On 25 November 2018 the UK and EU approved the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community as endorsed by leaders at a special meeting of the European Council ("the Agreement"), a legally binding document which includes provisions on the EU-UK "divorce settlement" and on the transition period.
This is accompanied by a Political Declaration setting out the framework for the future relationship between the European Union and the United Kingdom ("Political Declaration"). We set out the key implications for business.
Based on these documents it appears that there will be are at least two, and potentially three, distinct periods in the trade relationship between the EU and the UK. We outline below how trade with the EU will broadly operate under these distinct periods (based on information available so far); the next steps in the negotiations; and recommendations for what businesses should be doing now.
The Agreement provides for a transition period which will last from 30 March 2019 until at least 31 December 2020. During that period the UK will remain within EU Customs Union and single market and the overwhelming majority of EU law would continue to apply in the UK, but the UK will lose the ability to take part in EU law making and will lose the benefits of Free Trade Agreements (FTAs) that the EU has with third countries. In order for the UK to ensure that it will continue to benefit from these FTAs during the transition period, the UK will need the agreement of the EU and all third countries. In practice, therefore, during the transition period trade in goods and services between the EU and the UK will remain unaffected.
Crucially the transition period can be extended by mutual agreement between the EU and the UK. Note that as per the Agreement, the length of the transition period can only be extended once up to 31 December 2022, and the UK and the EU will have to make a decision by 1 July 2020 on whether such an extension will materialise. In practice, if the UK asks for an extension, it is unlikely that the EU will object so the ball will be in the UK's court on that front.
If by the end of the transition period, the EU and the UK do not manage to come to an agreement in terms of their future relationship which will ensure that there is no border between Ireland and Northern Ireland, then the so called 'Northern Ireland backstop' will kick in. If that happens then the whole of the UK will be in a Customs Union with the EU and there will be regulatory alignment between the EU and the UK. What this means, is that during that period trade in goods between the UK and the EU should remain largely unaffected from a tariffs perspective but there maybe significant changes from an administrative perspective (such as the reintroduction of some customs controls). However, trade in services with the EU will have to operate under WTO rules. Under WTO rules, the specific impact for businesses will vary depending on which sector they operate in. Some sectors will see limited to no change whereas in other sectors (generally those which are heavily regulated) there will be additional requirements and standards and even a prohibition in the provision of certain services between the EU and the UK.
If the 'Northern Ireland backstop' kicks in, the UK cannot decide unilaterally to withdraw from it. Rather it will have to be a joint decision by the UK and the EU. If the EU and the UK cannot reach an agreement on whether the 'Northern Ireland backstop' should cease to apply, then the dispute can be resolved through arbitration.
It is important to emphasize that if the future trading arrangement is concluded within the transition period, the contentious 'Northern Ireland backstop' arrangement will never come into force. In fact, given that there can be an extension on the transition period, it is possible that the 'Northern Ireland backstop' may never become a reality.
During the transition period, the UK and EU-27 will endeavour to finalise the agreement that will underpin their trading relationship after the end of the transition period. Based on the Political Declaration, it seems that the goal of the EU and the UK is to conclude a wide ranging but “classic” free trade agreement that will aim to cover goods, services and investment. The Political Declaration is thin on detail, but it appears that trade in goods will be based on an FTA which will ensure that there will at least be no tariffs or quotas, along with some degree of regulatory alignment with the EU. The wording of the Political Declaration is broad enough so as to allow for the inclusion of a Customs Union for goods as part of that FTA, which if adopted will limit the UK's ability to engage in FTAs which cover goods with third countries. It is also encouraging that the scope of the future trading arrangement appears to cover services, including financial services and investment (although-again-the outline is thin on detail) and offers assurances that the agreement on the future relationship will offer liberalisation in trade in services which will go well beyond the UK and the EU's WTO commitments.
The Agreement covers Union & UK citizens who exercise their right of free movement under EU law (either as a worker, self-employed or self-sufficient person or student) to reside in the UK or a Member State at any point up to the end of the proposed transition period. The same rules will also apply to those exercising their right as "frontier workers" to work in either the UK or a Member State whilst continuing to reside in their home country.
It also covers family members of any Union and UK citizens provided they have also resided in the host State in accordance with EU law before the end of the transition period or, where they haven't resided in the host State, they are directly related to the Union or UK citizen to which the Agreement applies. Family members are defined as the spouse, civil partner, children up to the age of 21, dependant children over the age of 21 and dependant relatives in the ascending line such as parents or grandparents of the Union or UK citizen. Other family members such as unmarried partners are also covered if they have obtained or applied for status prior to the end of the transition period.
Those covered by the Agreement will have an ongoing right of residence in their host State. They will also have a right to leave and enter the host State without a visa by presenting a valid passport or national ID card. Family members who are neither Union nor UK citizens will have to present a valid passport, but if they haven't entered before the end of the transition period they may be required to obtain a visa.
Those covered by the Agreement who have resided in the host State in accordance with EU law for a continuous period of 5 years or longer (excluding temporary absences up to 6 months a year) will have a right to reside permanently in the host State. In this respect, once the right of permanent residence has been acquired, it can only be lost if the holder is absent or away from the host state for a period of 5 years or longer.
Those covered by the Agreement who already hold a valid permanent residence document issued under EU law or hold the same status conferred under the domestic law of the host state shall have the right to exchange it, subject to a criminal record and security check and confirmation of their ongoing residence, before the deadline set under the Agreement.
The UK Government has already set out how it intends to implement the provisions set out in the Agreement. A new "EU Settled Worker Scheme" is currently being trialled. The terms of this scheme which is due to be fully operational by March next year are in fact more generous than those set out in the Agreement. Critically, applicants won't have to provide any evidence to confirm in what capacity they are in the UK. The Government has indicated that even if the Agreement is not approved, it will still honour the provisions in relation to protecting Citizens' rights to the extent that it can do this on a unilateral basis. Therefore, in the event of a "no deal" scenario, Union citizens in the UK should still be able to apply for status in line with the terms set out in the Agreement.
The future position regarding Union citizens travelling to the UK and British nationals to the EU after the end of the transition period is much more unclear. The Political Declaration, although not legally binding, makes it clear the UK has decided free movement will end. In this respect, apart from visa free travel for short term visits, it leaves the question of what will be put in its place completely open. However, it does state that the new system will be based upon the principle of "non-discrimination between the Union's Member States and reciprocity" and that special arrangements for research, study, training and youth exchanges should be considered along with temporary entry for business purposes.
Under the terms of the Agreement, nothing will change from an employment law perspective on 30 March 2019. EU employment laws will continue to apply to the UK, in the same way as they do at present, until the end of the transition period. This includes any new laws introduced and any new Judgments of the European Court of Justice which are handed down during the transition period.
Once the transition period has ended, there is scope in theory for the UK government to amend our domestic laws to remove some of the protections that derive from EU employment law. However, we are unlikely to see any major changes in the short to medium term. The government's message in relation to workers' rights to date has been that it is firmly committed to protecting workers' rights after Brexit, and will seek opportunities to enhance (rather than reduce) those rights where appropriate. Furthermore, it is clear from the Political Declaration that the parties envisage the final Brexit deal containing some form of continuing commitment to shared employment standards, as well as a commitment to the European Convention of Human Rights and a high level of data protection.
If a deal on Northern Ireland is not secured prior to the end of the transition period, and the "Northern Ireland backstop" kicks in, the UK is likely to be even further restricted in its ability to make any changes. This is because, under the Northern Ireland Protocol, the UK is committed to ensuring that the level of legal protection is not reduced below that applicable within the EU and the UK at the end of the transition period. This commitment covers labour and social protection, fundamental rights at work, occupational health and safety, fair working conditions and employment standards, information and consultation rights at Company level and restructuring. The protocol also states that EU anti-discrimination directives must continue to be observed.
One area in which we may see changes at the end of the transition period (whether the backstop comes into play or not) is in relation to European Works Councils ("EWCs"), as the current EWC regime will only be able to continue with the EU's co-operation. However, the Agreement is silent as to what will happen in relation to EWCs, so we still await details of what is proposed in this regard.
During the transition period the UK will remain within the single market and continue to operate under EU law governing product quality, performance, safety and composition as well as related testing, packaging, marking, labelling and conformity assessment procedures. This applies to all goods that fall within the scope of the singe market's free movement rules, including consumer products, pharmaceuticals, medical devices, agricultural products, industrial products and chemicals.
As anticipated, once the transition period ends the Agreement provides for the continued circulation of goods lawfully placed on the single market prior to its end, so that a product can continue moving through EU or UK supply chains - or indeed between them - until it reaches its end-user. There will be no need for new or additional labelling or conformity assessments for these goods. The same applies to products that have an additional "when put into service" compliance point. Provided they were placed on the market before the end of the transition period, they can be put into service any time afterwards without the need for new conformity assessments.
Tied-in with this continuing free circulation is an obligation on economic operators to be able to prove that a good was placed on the market in the EU or the UK before the end of the transition period. This could be in the form of a sales invoice, for example, or clear evidence of the good being offered for sale in a trade catalogue.
If the 'Northern Ireland backstop' period happens, the UK in respect of Northern Ireland must stay aligned to EU single market goods rules. This allows Northern Ireland businesses to place products on the EU's internal market without restriction. For goods subject to approvals or certificates from an EU regulatory authority, Northern Irish businesses will need to use those EU bodies if they wish to export to the EU-27. Where EU law requires physical premises checks, however, Northern Irish businesses can use UK authorities for that purpose. This would apply to, for example, manufacturing site inspections required for pharmaceuticals. UK authorities would need to apply EU law when undertaking these inspections.
As the rest of the UK could begin to diverge from EU rules, there will be increased compliance checks (based on risk) on goods moving from the rest of the UK to Northern Ireland. The intention is for UK authorities to carry out these checks in the least intrusive way possible, such as at traders' premises. Agricultural products will continue as now to be checked at ports and airports, but at a heightened level to ensure the protection of EU consumers and animal health.
Northern Ireland products moving to the rest of the UK will have unrestricted access with both EU and UK approvals being recognised. This avoids Northern Ireland businesses having to go through two separate approval processes to supply goods to both the EU and the rest of the UK. Where a product’s origin must be indicated, Northern Irish goods for Northern Ireland or the EU would be labelled as originating from Northern Ireland - "UK(NI)". For the rest of the UK, the products could be labelled as either being from Northern Ireland or the UK.
During the transition period, the UK will continue to have access to existing tax Directives such as the Parent-Subsidiary and Interest and Royalties Directives, and to abide by the terms of other Directives such as the Directive on Administrative Co-operation and the Anti-Tax Avoidance Directive (ATAD).
VAT: the UK will continue to apply EU VAT law, as currently implemented in UK legislation, during the transition period.
The Agreement contains a Tax Annex in which the UK agrees with the EU to commit to certain existing OECD and EU tax standards. In essence, this would restrict the UK's ability to adopt its own tax policies that might set it up as a tax competitor to the EU. The need for a level playing field is reinforced by the Political Declaration, which emphasises that the future relationship must ensure open and fair competition and that provisions to achieve this should cover "relevant tax matters" among other things. The UK commitment includes implementing and promoting good governance in the field of tax, such as global standards on transparency and exchange of information, fair taxation, and the OECD BEPS standards. It is also agreed to improve international tax cooperation and to facilitate tax collection.
Specifically, the UK has agreed to continue to apply its domestic law that implements the Directive on Administrative Co-operation and the ATAD. There is also agreement reaffirming the commitment to curb harmful tax measures and in this context the UK agrees to abide by the Code of Conduct for Business Taxation; this means that the UK would not be able to reintroduce any of the laws that have been phased out by any of the Member States in order to stop harmful tax competition.
There is a specific protocol concerning Gibraltar, with a commitment, given by the UK on Spain's request, to crack down on perceived tax avoidance in particular ensuring that certain entities in Gibraltar meet the economic substance criteria established by the OECD's Forum on Harmful Tax Practices.
At the end of the transition period, the UK will lose the benefit of access to the tax Directives and will be reliant on its network of double tax treaties to determine whether withholding taxes are likely to apply to dividends, interest and royalties. The UK has already begun renegotiating certain treaties and in cases where there is likely to be a withholding tax issue, this will be a priority.
VAT: The EU VAT Directive will continue to apply to goods supplied by the UK to an EU Member State, and vice versa, if the dispatch or transport began before the end of the transition period and ended after it. Rights and obligations under the EU VAT Directive will continue to apply until 5 years after the end of the transition period for any transactions that begun before the end of the transition period. Refund applications for VAT paid in a Member State by a UK taxable person (or by an EU person in the UK) must be submitted by 31 March 2021 at the latest. Amendments to VAT returns in respect of cross-border transactions must be submitted by 31 December 2021. The Council Regulation on Administrative Co-operation and Combating VAT Fraud will continue to apply for 4 years to the tax authorities of Member States and of the UK in relation to transactions that took place before the end of the transition period. Subject to these transitional rules, the UK will almost certainly retain a VAT system, possibly in the form of a sales or goods and services tax. The commitment to apply existing OECD and EU standards, particularly as regards fair taxation, could restrict the extent to which the UK is able to develop its own VAT rules.
Mutual assistance for the recovery of tax claims: the Directive on mutual assistance will continue to apply for 5 years after the end of the transition period for claims relating to transactions that took place before the end of the transition period.
State aid: the Commission will be able to bring state aid proceedings for up to 4 years after the transition period for events that occurred before the end of the transition period.
Court of Justice of the European Union: cases pending before the CJEU at the end of the transition period, brought by or against the UK, including appeals and references back to the General Court, will continue until a decision is given. Proceedings will be regarded as having been "brought" and preliminary referrals having been made, at the moment at which the document initiating the proceedings has been registered by the CJEU's (or the General Court's) registry. Judgments and orders of the CJEU handed down before the end of the transition period, as well as judgments in relation to infraction proceedings brought in the 4 year period after the end of the transition, shall be binding on the UK. The CJEU will have jurisdiction to give preliminary rulings on requests from UK courts and tribunals made before the end of the transition period.
The Agreement provides welcome clarifications with respect to EU-law based IP rights and allows for a smooth transition and an end-point that is as close to the status quo as could be hoped for. Most notably it means that there should be no significant loss of protection for rights owners.
Trade marks, designs and plant variety rights
The UK government will grant owners of European trade marks (EUTMs), Registered Community Design Rights (RCDs) and Community Plant Variety Rights (CPVR), which were registered or granted before the end of the transition period, a new UK equivalent right, in effect a "clone" of the EUTM, RCD, CPVR with no action necessary or cost incurred on the part of the holder. These "cloned" rights will not be re-examined by the UK IPO, and they will enjoy the date of priority of the EU registration, including any UK seniority claim for trade marks. Existing EUTMs, RCDs and CPVRs will continue to be valid in the EU27 after the end of the transition period.
For International trade mark registrations under the Madrid system, which designate the EU and which have been registered prior to the end of the transition period, the UK Government agrees to take measures to ensure continued protection in the UK.
There will be a nine month period after the expiry of the transition period for owners of pending EUTM/RCD applications to apply in the UK for the equivalent protection; for CPVRs, however, the period is six months. These re-filed applications will retain the priority dates (including UK seniority for trade marks) from the corresponding EU application. No automatic notifications of this fact will be issued by the UK IPO and any re-filed applications will attract the same fees as UK national applications.
IP rights will remain exhausted for all goods which have been put on the market anywhere in the EEA before the end of the transition period.
Authorised representatives in all ongoing proceedings before EUIPO commenced before the end of the transition period may continue to represent the relevant party for all stages in that procedure, including appeals.
Unregistered Community Design rights that exist at the end of transition period will continue to be protected and enforceable in the UK for a term of protection at least equal to the remaining period of protection of the equivalent Community right. While there is a separate unregistered UK design right under the Copyright Design and Patents Act 1988, this is a different type of right to the unregistered Community Design right and the UK currently has currently no equivalent unregistered design right. The UK Government will therefore have to implement new legislation to allow for this.
GIs, databases, SPCs and patents
Holders of geographical indications which are protected in the EU at the end of the transition period are entitled to use the geographical indication in the UK, without re-examination and will be granted "at least the same level of protection" as provided under the existing EU regime. However, this will apply only "unless and until" a future agreement between the EU and the UK enters into force and becomes applicable.
Where a database qualified for protection in the UK before the end of the transition period, it will continue to be protected in the UK after its end, and rights owned by UK nationals that qualified for protection in EU Member States before exit will also continue to be protected after the end of the transition period.
Supplementary protection certificates (SPC) will continue to apply in the UK beyond the transition period provided SPC holders make a UK application for the extension of their rights prior to the end of that transition.
UK national patents and European patents (via the European Patent Office (EPO)) are unaffected by Brexit and the Agreement as they are independent from EU membership. The Agreement confirms that the UK will be considered a member of the new Unified Patent Court during the transition period.
The Agreement provides that during the transition period the General Data Protection Regulation 2018 (GDPR) will continue to apply.
The Political Declaration setting out the future relationship states that in view of the importance of personal data flows between the EU and UK, the parties are committed to ensuring a high level of data protection to facilitate such data flows.
When the UK leaves the EU it will become a 'third country' for data protection purposes (a country not recognized as offering an adequate level of protection), which means that any transfer of personal data from the EU to the UK would need to be covered by appropriate contractual safeguards such as model clauses, or by the EU granting the UK adequacy status.
The Agreement contemplates that adequacy status will be granted to the UK before the end of the transition period by December 2020. The Political Declaration confirms that the European Commission will start the adequacy assessment as soon as possible and that there should be appropriate co-operation between regulators.
If adequacy status is not sorted out by the end of the transition period, the Agreement states that the UK will ensure a level of protection of personal data 'essentially equivalent' to EU law.
If the Agreement is adopted, businesses will have the benefit of a transition period until the end of at least 2020 (with a possible extension) to prepare for the future relationship. During this period access to the Single Market will in essence continue as present.
The Political Declaration is a short document and with respect to financial services contains little detail. On a positive note, in respect of services (including financial services), it does stipulate the objective of delivering a level of liberalisation in trade in services "well beyond" the WTO commitments, and to build upon recent Free Trade Agreements. These would include provisions on market access and non-discrimination under host state rules for service providers and investors.
The UK has proposed a system of “enhanced equivalence” in place of passporting, which would strengthen and broaden the existing EU concept of equivalence contained in some legislation, although it will provide inferior market access to that available now. The Political Declaration refers to each bloc's regulatory and decision-making autonomy, and their ability to take equivalence decisions in their own interest. This latter reference to autonomy is less welcome from a UK perspective in terms of achieving significant market access under equivalence. Unless read with respect to the ambition to go beyond WTO commitments, there is no express reference to expanding equivalence beyond the existing patch work. In this regard, however, Steven Maijoor, the Chair of the European Securities and Markets Authority (ESMA), has already called for a comprehensive and harmonised EU regime for third country trading venues.
The Political Declaration additionally refers to both sides starting to assess equivalence with respect to each other as soon as possible after withdrawal with a view to finishing before the end of Q2 2020. In this respect, to address UK concerns that equivalence might be suddenly withdrawn, the documents promises "transparency and appropriate consultation in the process of adoption, suspension and withdrawal of equivalence decisions." We can also expect "close and structured cooperation" on regulatory and supervisory matters, as well as information exchange and consultation on regulatory initiatives of mutual interest, at both political and technical levels. It is likely that the FCA may in some areas still contribute in some way to the European Supervisory Authorities and their development of policy post-Brexit.
Pending approval of the Agreement financial services businesses must be ready for a no-deal Brexit, this should be on a worst case basis – if only by undertaking the minimum steps. Businesses should monitor announcements from relevant authorities and maintain dialogue with supervisors over Brexit planning and contingency measures. For EU-27 businesses that rely on "passports" to access the UK, in a no-deal Brexit, the UK authorities have announced temporary permissions regimes and measures around contractual continuity. These would last for up to three years while the businesses in question sought authorisation. For UK-based businesses accessing the EU-27, the Commission has not to date announced any transitional measures although it is expected to do so. Individual Member States may also put in place grandfathering provisions - Germany is currently consulting on empowering the Federal Financial Supervisory Authority (better known as BaFin) in this manner.
The Agreement provides that EU legislation regulating medical and in vitro medical devices (existing Directives 93/42/EEC 98/79/EC, and 90/385/EEC and Regulations (EU) 2017/745, (EC) No 178/2002, (EC) No 1223/2009 and (EU) 2017/746, which will replace the Directives) will continue to apply in the UK during the transition period (subject to the repeal of the Directives across the EU in due course), thereby ensuring that the UK will remain fully aligned to the EU regulatory regime for medical devices and in vitro medical devices.
However, given the overriding provisions of the Agreement, the UK will be unable to participate in any of the decision making bodies or agencies of the EU in relation to medical devices, such as the European Commission's decisions or day to day regulation. UK based notified bodies, and the certificates they issue, will continue to be recognised across the EU for the transition period but only up until the end of such period. What happens beyond that point will need to be addressed in a future trading relationship but the Agreement requires UK notified bodies to transfer information relating to a conformity assessment to a notified body established in the EU upon request of the certificate holder, prior to the end of the transition period.
The Agreement provides that key EU legislation regulating medicinal products shall continue to apply in the UK during the transition period, including in relation to the authorisation and supervision of medicinal products for human and veterinary use, clinical trials (including the ongoing replacement of Directive 2001/20/EC by Regulation No 536/2014), paediatric, orphan and advanced therapy medicinal products.
However, given the overriding provisions of the Agreement, the UK will be unable to participate in any of the decision making bodies or agencies of the EU in relation to medicinal products, such as the European Medicines Agency. This will mean a striking loss of ability for the UK to influence medicines regulation in the EU as it enters the transition period.
The Agreement provides for both the UK's Medicines and Healthcare products Regulatory Agency (MHRA) and EU competent authorities to make available, upon request to each other, the marketing authorisation dossier of a medicinal product authorised by a competent authority of that Member State before the end of the transition period.
The UK's major pharma trade association, the Association of the British Pharmaceutical Industry (ABPI), has cautiously welcomed the Agreement as an "important step" in that it would provide some certainty and continuity to the industry and to patients for the transition period, noting that there remains "more work to be done".
The European Federation of Pharmaceutical Industries and Associations (EFPIA) has criticised the Agreement for failing to specifically address the health issues important to patients, their safety and the wider public health, calling for the securing of long-term, extensive cooperation around the regulation of medicines as in the best interest of patients.
The implications of "no deal" on public health are now being given widespread coverage, with even UK Prime Minister Theresa May revealing on Friday 16 November that as a Type 1 diabetic, she too is personally invested in the continuity of key medicines, including her insulin, which originates from Novo Nordisk in Denmark.
The Agreement provides for a continued UK role during the transition period in EU science programmes, including the Horizon 2020 research fund, and the EU structural funds often used to support small businesses.
However, the fall in the value of the pound during the Brexit turmoil has been calculated by scientists for EU to have added £1 billion per year to NHS costs, which include £100 million to pay for the health care of UK residents based elsewhere in the EU, and an extra £900 million to the cost of imported supplies and equipment.
Furthermore, NHS staff shortages could reach 350,000 by 2030 if losses continue and the NHS is unable to attract skilled workers from abroad, according to analysis by the King's Fund, the Health Foundation, and the Nuffield Trust.
At present, there are mechanisms to ensure that either the European Commission or the UK Competition & Markets Authority ("CMA") takes jurisdiction over an EU antitrust investigation. In relation to mergers, if a transaction is notified to the European Commission, the CMA does not have jurisdiction to also review that transaction (unless the European Commission refers it to the CMA). As for state aid, the European Commission has sole competence to investigate illegal aid granted by the governments of EU Member States to businesses.
Post-Brexit, if conduct has an effect on trade within the UK and also between EU Member States, it may be investigated by both the CMA/UK sectoral regulators and the European Commission at the same time (the CMA and UK sectoral regulators will no longer have the power to enforce EU competition law). There will likely be more cases where both the EU and the UK could in parallel open an investigation and impose fines and other remedies for anti-competitive conduct affecting both the EU and the UK.
The UK will no longer be part of the EU "one stop shop" for merger control. When the UK leaves the EU, the EU and UK merger control regimes will run in parallel so that a transaction that meets the EU Merger Regulation notification thresholds may also be notifiable to the UK authority if the relevant UK filing thresholds are met.
Until now, there has been uncertainty about what will happen to EU antitrust investigations and EU mergers that are still undergoing EU review at the end of the transition period, and whether the CMA would be able to open a parallel investigation into the UK aspects of such cases.
The Agreement fortunately provides some clarity and sets out provisions to hopefully enable a smooth transition. According to the Agreement, where the European Commission has opened an antitrust, merger or state aid investigation before the end of the transition period, it will be able to continue and complete that investigation. This means that the CMA would not need to open its own parallel investigation under UK competition law into the UK aspects of that arrangement or merger.
Regarding state aid, it has been agreed that the European Commission will be able to investigate potential breaches of EU state aid rules relating to the UK that took place before the end of the transition period for up to four years after the end of that period.
However, the Agreement is silent on which authority would have jurisdiction to investigate infringements of EU competition law that occurred before the end of the transition period, but in respect of which an investigation has not yet been initiated before the end of that period. This suggests that in a case with both EU and UK aspects, it would be open to both the CMA and the European Commission to open parallel investigations, with the CMA reviewing the UK aspects only.
If the 'Northern Ireland backstop' takes effect, the EU and UK have agreed to have effective competition laws to ensure fair competition between the UK and EU, as well as state aid rules. This includes an obligation on the CMA to cooperate with the European Commission and to interpret UK law in line with EU law.
The Agreement is silent on the future relationship between the EU and UK in terms of competition law and enforcement, and does not cover the substance of competition law. However, the UK has previously stated that it does not intend to make fundamental changes to the existing UK competition law regime, which provides welcome certainty to business. However, this position may change over time. Like the 'Northern Ireland backstop', the future relationship is likely to include obligations to have effective competition laws and state aid rules, and a duty on the CMA to cooperate with the European Commission.
The Agreement provides that EU law will apply during the transition period in a number of areas.
Courts in the UK and courts in the EU (in respect of the UK) will apply Rome I and Rome II in order to determine the law that will apply to contractual and non-contractual obligations respectively. Rome I will apply to contracts concluded before the end of the transition period and Rome II will apply in respect of events giving rise to damage, where such events occurred before the end of the transition period.
The jurisdiction provisions of the Recast Brussels Regulation (together with certain other relevant EU regulations relating to matters of jurisdiction) will apply to any proceedings instituted before the end of the transition period and to certain proceedings related to such legal proceedings, for example subsequent proceedings involving the same cause of action between the same parties or otherwise related proceedings that are brought in the court of another Member States and which may therefore be stayed under the Recast Brussels Regulation in order to avoid parallel proceedings.
The recognition and enforcement provisions of the Recast Brussels Regulation (together with certain other relevant EU regulations relating to recognition and enforcement) will apply to judgments given in legal proceedings instituted before the end of the transition period (and to instruments drawn up and court settlements approved or concluded before the end of the transition period).
In respect of ongoing judicial cooperation, the Service Regulation will apply to judicial and extra-judicial documents and the Taking of Evidence Regulation will apply to requests received by the relevant designated bodies before the end of the transition period.
Neither the Agreement nor the Political Declaration give any indication as to the future relationship in respect of matters of choice of law, jurisdiction and the recognition and enforcement of judgments. The UK has previously indicated that it hopes to agree a wide ranging agreement that broadly mirrors the current position.
For employers with defined benefit (DB) schemes, the implications of the Agreement will be heavily dependent on its effect on the employer's business, including any consequential restructuring, during any of the periods mentioned above, and the impact on the industry sector in which the employer operates.
If the employer has concerns about meeting funding obligations during the transition period, it should seek advice on the nature and extent of those obligations. Employers should be prepared to engage with trustees of DB schemes, who will wish to understand how the employer's ability to support the scheme may be affected and what contingency plans it has in place.
The Agreement and Political Declaration have been approved by the UK and EU leaders. The Agreement will now need to be ratified both at the UK (by the UK Parliament) and EU level (by European Parliament and Council).
The most significant hurdle will be the approval of the UK Parliament. A number of Conservative MPs and the DUP have indicated that they will vote against the Agreement, forcing the UK Government to rely on Labour support, which may not be forthcoming. Should the Agreement be rejected or amended, this is likely to lead ultimately to a “no deal” Brexit, because the options are limited, these being:
(a) Return the deal to the EU-27 as amended, either asking for those amendments to be considered, or requesting an extension of the Article 50 period. The EU-27 will be reluctant to renegotiate with the UK Government based on Parliament’s amendments because it will have no assurance that the UK Parliament will approve a revised deal.
(b) Hold a General Election. With a fixed term Parliament, Conservative MPs will have to consent to dissolve Parliament and may be unlikely to do so if the threat from Labour is too strong.
(c) Hold a second referendum which might ask the UK electorate to agree to the deal rejected by Parliament, or to change their view on Brexit. It could ask for a combination of these two options, or even ask more open-ended questions. The Government currently rejects any version of a second referendum.
What should businesses be doing?
Given that there is still a possibility that negotiations could collapse and that the UK will crash out of the EU on 29 March 2019, businesses should keep preparing for a 'no deal' scenario. Given that there is a possibility (although remote) that the 'Northern Ireland backstop' will kick in for a period of time after the end of the transition period, businesses should also assess how they might be impacted during that period. Finally, businesses should continue to engage in lobbying activities, trying to influence the final shape of the agreement on the future relationship between the EU and the UK.