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The post-Brexit transitional period: Bridge over troubled negotiations?

16.10.2017 Trade, Corporate & Commercial

One fundamental fear haunts the advocates of Brexit: it is that, despite their victory in the June 2016 Referendum, the result will be whittled down step by step, agreement by agreement, until the UK remains in the EU or does so in all but name by accepting quasi-EU arrangements. In Guiseppe di Lampedusa’s famous novel of an aristocratic Sicilian family trying to survive Garibaldi’s revolution, the hero, Prince Fabrizio, pretends to support the end of feudalism, trusting that his subjects will nevertheless continue to respect the traditional ways – “Se vogliamo che tutto rimanga come è, bisogna che tutto cambi”.  If we want things to stay as they are, everything will have to change.

Much has been written and spoken on the need for a transitional period after the UK leaves the EU on 29 March 2019, recognising that the economy and our institutions will need time to adapt to a new status as a “third country” outside the EU bloc. After much public wrangling, all major UK parties now support the idea of a period of about two years (perhaps more) during which temporary trade arrangements will apply to smooth the transition from membership of the EU single market, customs union and other EU agreements to a fully stand-alone UK.

The UK’s notice of withdrawal and its consequences

On 29 March 2017, the UK government issued its notice of withdrawal from the EU pursuant to Article 50 of the Lisbon Treaty. As a result, at the expiry of two years from the date of the notice, the EU treaties cease to apply to the UK and it will become a “third country”, to be treated in a similar way to other non-EU countries although a trade agreement (or several agreements) may be negotiated to define the relationship between the EU and UK as from 30 March 2019 onwards. 

Article 50 does provide for the possibility of an extension of the two year withdrawal period by unanimous agreement of the 27 remaining EU states and the UK but it does not refer to a transitional period or arrangement. This is unlike many international treaties which often provide for such post termination adaptation periods, such as Article 30.9(2) of the recently agreed Canada-EU Trade Agreement which provides that “[I]n the event that this Agreement is terminated, the provisions of Chapter Eight (Investment) shall continue to be effective for a period of 20 years after the date of termination of this Agreement in respect of investments made before that date.” Bilateral investment treaties also routinely provide for such transitional, post-withdrawal periods.[1] Public international law does not support the idea of an implied right to a transitional period after notice of withdrawal has been given: instead precedents indicate that the relevant treaty must expressly provide for such a mechanism.[2]

The UK’s request for a transitional period

After some prevarication and internal debate, the UK government officially raised the possibility of a transitional period in Prime Minister Theresa May’s speech in Florence on 22 September 2017:

…a period of implementation would be in our mutual interest.  That is why I am proposing that there should be such a period after the UK leaves the EU…during the implementation period access to one another’s markets should continue on current terms…The framework for this strictly time-limited period, which can be agreed under Article 50, would be the existing structure of EU rules and regulations…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… As of today, these considerations point to an implementation period of around two years.[3]

The EU’s position on a transitional period

Very shortly after the UK’s notice of withdrawal, the European Council[4] envisaged the potential need for a transitional period and expressly provided for this possibility in the negotiating guidelines it adopted on 29 April 2017:[5]

To the extent necessary and legally possible, the negotiations may also seek to determine transitional arrangements which are in the interest of the Union and, as appropriate, to provide for bridges towards the foreseeable framework for the future relationship in the light of the progress made.  Any such transitional arrangements must be clearly defined, limited in time, and subject to effective enforcement mechanisms.  Should a time-limited prolongation of Union acquis be considered, this would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply.

These principles were again stated in the negotiation directives conferred on the European Commission team conducting the bilateral EU-UK talks on 22 May 2017.[6]

It should be noted that the EU27 are rather more circumspect and measured in their approach to a transitional period than the UK.  Whereas the UK government appears to be confident such an agreement will be reached and (to quote Mrs. May in Florence) this arrangement means “how we build a bridge from where we are now to where we want to be”, back in May 2017 the Council emphasised that such an arrangement could only be negotiated “[t]o the extent necessary and legally possible” and also stressed that the transitional period “would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply”.[7] 

On 3 October 2017, and in response to Mrs. May’s 22 September speech, Michel Barnier, the EU’s appointed negotiator, was fairly blunt in dealing with the terms of any transitional period:

We have little time between now and October/November 2018 to reach an agreement on the orderly withdrawal and – as the British government has requested – a possible transition period, for which the conditions have been clearly defined by your resolution in April, again today, and also by the European Council’s guidelines.

This period will be short and supervised, and will involve the full regulatory structure, as well as budgetary and legal conditions, and the role of the European Court of Justice.  It was your request to have a short transition period.  It is our right to say that this will be subject to the conditions of the Single Market.  We were not surprised by this request for a transition period.  We foresaw it.  We will discuss it at the appropriate time, and that time has not yet come.  I would need a mandate for this.[8]

The challenges of negotiating a transitional period

There are formidable challenges to establishing a viable transitional regime for the UK once it ceases to be an EU member state.  Some commentators point out that transitional periods are a routine feature in the arrangements for states joining the EU, so that the reverse should be achievable (even if in the other direction of exiting the Union). But this is to misunderstand the process: joining a vast corpus of laws and policies requires adaptation and progressive implementation, whereas disentangling 43 years of joint activity and law-making while temporarily smoothing out the process with transitional arrangements is surely a fundamentally different undertaking.

A key question is the role and status of EU law in the transitional period arrangements. One of the UK government’s “red lines” is the exclusion of the jurisdiction of the Court of Justice of the European Union (“ECJ”) over the UK. Mrs. May has repeatedly insisted that the ECJ would no longer have a role as the ultimate arbiter of EU obligations and rights after the UK leaves the EU on 29 March 2019, arguing that to do otherwise would mean the UK accepting the jurisdiction of a foreign court over its internal affairs. There have been suggestions of a UK-EU dispute settlement system whereby an arbitral court or a joint committee of both parties would resolve disputes. 

This is an arrangement close to the existing Swiss-EU dispute resolution system where difficulties of implementation are referred to a Joint Committee for amicable settlement and where Swiss courts take utmost notice of EU jurisprudence without being obliged to defer to the superior jurisdiction of the ECJ.[9] However anything short of ECJ jurisdiction over transitional arrangements clashes directly with the EU27’s condition that any implementation period agreement would have to be subject to EU law and its institutions and that inevitably includes the ECJ. This was made crystal clear by Michel Barnier in his speech of 3 October 2017 quoted above. Indeed it is difficult to see how it could be otherwise, as the alternative would mean the UK gaining continued access to the EU single market and customs union, as well as benefitting from the EU’s trade agreements with third countries without being subject to the same legal discipline as the other 27 Member States. While the UK Conservative government would no doubt find it politically very difficult to accept this continued role for the ECJ after March 2019, there is certainly a mechanism within the EU Withdrawal Bill to achieve this: the Bill once enacted would transpose all EU law existing at the time into the UK legal order and, under clause 9 of the Bill, the UK ministers would have unfettered powers to amend any UK law to give effect to an agreement on a transitional period that incorporated ECJ jurisdiction. Several leading UK politicians have publicly stated their opposition to any such result, but Mrs. May speaking officially on behalf of the present UK government has been careful not to rule out this outcome, saying it would be the subject of negotiations.

Another important question is the nature of such a transitional arrangement. Article 50 of the Lisbon Treaty does not provide for a transitional period and such a term cannot be implied into the terse text of that Article. In her Florence speech, Mrs. May asserted that a transitional period after the UK ceases to be an EU Member State “can be agreed under Article 50”[10] but this is to misread the Lisbon Treaty. Article 50 envisages that the EU “shall negotiate and conclude an agreement with [the exiting State], setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union”. The reference to a “framework” of future relationship is not a legal basis for a transitional implementation period of the type proposed by Mrs. May in Florence. Instead, a transitional arrangement extending the continuance of EU obligations and rights for, say, three years from 30 March 2019 to 29 March 2021 would be an entirely new trade agreement separate from the Article 50 negotiations. It could be the first phase of a comprehensive bilateral trade agreement or a stand-alone agreement of limited duration. It could even be composed of a series of bilateral agreements covering individual industry sectors, such as agriculture or aviation, much like the numerous EU-Switzerland bilateral agreements.[11] 

Presumably the difficulties of such a deal are what lay behind the EU Council’s choice of words when it referred to the possibility of a transitional arrangement with the UK “[t]o the extent necessary and legally possible”. A significant political difficulty with a transitional arrangement is that, while a withdrawal agreement with the UK requires only a qualified majority of the Council[12] and the majority vote of the European Parliament, a transitional trade and institutional agreement between the EU and the UK would be a so-called “mixed agreement” combining areas of EU and Member State competence: such an agreement would require the ratification of all 27 Member States in accordance with each state’s constitutional requirements, and that process could take longer than the remaining Article 50 period.[13] The Belgian region of Wallonia (population 3.6 million) proved this point in October 2016, when the objections of its devolved parliament prevented Belgium from signing the treaty for several weeks, in turn jeopardising the entire trade deal.

A possibility seldom aired, for obvious political reasons, is a request by the UK for an extension of the Article 50 period for a limited period of time. This is expressly envisaged by Article 50(3) and would depend on the unanimous consent of the EU 27 and the UK. It would not require the lengthy and tortuous process of ratification by each national assembly of the 27 remaining Member States. On the UK side, an Act of Parliament would no doubt be required as the European Union (Notification of Withdrawal) Bill does not include a provision for a request to extend the Article 50 period. Such a step would be certain to cause further political upheavals within the UK and some difficulty for the EU27, not least how to accommodate continued participation of the UK in the Council or the European Parliament, since presumably the UK would still be an existing Member State. However, the advantage of such a course would be avoiding disputes on continued application of EU law, allow more time for measured discussion and negotiation between the parties. But it would not solve the essential need to achieve agreement on future trading rules between the UK and the EU27, even if it allowed a respite from the pressures of the Article 50 clock (particularly on achieving border arrangements and not further unsettling EU citizens in the UK or UK citizens residing in the EU). Certainly Article 50 could not, on any reasonable reading, be extended indefinitely, without some form of continued negotiations between the current UK government (or its successor) and the EU27, whose own political composition will change over time as national elections are held in different Member States. 

Conclusion

It is interesting to observe the trajectory of the Brexit negotiations so far. After an insistence on the UK’s determination to forge its own individual future destiny, even at the cost of no deal, as in Mrs. May’s Lancaster House speech on 17 January 2017,[14] more recent pronouncements of the Conservative government have increasingly voiced support for a phased exit from the EU. The Labour party opposition has openly advocated a transitional agreement for as long as necessary, including preserving the benefits of the single market and the customs union (without specifying how this could be achieved as a non EU or EEA Member State).  Significantly, on 5 October, David Davis, the UK Minister in charge of Brexit negotiations declared “There is now, I think, widespread agreement across Europe that it will be beneficial to have an implementation period… How long that will be and how it will work will be decided straightforwardly on practicalities.”  In short there has been a general realisation that undoing 43 years of economic, political, social and cultural integration is a formidable task that will require time and flexibility on both sides.

The difficulty for the UK government is, of course, the internal political situation of a country divided on the issue of Brexit. Accusations of betrayal of the voters’ wishes in the June 2016 Referendum are repeatedly made when concessions are proposed, but what would have been unthinkable as a negotiating position straight after the Referendum has been tempered by events and a deeper understanding of the challenges of Brexit. Perhaps the negotiators of Brexit will draw comfort from the French diplomat Talleyrand who successively served Louis XVI, Napoleon and Louis XVIII and who declared that treason was a matter of dates…

If the Brexit negotiations do not progress and the discussions on a future trade agreement stall, the economic consequences for the UK and the EU27 may be serious. Compromise and extensions of time are the essence of negotiations and it is increasingly likely that a post-March 2019 arrangement will be agreed, but probably on terms that will surprise the voters who took part in the June 2016 Referendum.

[1] See the survey in McCorquodale, Gauci and Wazkewitz “Brexit Transitional Arrangements and Public International Law” BICCL paper, 2017, a paper commissioned by Linklaters and available at www.biicl.org/documents/1504_transitional_arrangements.pdf?showdocument=1

[2] ibid.

[3] www.gov.uk/government/speeches/pms-florence-speech-a-new-era-of-cooperation-and-partnership-between-the-uk-and-the-eu

[4] i.e. the institution of the EU that represents the governments of the EU 27

[5] www.consilium.europa.eu/en/press/press-releases/2017/04/29-euco-brexit-guidelines

[6] https://ec.europa.eu/commission/publications/negotiating-directives-article-50-negotiations_en

[7] See the quotes above

[8] Closing statement by Michel Barnier at the Plenary Session of the European Parliament on the state of play of the negotiations with the United Kingdom, available at http://europa.eu/rapid/press-release_SPEECH-17-3681_en.htm  

[9] For a detailed description see: Yuliya Kaspiarovich « Le cadre institutionnel pour les accords bilatéraux Suisse-UE : statu quo, perspectives et critiques »  Global Studies Institute de l’Université de Genève June 2014 ; Christa Tobler  “One of many challenges after ‘Brexit’: the Institutional Framework of an Alternative Agreement – Lessons from Switzerland and Elsewhere?”  www.biicl.org/documents/1686_professor_dr_christa_tobler.pdf?showdocument=1

[10] See the quotation of her speech above.

[11] There are over 130 bilateral EU-Switzerland agreements.  See: www.europarl.europa.eu/meetdocs/2009_2014/documents/deea/dv/2203_07/2203_07en.pdf

[12] 72% of the Member States representing 65% of the EU population

[13]A further complication, as suggested in his interesting and entertaining commentary blog by Prof. Steve Peers is that the legality of a transitional agreement might be challenged by opponents to such a deal in the ECJ itself. See: http://eulawanalysis.blogspot.co.uk/2017/09/bridge-over-troubled-legal-water-legal.html

[14] www.gov.uk/government/speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech


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