Brexit Business Brief | Sectors and the future relationship

Welcome to Brexit Business Brief, our regular newsletter looking at Brexit developments in a legal and business context. To receive this by email please register your interest in receiving Brexit Insights.

What's happening?

Following the political agreement reached in late March on the transition period, the EU and UK negotiating teams have been discussing the continuing problem of how to avoid a hard border between Ireland and Northern Ireland.

Reaching a solution to the border issue is integral to the Withdrawal Agreement between the EU and the UK. But the Withdrawal Agreement also contains the provisions governing the proposed transition period. So, no agreement on the Irish border would mean no transition. We discussed what is needed to make the transition period a legal certainty in this Briefing.

Meetings to coordinate the talks on the future, post-transition relationship between the EU and the UK will start this week. There's much speculation as to what those talks are aiming to achieve by October 2018: a broad, heads of terms style declaration (the EU aim), or something more detailed and substantive (seemingly the UK's objective).

Previous form in the Brexit negotiations and the time required to negotiate trade agreements suggests that the EU's view is likely to prevail, although the two sides are starting from a position of existing legal and regulatory alignment and that could, arguably, assist some aspects of the negotiation process.

General developments

The CBI last week published a comprehensive report setting out its views on the degree to which 23 sectors of the UK economy want to remain aligned with EU law and regulation. This follows extensive work with "hundreds" of businesses and many industry groups.

The CBI writes:

"The views of business are clear. As the UK leaves the EU, there are opportunities for rules changes – for example in agriculture and tourism – and ways of regulating better within current frameworks – such as in procurement for defence and construction.

However, these opportunities are limited and are vastly outweighed by the costs that will be incurred if the UK’s rules change so much that it reduces smooth access to the EU’s market. Where rules are fundamental to the trade or transport of goods, the UK and EU must negotiate not just alignment of rules, but ongoing convergence – where rules remain in lock-step over time and are recognised as so in order to allow the simple trade of goods and services.

"But the deal must not stop at goods trade, as so many free trade agreements do. To adequately match the depth of the relationship between the UK and the EU, negotiators should look to set a new international precedent in the trade of services and digital products with the Brexit deal."

The CBI report is a useful read. It contains 23 separate analyses of EU rules, from aerospace, broadcasting, construction, consumer goods, creative industries, energy and financial services to food and drink, life sciences, rail and technology.

Sector developments

Financial services
The three European Supervisory Authorities published their latest joint report on risks and vulnerabilities in the EU financial system. The section on Brexit says:

"...increased relocation activity can be expected closer to the withdrawal date, since market participants need to be ready by March 2019 in case of no transition period. It is important for EU financial institutions seeking relocation to the EU27 to apply soon for relevant operating licenses given the length of time needed to secure authorisations. By the time legal certainty on a potential transition period may be attained, financial institutions would not have sufficient time to take necessary measures."

The Bank of England and the Financial Conduct Authority confirmed that, from the UK side, firms passporting into the UK can continue to do so until the end of the transition period (and the UK authorities will create a temporary permissions regime if necessary). The logic of the transition period is that the same should apply to firms passporting out of the UK into the EU during the transition period. But as is apparent from the ESAs' position set out above, EU financial regulators are focusing firms' attention on the possibility of there not being a transition period.

ISDA published 32 Brexit FAQs and the Alternative Investment Management Association released a Brexit position paper.

European Commission "be prepared" notices
More notes from the Commission on what the legal position would be across various business areas if the UK leaves the European Union without a formal, ratified agreement. These latest notes cover aviation, copyright, and .eu domain names, amongst other topics. The complete, burgeoning set is here.

Employment
The Migration Advisory Committee has published its interim report on the role of EEA workers in the UK labour market, accompanied by the responses to the call for evidence the MAC made in July 2017. These responses are from employers in a wide range of sectors, including food and drink, utilities, retail, transport, media and communications, and financial and professional services.

The Home Secretary confirmed at the end of March that the anticipated Immigration Bill (which will be informed by the MAC's work) will not appear until early 2019, with a white paper late in 2018.

Legal developments

The Institute for Government yesterday released an excellent report on "Voting on Brexit", looking at how the Brexit legislation may pass through Parliament this year and what the principal risks are for the government.

At the seminar marking the report's launch, which I attended, a focus of discussion was whether the combined effects of the views of MPs, the Irish border issue, and business lobbying, may result in the UK staying in the Customs Union (or agreeing a customs arrangement or partnership with the EU which effectively mirrors the Customs Union). Within a Brexit process that remains complex and extremely hard to predict, there did seem to be some consensus that the UK could remain in the Customs Union as a result of those effects.

The House of Commons Library has produced a good guide to the draft EU-UK Withdrawal Agreement.

A note from the Solicitor-General explains how "retained EU law" should be interpreted by the courts.

The City of London Law Society has written a paper on the implications of Brexit for cross-border restructuring and insolvency.