20 December 2018

The European Commission yesterday published a Communication updating the EU’s Contingency Action Plan for a No Deal Brexit, first published in November.

The document proposes 14 temporary measures covering several policy areas, including citizens’ rights, financial services, aviation, and road transport. It stresses that any contingency measures adopted should comply with several key principles. As well as being strictly temporary, they “should not replicate the benefits of membership of the Union, nor the terms of any transition period.” They are also unilateral measures undertaken by the EU, rather than bilateral deals, and can be revoked at any time. The document also strongly discourages Member States from entering into bilateral agreements with the UK in the event of No Deal, as this would “undermine the ratification process” and “in most cases would not be compatible with [European] Union law.” Separately, it is made clear that none of these contingency preparations can apply to Gibraltar.

The legal acts adopted by the Commission are proposals, and have not yet been implemented. The document emphasises that the next step of contingency measures is to ensure that the proposed legislation is adopted so that it is in force before the UK leaves the EU in March.

 

Citizen’s Rights

The Communication calls on EU Member States to take measures so that UK nationals legally residing in a Member State after a No Deal exit will continue to be considered legal residents of that Member State without interruption. The Commission calls on Member States to adopt a “generous approach” to UK nationals residing in their territories. However, it is far from clear that UK nationals would retain their acquired rights provided for under EU citizenship – instead, rules applying to third-country nationals could apply and it will be up to individual Member States to implement and enforce these rights. The Commission’s proposals have therefore been criticised as “barebones” by British in Europe, the pressure group representing UK citizens in the EU.

The document also points out that EU rules on the coordination of social security provisions would not apply to UK nationals in the event of No Deal, and asks Member States to take actions to take “all possible steps” to ensure legal certainty and the protection of social security entitlement for citizens who exercised their right to free movement prior to 29 March.

There is also a proposal for a Regulation which would exempt UK nationals from visa requirements for short stays (up to 90 days).

 

Financial Services

The November Contingency Action Plan acknowledged that UK financial operators would immediately lose passporting rights in the event of No Deal, which would create risks to financial stability in the EU27. Accordingly, yesterday’s Communication recommends contingency measures to reduce disruption – though these measures are strictly limited to those deemed to be in the EU’s own financial interests. There would be “temporary and conditional” equivalence decisions to prevent disruptions to central clearing of derivatives, and services provided by UK central securities depositories (lasting for 12 and 24 months respectively). There would also be a 12 month facilitation period to preserve the regulatory treatment of derivative contracts currently exempted from the clearing obligation – a demand long made by UK regulators. The long length of these contingency measures marks a softening from the position set out in November’s Contingency Action Plan, which had stated that “in principle” no contingency measures should last longer than 9 months.

 

Aviation

The Commission paper proposes two Regulations which would avoid major disruption to most UK-EU aviation services in the event of No Deal. The first would ensure air traffic can continue for a period of 12 months – as well as providing for direct flights between UK and EU airports, this would also allow UK airlines to fly over EU territory without landing, or make stops at EU airports for non-traffic purposes such as refuelling. This is conditional on UK reciprocation, which the Government has previously indicated would be forthcoming. The second proposed Regulation addresses aviation safety, and would extend the validity of various licences for 9 months – thus preventing immediate disruption in this area.

These measures are unsurprising, reflecting both the Contingency Action Plan and previous statements of intent from EU leaders. In March of this year, European Council President Donald Tusk said that even in the event of No Deal, “I am determined to avoid that particularly absurd consequence of Brexit that is the disruption of flights between the UK and the EU.”

The main omission with regard to aviation contingency is provisions for UK airlines to operate flights between EU airports (known as cabotage rights). However, this would likely be absent even in a comprehensive UK-EU aviation deal – the EU does not typically grant cabotage rights to third countries. Some UK airlines have prepared for this by changing their ownership model – EasyJet, for example, has set up an entity in Austria to ensure it maintains cabotage rights.

 

Road Haulage

On road haulage, a sector which is highly exposed in the event of No Deal, the Commission proposes a Regulation which would ensure “basic connectivity” by allowing UK road hauliers the right to continue carrying goods between the UK and the EU27 for a temporary period of nine months. This marks a major shift by the Commission, which said just a month ago that there was “no mechanism” to expand haulage licensing to the UK in the event of No Deal. This would have restricted UK haulage to the permits offered under the European Conference of Ministers of Transport – which would only have covered 5% of current road traffic.

However, as with aviation, these contingency measures do not cover cabotage – so UK hauliers would not be able to operate point-to-point within the EU. The EU also discourages member states from entering into bilateral agreements with the UK on road haulage – which is arguably controversial, given that road transport has long been seen primarily as a Member State competence.

 

Customs and Goods

The Commission’s paper confirms that in the event of No Deal, the UK will be treated as a third country for trade in goods. All relevant customs and regulatory checks will therefore apply to imports from and exports to the UK. The key question of whether this includes the land border between the Republic of Ireland and Northern Ireland is left unanswered.

 

What is missing from the EU’s contingency plans?

The Commission’s contingency plans are not exhaustive or all-encompassing, emphasising that they will “continue to monitor the need for additional action.” Indeed, there are several notable omissions which would have to be addressed in the event of No Deal. In particular, the only proposals for the Irish border are the continuation of existing cross-border cooperation programmes, such as PEACE IV – this is welcome, but the central question of whether the EU would seek to introduce checks on the Irish border to safeguard the integrity of its single market and customs territory is left unaddressed. There are also no indications as to whether the EU would take further action to safeguard cross-border trade in goods, including in vital supply areas, such as medicines, and no contingency measures related to the Single Electricity Market in Ireland.

 

The Commission is walking a political tightrope

The EU’s proposals would genuinely help to alleviate some of the disruption associated with a No Deal exit, but there is also a political dynamic at play. The specific measures advocated in the Communication are manifestly in the EU’s own interests. As the BBC’s Brussels correspondent Adam Fleming points out, 80% of UK/EU27 road haulage is provided by EU27 firms, and 97% of a particular kind of financial derivative is cleared in a single UK clearing house.

Equally, it is not in the EU’s interest to make No Deal seem palatable to the UK. The principle that No Deal contingency plans cannot replicate EU membership or the transition period lies at the core of this strategy, and the continued insistence that there will be no ‘side deals’ casts doubt on the feasibility of a so-called ‘managed No Deal.’

On the other hand, yesterday’s publication illustrates that the EU has already softened its position in some areas, compared to plans set out previously. The possibility of further changes to the EU’s No Deal strategy between now and March should not be ruled out.