territory (the UK will align its tariffs and its trade policy with that of the EU).

During the operation of the backstop, the UK has committed to certain ‘level playing field’ obligations in respect of taxation including compliance with EU and international standards as well as certain EU directives. In the spheres of environmental, social and employment regulation, there are  ‘non-regression’ clauses. These commit the UK to not reduce its level of protection in things like air quality targets and waste management. The UK has also agreed to implement a system of carbon pricing in line with the EU’s carbon trading system. In the area of employment protection, the Protocol requires the UK not to reduce standards in areas such as health and safety at work, working conditions and employment standards (but without application of the dispute resolution mechanism laid down in the Agreement).

In addition to all of this, the Protocol requires the UK to comply with EU state aid rules (with certain exemptions for agricultural production) albeit enforced not by the European Commission but the UK Competition and Markets Authority (the UK’s competition regulator). That said, the European Commission is to be allowed to bring cases in UK courts for alleged breaches of state aid rules. The EU’s competition rules on cartels and abusive market behaviour is also applicable.

In short, while the backstop means that the UK is out of the EU Customs Union and its Single Market, the coordination of the UK and EU customs territories and the maintenance of certain obligations aimed at ensuring that competition is not distorted ensure that the whole of the UK will enter into an economic relationship with the EU that may anticipate the type of future relationship that the UK and EU might seek to build. To be sure, an agreement on a future relationship will seek to go beyond this not least in terms of trade in services and other non-economic spheres of cooperation like foreign and security policies. But at least as regards trade in goods, entering into a backstop arrangement pending the finalisation of a complete package of agreements on a future relationship might seem preferable to an extension of the transition period.

What then becomes interesting is that the other provisions of the backstop that are specific to North-South relations on the island of Ireland and which would keep Northern Ireland more closely aligned with the EU Single Market than the rest of the UK – in order to avoid non-tariff barriers to trade on the island of Ireland – becomes the exceptional part rather than the dominant part of the agreement.

That the backstop may perform a more active role in defining what happens after 29 March 2019 can be easily evidenced. The Preamble to the Protocol itself makes clear that:

‘HAVING REGARD to the Union and to the United Kingdom’s common objective of a close future relationship, which will establish ambitious customs arrangements that build on the single customs territory provided for in this Protocol, in full respect of their respective legal orders.’

The UK Government’s own explanation of what the Withdrawal Agreement entails – while describing the backstop as an ‘uncomfortable arrangement’ – nonetheless states that:

‘If the future relationship is not going to be ready by 1 January 2021, the UK has two choices: request an extension of the [transition period] or activate the backstop.’

This presents the backstop as a distinctive policy choice. It would move the UK out of a stand-still transition in which the UK would have the obligations and not the benefits of EU membership into what would in effect constitute an ‘interim agreement leading to the formation of a free trade area/customs union’ within the meaning of Article XXIV of the General Agreement on Tariffs and Trade 1994. The enforcement mechanisms contained in the Withdrawal Agreement would apply in place of the normal enforcement mechanisms that apply to EU Member States and which will apply to the UK during transition. The free movement of people would come to an end.

Legally, using the backstop as an interim trade deal is not without its difficulties and may even be incompatible with the use of Article 50 TEU as a legal basis particularly if the backstop dragged on. Indeed, while there has been much discussion about the inability of the UK to unilaterally exit the backstop, were the backstop to become an enduring basis of UK-EU relations the legality of the arrangement would likely be challenged.

If the Withdrawal Agreement ever enters into force – and currently it looks unlikely to obtain approval in the House of Commons – we may yet look back and realise that turning the backstop into an interim trade arrangement was the key to making Brexit happen.

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Extending the Transition Period: 3 Options

Following her visit to the European Council meeting in Brussels, the Prime Minister Theresa May indicated that the UK might seek to extend the Brexit transition period ‘for a matter of months’. A recent European Policy Centre discussion paper has proposed a one-off mechanism to extend the transition period for a year. However, this week newspapers reported that the Cabinet had been warned that the UK could end up in a long-running transition following its departure from the EU. In a new Faculty of Law Research Paper,  I explore three options open to the UK to extend the transition period and conclude that creating an extended transition and implementation facility would allow transition to end early as new agreements between the UK and EU enter into force.

For some time now, both the United Kingdom and the European Union have been agreed that once the UK ceases to be a Member State of the EU on 29 March 2019, it will enter into a ‘stand-still’ period during which the UK will continue to be bound by its existing EU obligations (alternatives to this approach were explored in an earlier blog). The rationale behind this is to avoid a ‘cliff-edge’ departure which would otherwise see tariffs and regulatory controls imposed on cross-border trade between the UK and the EU.

To the extent there has been disagreement between the two sides it has been on terminology – the EU refers to this as a ‘transition period’ while the UK insists on calling it an ‘implementation period’ – and duration – the UK sought a two-year period whereas the EU was only willing to agree a transition that would end on 31 December 2020 (coinciding with the end of the current budgetary ‘multi-annual framework’). The UK agreed to the EU’s offer of a transitionending in December 2020.

However, the duration of the transition period has come back to the fore of the negotiations for two reasons.

The UK believes that the issue of how to avoid a hard border on the island of Ireland can only properly be resolved in the context of the negotiations on the future economic relationship. The UK had hoped that this might be negotiated in parallel with the withdrawal arrangements. However, the EU has insisted that it is only the framework for future cooperation that can be discussed in the context of the withdrawal negotiations meaning that the terms of a future economic relationship can only be agreed once the UK leaves. As long as the UK is in transition, the issue of frontier controls on the island of Ireland does not arise. But with the transitional period ending at the end of 2020, EU negotiators have insisted on the need for a ‘backstop’ to ensure that if transition ends without a deal on a future relationship that meets the commitments made in the 2017 Joint Report, a ‘hard border’ in Ireland will be avoided. It is the failure to reach agreement on a backstop which is making negotiators on both sides reconsider a time-limited transition period.

The second reason for revisiting the duration of the transition period is that the pace of negotiations thus far, coupled with deep disagreement over the UK Government’s ‘Chequers Plan’ for a new UK-EU relationship, suggest that the transition period as currently conceived will be too short to allow for negotiations on a future relationship to be concluded. Taken together with the backstop issue, minds have turned to whether it would be prudent to extend transition,

In a recent European Policy Centre paper, Tobias Lock and Fabian Zuleeg make a strong case for the extension of transition, suggesting that a one-time one-year option to extend transition would be a workable solution.

In a new Research Paper, I explore three potential models for an extended transition:

  • A one-off option to extend transition for a year following the end of the initial transition period (the Lock and Zuleeg model)
  • A rolling or open-ended transition with an exit mechanism
  • An extended transition and implementation facility.

The Research Paper suggests that while Lock and Zuleeg make a good case, their proposal still risks a ‘second cliff-edge’ at the end of an extended transitional period if there is no agreement on a future relationship. A one-year optional extension may not give negotiators sufficient time to reach an agreement and might not create sufficient confidence to avoid the need to negotiate a backstop.

The most obvious way to avoid a backstop would be to keep the UK in transition unless and until a new economic partnership between the UK and the EU was agreed (provided also that this met the commitments on the Irish border agreed in the 2017 Joint Report). However, a perpetual transition would be politically unacceptable, be difficult to manage in budgetary terms and would conflict with EU law. It would, therefore, need an exit mechanism. This could be modelled on Article 50 itself and allow either the UK or the EU to notify the other of their intention to end the transition period. After a defined period, the transition period would come to an end with or without a deal on a future relationship.

A compromise solution draws on the existing draft Agreement and would allow transition to end once new agreements on customs and trade, foreign, security and defence policy are agreed and became applicable. Unlike an open transition, this facility would have to have a defined endpoint and a proposed deadline of 31 December 2022 is suggested. This is beyond the next General Election which is scheduled for 5 May 2022. The aim would be to give negotiators the flexibility to agree new partnership arrangements but with incentives to reach agreements early to avoid the need to continue to use the transition and implementation facility. The UK and EU could depart transition well before the facility expired. This does not ‘solve’ the Irish border issue. The Withdrawal Agreement must contain commitments which have already been made to avoid a hard border. The pressure remains on the UK to define how a future relationship with the EU would meet those commitments. But by expanding the time available to continue negotiations, at least some of the current pressure on negotiators may be released. The alternative is that no deal is done on withdrawal and the UK departs the EU without a Withdrawal Agreement. In which case the issue of frontier controls comes quickly back onto the agenda. Extending transition in the hope of finding solutions may be the least worst outcome.

 

 

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Too Big to Fail – Why All the Talk about a ‘No Deal’ Brexit?

As Brexit negotiations between the UK and the EU move towards an endgame series of summits among the leaders of the EU27, little new has emerged about whether Prime Minister May’s ‘Chequers Plan’ – or a variation of it – will be acceptable to the EU.

Although reports were circulating that the EU’s Chief Negotiator, Michel Barnier, had described the plan as ‘dead’, European Commission President Jean-Claude Juncker – in his annual State of the Union speech– appeared to offer some hope to the UK that an ‘ambitious new partnership’ could be forged on the basis of a free trade agreement as envisaged in the Chequers Plan. Nonetheless, he also warned that a state that left the EU and its Single Market could not enjoy the same privileges as an EU Member State. Prime Minister May also knows that even if her Government can reach an agreement with the EU, there is no guarantee that MPs will endorse it.

Noticeably, the UK Government has been talking up its arrangements for a ‘No Deal’ Brexit. In August, the Brexit Secretary Dominic Raab outlined the UK’s preparations for a disorderly departure from the EU. An initial series of technical papers were issued by his Department, indicating the likely effects of leaving the EU without a legal framework to govern future trade and cooperation between the UK and the EU. With 80% of the Withdrawal Agreement in place – including settlements of the UK’s financial liabilities – Raab noted that the scenarios identified were not what the Government expected or wanted, and instead presented the publications of the papers as a government planning ‘for every eventuality’.

With the UK publishing a further round of No Deal technical papers on 13 September, the volume of No Deal chatter seems to have gone up considerably. The Prime Minister even hosted a special meeting of the Cabinet apparently to discuss contingency planning should the UK leave the EU without a deal. The Governor of the Bank of England, Mark Carney, also attended for part of the meeting and was reported to have told the Cabinet that a major property market crash would be a likely outcome of a No Deal Brexit.

Meanwhile the Brexit Secretary amplified remarks he made earlier in that week that ‘nothing is agreed until everything is agreed’ and that included the settlement of the UK’s financial liabilities as agreed in the first phase of Brexit talks. While repeating that the UK would honour its obligations, Raab made clear that should a No Deal Brexit occur, the agreement reached at the end of 2017 would lapse. At her weekly Prime Minister’s Questions session in the Commons, Theresa May had similarly noted that in respect of the accepted so-called ‘Divorce Bill’, in the event of a No Deal Brexit, ‘the position changes’.  To be clear, the Government accepts it has financial liabilities and it is not suggesting it will not meet those liabilities. Nonetheless, the threat to take that settlement off the table is a further instance of the consequences of a No Deal Breit.

All this talking up of a No Deal Brexit appears aimed at a range of audiences.

The technical papers are supposed to give guidance to stakeholders about how the Government intends to implement regulatory arrangements governing goods like medicines and services like mobile phone use and data roaming.  Yet much of this guidance does not get beyond telling businesses that the UK will legislate to allow EU-based manufacturers and service-providers to continue to access the UK while leaving enormous uncertainty as to what degree of reciprocal arrangements – if any – UK companies will experience in 27 other countries. The same goes for citizens’ rights after Brexit. If the deal done on those rights in 2017 disappears, the UK could legislate to replicate the terms of the deal for citizens of the EU27: a point that Raab has also made in interviews. But again, this does nothing to provide reassurance for UK nationals resident in any of the EU27 Member States with the potential for those states to take divergent approaches, subject to any common EU legislative rules.

Given that real certainty and clarity can only come from a Withdrawal Agreement that includes a clear transitional framework, and from some sense of what the future relationship between the UK and EU will entail, the No Deal chatter is really aimed at different political audiences.

In seeking to sell her plan to the public, discussion of a No Deal Brexit helps to prepare people for the reality that things will be different outside of the EU. For those ideologically committed to Brexit, the risks and downsides of EU withdrawal have often been dismissed as ‘Project Fear’: the Brexiteer equivalent of ‘Fake News’. The release of technical papers describing some of the potential fall-out from life outside the EU, allows the PM to worry the public just enough to make her plan seem like a less bad outcome.

At a domestic political level, talking up the risk of a No Deal Brexit is no doubt an attempt by Prime Minister May to focus the minds of MPs – as well as members of her own Cabinet – that her Chequers Plan is the only basis for an orderly exit from the EU. In her Panorama television interview, Mrs May repeated that the choice was between a deal based on the Chequers Plan or a No Deal departure from the EU. Were her own MPs and colleagues to reject a deal negotiated by her and to remove her as PM, the risk of falling out the EU without a deal increases. Avoiding that eventuality also means keeping her in No 10. The PM is using her own weakness and the threat of the UK crashing out of the EU to garner political traction for her Chequers Plan and to keep her in office (for the time being).

But another audience for all of this is the leaders of the EU27. The UK has been asking Barnier and his team to show flexibility and not to stick to the models of how they have done deals in the past. Raising the threat of a No Deal Brexit may be intended to appeal directly to the EU leaders to redefine or reinterpret the negotiation mandate of the European Commission to allow for talks to reach a positive conclusion. An upcoming informal summit of those leaders may be an opportunity to do just that although it is not clear that the Member States would actually change the mandate rather than clarify the EU’s endgame position. Again, it is the weakness of the UK that turns out to be its strength. Like a major bank during the financial crisis, the Brexit talks are too big to fail and the UK is probably pinning its hope on the EU27 to avert a failure given the terrible consequences of failure.

We do need to keep in mind that the current talks cannot and will not define the future relationship between the UK and the EU; it can only settle the ‘framework’ for that relationship. And so there is always the potential to kick the can down the road by agreeing a thinner rather than a thicker version of that framework. Indeed, the value of Sterling recently rose on the back of a Bloomberg report that Germany might accept a more minimal framework agreement.

Paradoxically, then, the current preoccupation with a No Deal Brexit is an indicator that some serious political thought is now being given to how to ensure that the Brexit endgame produces a Withdrawal Agreement. It is the political and economic consequences of failure that is driving the parties towards an agreement. The question is whether the concept of ‘too big to fail’ will be enough to ensure that any political agreement reached will also be endorsed either by MPs or by the public should a ‘People’s Vote’ transpire.