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techUK's Head of Policy for EU Exit, Giles Derrington, looks at whether the UK's amendments to the EU's proposals on the transition deal give more clarity to business.

Last week, the Department for Exiting the European Union (DExEU) published the UK’s response to the European Commission’s draft text on what happens post March 2019. Call it ‘transition’ or call it ‘implementation’ the reality is still the same, the UK government is seeking a ‘status quo’ period after Brexit. The UK will no longer be part of the EU but will, for all intents and purposes, remain aligned to its rules and regulations.

This is good news. Almost no one now believes that the post-Brexit relationship between the UK and the EU can be agreed and implemented by March 2019. The time required to do everything from negotiating an EU Free Trade Agreement to building new customs systems is limited, and rushing them could create new risks. This period is vital to give businesses the time they need to prepare for the post-Brexit world. It is therefore welcome that both the EU and UK sides of the negotiations are signed up to delivering a transition period.

There is still a lot of detail to be determined. The Commission’s proposals, while welcome, raised concerns for the tech sector about how rigid the transition period would be. DExEU’s document seeks to amend the Commission’s proposals, and it’s worth putting the two side-by-side to compare and contrast. For the tech industry there are a number of important changes.

Duration

First, there is the question of how long the period will actually last. The Commission’s proposals are clear that a transition period should end on 31st December 2020 in line with EU budgetary timescales. Having secured a commitment for the UK to continue to meet expectations under the Current Multiannual Financial Framework (MFF) during the first round of negotiations, the Commission suggests that the end of the MFF should mean the end of the status quo.

The UK Government is less hard and fast on a date, saying the length should be:

“...determined simply by how long it will take to prepare and implement the new processes and new systems that will underpin the future partnership.”

There has been a lot of excitement about whether this means the UK is content with an undefined (and therefore potentially indefinite) transition period. However, the paper repeats the government’s position that transition should last ‘around two years’. It stops short of saying the Commission’s proposed date is wrong and instead, simply says that the UK 'wants to explore the evidence base' for the December 2020 timeframe.

The UK Government’s challenge to the Commission’s short transition period, is welcome but it is still far from certain that ‘about two years’ will be enough to deliver the complex systems and changes that Brexit will require.

UK Involvement in EU Decision Making

Both the UK and the EU agree that, during transition, the UK will have to follow existing EU law and, most importantly, abide by new law created and implemented by the EU during that time. This includes a number of changes likely to affect UK tech businesses, for example, European Electronics Communications Code, the new ePrivacy Regulation and potential changes rules surrounding e-commerce.

However, because the UK will no longer be an EU Member State post March 2019, the UK’s role in the European Parliament and on the key regulators will end. This runs the risk of the UK being forced to apply rules over which they have had no say. techUK has consistently said that, post-Brexit, we want to see key UK regulators retain a role within relevant aspects of European decisions making. This can be facilitated by granting UK regulators ‘observer’ status similar to that currently held by Norway. A specified regime facilitating this will be needed during the transition, with a longer-term relationship agreed in the next round of negotiations on the future UK-EU partnership.

The EU’s view on this issue has hardened over time. Under pressure from key Member States, the Commission’s proposals for transition say that UK representatives and experts should only be consulted on a ‘case-by-case basis’ as an exception to usual rules. UK regulators invited to meetings of EU regulators would only be there to address specific points on the agenda relating to the UK.

The UK Government’s proposals include a far wider role for the UK, with a right to be involved in decisions that affect any EU interest or where it is beneficial for the implementation of EU rules. While this would be a welcome step, it is some way away from the full observer status on all decisions that would give the UK continued influence over some of the big changes underway that will undoubtedly affect global regulatory practises.

Existing EU Bilateral trade deals

When the UK leaves the EU it also leaves the scope of any bilateral deals the EU has signed. These include Free Trade Deals, for example the Canadian Comprehensive Economic and Trade Agreement (CETA), and other forms of bilateral agreement, such as the EU/US Privacy Shield that facilitates data flows between the EU and US.

These deals will all have to be reconstituted and potentially renegotiated after Brexit. Originally the Government had said it intended to seek to renegotiate EU FTAs with third countries by March 2019. However, in a technical noteearlier this month they set out an alternative approach whereby the UK remains part of the EU’s existing agreements during the transition. This is a sensible step as it is highly unlikely that bilateral deals could be renegotiated in time.

The Commission’s proposals for transition simply state that the UK will be bound by the obligations of agreements that the EU has entered into and that they will not be able to participate in any of the bodies set up under these agreements. The UK’s response seeks to retain the current status quo, benefiting from these international agreements while also participating in the bodies that deliver them.

Despite demands of some Conservative MPs, the UK’s position does not seek to allow the UK to enter into trade deals on its own accord during the transition. The fact that the Government is accepting of the EUs view on this issue is a positive step as it is likely to prevent significant deadlock in agreeing the transition. Given the time it takes to deliver FTAs it is also a sensible concession as it is highly unlikely the UK could conclude negotiations with other third countries before the end of the transition period.

The UK as a Third Country

One issue not entirely made clear in either set of position papers is whether the UK will be treated as a true third country or not during transition. While the papers are both clear the UK remains bound by obligations on it, the fact that under the EU’s proposals they will no longer be able to participate in decision making bodies makes the formal status unclear.

For the tech industry this is crucial when it comes to data flows. If the UK is a third country, then it would require an adequacy agreement to make clear that UK data protection rules are ‘essentially equivalent’ by March 2019. If the UK is not treated as a full third country, then data flows can continue as now and adequacy could be negotiated during the transition period.

It seems highly likely that the intention of the agreement is to keep the UK within the EU’s data protection framework during the transition. Given the lack of time to put any alternative arrangements in place this is the workable option for the tech industry but further clarification is needed from both the UK and the EU.

EU Citizens During Transition

Earlier in the year, the Prime Minister said that she would oppose the assumption made in the EU’s position (though not explicitly referred to in their draft text) that the UK would abide by free movement rules during the transition and that those coming to the UK during to transition would be covered by the provisions for ‘settled status’ agreed during the first round of negotiations.

However, this demand is conspicuously absent from the UK’s amendments to the EU’s text. There is no reference to EU citizens at all and nothing which suggests that the UK will prevent freedom of movement or any other part of the EU acquis. When challenged on this the Government have said that they still intend for this issue to be subject to the negotiations to come but didn’t want to put up a roadblock to agreement. Given that, as the Home Affairs Select Committee have said, the Government is already significantly behind in preparing for a post-Brexit system and “will not cope with last-minute and under-resourced Brexit changes” ahead of next March, continued freedom of movement during the transition appears to be the most pragmatic approach.

The one set of changes that both the UK and the EU agree on in their draft texts is on democratic engagement. EU citizens in the UK, and UK citizens living in the EU, will no longer have the right to vote or stand in municipal elections during the transition period. Certain rights to petition to the European Parliament will also no longer apply to the UK. Given the highly charged debate over EU citizen’s rights, this may be a source of contention in the future.

Next steps

The EU and UK’s transition documents are, of course, simply part of the negotiation processes. They will continue to be subject to negotiation with a resolution expected ahead of the EU Council meeting on 22 and 23 March.

The priority in all this is to reach an agreement. While many businesses are already pricing a transition period into their Brexit planning, until it is formally agreed there will remain significant uncertainty. Failing to agree by March would not only heighten this uncertainty but would also eat in to the limited time available between March and October to discuss the UK and EU’s future relationship. As ever with Brexit, the clock is very much ticking.