Out-Law Analysis 8 min. read

As EU Council decides fate of trade talks, what exactly has been agreed so far?

ANALYSIS: EU leaders will meet in Brussels today and tomorrow to decide whether Brexit negotiations can progress to the next stage: trade talks. 

Leaders at the European Council will almost certainly agree to progress following a deal agreed last week by UK prime minister Theresa May and European Commission president Jean-Claude Juncker on the Irish border, citizens' rights and the UK's payment of its exit bill.

But what exactly has been agreed on these three vital issues and others such as cross border selling of goods; dispute resolution, and nuclear issues?

We examine below the detail of the joint report that May's and Juncker's agreement was based on. Remember that Pinsent Masons provides regular updates on the business impact of Brexit on our Out-Law special report on Brexit, where you can follow developments and sign up to My Out-Law to subscribe to updates.

Citizens’ rights

EU citizens living in the UK will take some comfort from the report, which gives broad reassurance that EU individuals and their families who are already in the UK will be entitled to stay beyond the withdrawal date of 29 March 2019 with their existing rights intact.

A simple process of applying for confirmation of permanent residence status, or 'settled status'' will be introduced. Whilst comforting at first glance, the details of that process have not been articulated. Since the report was issued, there has been a recognition that the current process of applying for permanent residence status in the UK is unfit for purpose. The government will need to ensure that it allocates sufficient resources to the bodies supervising those processes to facilitate the “transparent, smooth and streamlined” process the report requires. That application process must be “user friendly” and the UK has to “work with the applicants to help them prove their eligibility”. So the process by which an EU national may apply to have their rights of residence in the UK confirmed is to be made quicker and easier.

The withdrawal date of 21 March 2019 is not going to be a hard deadline by which EU nationals have to have secured their status. They will have a period of two years from that date to make an application. In the interim period they will have a temporary residence status, with all of their rights intact.

EU nationals' existing rights will automatically extend to their family members, so family members do not need to be resident in the UK on 21 March 2019. Provided that the relationship exists as at the withdrawal date, family members can join the individual in the UK at a later date, in fact at any time during the lifetime of the individual. Similarly, “partners in a durable relationship” in March 2019, but who were not resident in the country on that date, are to be permitted to join their partner in the UK at a later date, provided that the relationship continues to exist at that time.

The comfort that the government proposes to give to EU citizens currently in the UK will be useful for employers in reassuring their current workforce. They will have protection and continue under the same regime as currently, although they will have to take steps to secure that status, and we would encourage employees to take such steps as they can right now in order to document their status.

The main problem for employers is how they are going to meet future workforce requirements after the withdrawal date of 29 March 2019. After that date, the immigration requirements for EU nationals are unknown. So whilst businesses in the UK have a period of certainty in terms of keeping the employees which are already here, there is no certainty in terms of being able to rely on future migration into the UK from Europe.

One further politically controversial element of the report is the continued role of the Court of Justice of the European Union (CJEU). The report says that the CJEU will continue to have authority in the UK in relation to these citizens’ rights for eight years following withdrawal. The ongoing role is restricted to issues relating to citizens’ rights. In contrast, UK employment rights which are derived from EU directives would not be subject to direct CJEU jurisdiction.

The Irish border

The EU demanded as a precondition to moving to trade talks that a solution was found to the problem of the border between Ireland and Northern Ireland. As the only land border between the UK and the EU there had to be protection of the borders of the single market and customs union but without border and security checks that would threaten the peace process in Northern Ireland.

Ireland's Taoiseach Leo Varadkar had demanded that no hard border be re-established, while leader of Northern Ireland's Democratic Unionist Party (DUP) Arlene Foster demanded that the rules applying to Northern Ireland be no different to those applying to the rest of the UK. May's government depends for its parliamentary majority on the votes of 10 DUP MPs.

May reached a deal which promised that the UK will retain full alignment with single market and customs union rules in areas where divergence might threaten the Good Friday peace agreement of 1998.

This compromise will raise confidence in the business world that a workable solution to the Irish border issue will ultimately be delivered. However, the agreement carries a significant potential cost to Brexiteers who hope regulatory divergence between the UK and EU after Brexit may unlock competitive advantage. By affirming in the report the UK government’s “guarantee of avoiding a hard border”, the prime minister has conceded that “any future arrangements must be compatible with these objectives”.

Through this promise the UK government intends to avoid any elements of a hard border developing. The DUP’s demand that the UK remains as one is upheld, as it the Taoiseach’s that no hard border be re-created.

Many have interpreted this crucial concession from the UK government as meaning that what will transpire is a soft Brexit. Certainly, coupled with ground ceded on CJEU involvement on the issue of EU nationals post-Brexit, the scene would appear to be no longer to be set for a “walk away” hard Brexit. However, whilst the report indicates significant progress has been made on the issue of the Irish border, the matter is by no means settled, and we should expect the issue to raise its head again, especially given the parliamentary leverage that the DUP have.

The agreement says that Irish border "will continue in a distinct strand of the negotiations”, which is an indication that the border remains a highly challenging issue.

As the implications begin to dawn of May’s apparent commitment to regulatory harmonisation for the whole of the UK with the EU – the price of her getting over the line to round two trade talks – we can expect hardline Brexiteers to test this pledge.

Any potential weakening of the position will be watched keenly from Ireland, where Varadkar is emboldened and fully aware of his ability to frustrate negotiate negotiations or even veto a final deal.

Goods sold in the UK and EU

The report confirms that goods that comply with relevant product standards before Brexit day can continue to be sold after withdrawal.

The EU will not require amendments to such products or their labelling and shall not add any additional restrictions as relevant approvals, registrations and authorisations will continue to be recognised.

This continued availability of goods provides businesses with much more certainty. It enables them to continue their plans for new products to be placed on the market and those they are modifying as part of their usual business. This will be a welcome relief and significantly reduce potential transition costs of product modifications and re-labelling or disruptions to supply chains. Businesses will need to consider whether to increase investment in order to bring forward product launches to before Brexit day when they can obtain this level of certainty.

One unanswered question is: how will it be determined when goods are “placed on the market”? It is not clear from the position statement whether this will include pre-ordered goods, such as cars, that have not yet been manufactured or whether it will be reserved to sales actually made and fulfilled or whether each sector's relevant existing definitions will be used. This lack of clarity still makes that planning difficult, particularly in some sectors.

These products will still be subject to ongoing EU oversight. This will continue while the UK does not have a seat at the table in order to influence such oversight, and the detail of how this will play out practically following withdrawal has not been worked out.

Resolving disputes and enforcing judgments

In the context of cooperation in civil and commercial matters there is now consensus that EU rules on conflict of laws should continue to apply to contracts before the withdrawal date and non-contractual obligations where an event causing damage occurred before the withdrawal date.

Less helpful is the continuing uncertainty about the basis on which EU rules on jurisdiction and recognition and enforcement of judgments will apply in the future, particularly given that there are a number of possible approaches in that regard. The fact that there is agreement to provide legal certainty is of little assistance.

There is at least clarity in terms of ongoing judicial procedures in the EU courts. The report confirms that procedures which are registered at the CJEU by the date of withdrawal should continue to be dealt with by the EU courts up until there is a binding judgment. This may be helpful for businesses with ongoing disputes involving particularly controversial points of EU law which are likely to require references to the CJEU.

In relation to citizens' rights the UK courts will have due regard after withdrawal to relevant decisions of the CJEU, and there will be a mechanism to enable UK courts and tribunals to refer questions of interpretation of these rights to the CJEU for litigation brought within eight years if Brexit. The report is silent on whether a similar type of mechanism would apply to other types of disputes.

Euratom and nuclear-specific issues

The report sets out some agreed principles relating to nuclear safeguards and ownership of fissile material post-Brexit where the UK is no longer part of Euratom. The document includes wording that suggests that the UK has broadly agreed to mirror the existing Euratom regime in its own domestic regime – something likely be welcomed in many respects by the UK’s nuclear sector. That domestic safeguarding regime will be established in due course, including in large part by the Safeguards Bill that is currently under consideration by the UK parliament.

It is unclear what exactly has been agreed in relation to the ownership of special fissile materials, though "principles of ownership” have been agreed. Special fissile materials are defined categories of nuclear materials which, under the Euratom Treaty, are ultimately owned by Euratom although the right of use vests in others.

It is also not clear from paragraph 89 how the UK intends to approach the negotiation of new international nuclear co-operation agreements with third party nuclear states and the Euratom community. This at least in theory represents the greatest commercial and resource-intensive job for the UK government during the two year negotiation window, and is the area with the greatest potential for impact on the existing commercial operations of the UK’s nuclear industry, particularly in the context of existing commercial and contractual relationships for the ‘import’ of nuclear technology and information.

The report does however demonstrate how seriously the negotiating parties are taking nuclear-related issues by specifically agreeing principles in ‘phase 1’. While many in the industry will welcome these developments, significant progress around the detail will need to be made quickly to ensure that arrangements can be implemented before the UK leaves Euratom and the EU.

Clare Francis is a Brexit expert at Pinsent Masons, the law firm behind Out-Law.com

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