Brexit - The Political Declaration and its impact on services

The impact of Brexit will be keenly felt in Ireland regarding the provision of services generally (including financial services). While the rejection of the Withdrawal Agreement on 15 January 2019 by the House of Commons throws the negotiated deal into fundamental doubt, it is still possible that it will resurface (in some form) at a point in the future. If so, understanding the Political Declaration and its ambitious outline for a future services agreement between the EU and UK will be important in that respect.

The Political Declaration
Article 50(2) of the Treaty on European Union (TEU) states:

“In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.” The European Council considers that the provisions of Article 50 TEU do not permit formal negotiations on the future relationship to commence until the UK’s withdrawal has taken effect.

The "Outline Political Declaration setting out the framework for the future relationship between the European Union and the United Kingdom’ (Outline Declaration) accompanied the ‘Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and from the European Atomic Energy" (Withdrawal Agreement) and were published on 14 November 2018

On 22 November a full 26-page draft ‘Political Declaration setting out the framework for the future relationship between the European Union and the United Kingdom’ (Political Declaration) was published. This expanded the Outline Declaration and added new material. The Political Declaration was approved by the meeting of the European Council under Art. 50 TEU on 25 November 2018.

While the events of the past week in particular mean that the future of the Political Declaration (and of course Withdrawal Agreement) remain very uncertain, some important features of the Political Declaration deserve a closer look, especially in relation to the provision of services post-Brexit.

This Declaration establishes "the parameters of an ambitious, broad, deep and flexible partnership across trade and economic cooperation, law enforcement and criminal justice, foreign policy, security and defence and wider areas of cooperation."

For the EU “the integrity of the Single Market and the Customs Union and the indivisibility of the four freedoms”, mean that the future EU/UK relationship “cannot amount to the rights and obligations of membership”. This principle is at the heart of the EU's approach to the Brexit negotiations with the UK and the extent to which it can outline what the future will look like.

As far as the UK is concerned, it wants to protect the sovereignty of the UK as well as its internal market while also respecting the result of the 23 June 2016 Brexit referendum so as to ensure “the development of its independent trade policy and the ending of free movement of people".

These "red lines" will probably make any accommodations difficult (e.g. where one side wants to preserve a key aspect of its economy such as financial services for the UK).

Services - Generally
The Political Declaration looks for the EU and UK to conclude "ambitious, comprehensive and balanced arrangements on trade in services and investment in services and non-services sectors, respecting each Party's right to regulate". In this regard, it look for the EU and UK to aim to deliver a level of liberalisation in trade in services well beyond their World Trade Organization commitments and building on recent EU Free Trade Agreements (such as Singapore and Canada).

The Political Declaration envisages: “ambitious, comprehensive and balanced arrangements on trade in services and investment in services and non-services sectors, respecting each party’s right to regulate”.

The aim is to have substantial sectoral coverage including in financial services, professional and business services, telecoms, postal services, distribution services, environmental services, transport services and other services of mutual interest.

The future arrangements should include provisions on "market access" and "national treatment" under host state rules for the service providers and investors of the EU and UK. This would ensure that the EU and UK service providers and investors are treated in a non-discriminatory manner, including with regard to establishment.

The Political Declaration provides that while EU and UK regulatory autonomy will be preserved, the arrangements should include provisions "to promote regulatory approaches that are transparent, efficient, compatible to the extent possible, and which promote avoidance of unnecessary regulatory requirements".

Services – Regulatory aspects
The EU and UK are encouraged to agree "disciplines on domestic regulation". These should include provisions such as on licensing procedures, and specific regulatory provisions in sectors of mutual interest such as telecommunication services, financial services, delivery services, and international maritime transport services. There should also be provisions on the development and adoption of domestic regulation that reflect good regulatory practices.

Intriguingly, the EU and UK are encouraged to establish a framework for "voluntary regulatory cooperation in areas of mutual interest, including exchange of information and sharing of best practice". 

Financial services
On financial services, the Political Declaration notes that both Parties will have equivalence frameworks in place that allow them to declare a third country's regulatory and supervisory regimes "equivalent" for relevant purposes. The EU and UK are prompted to start assessing equivalence with respect to each other under these frameworks as soon as possible after the UK’s withdrawal from the EU and endeavouring to conclude these assessments before the end of June 2020.

The EU and UK will keep their respective equivalence frameworks under review while agreeing that close and structured cooperation on regulatory and supervisory matters is in their mutual interest. This is grounded on the principles of regulatory autonomy, transparency and stability.

It should include transparency and appropriate consultation in the process of adoption, suspension and withdrawal of equivalence decisions, information exchange and consultation on regulatory initiatives and other issues of mutual interest, at both political and technical levels.

Concluding comment
While ultimately some way short of the current arrangements under the Single Market and EU Customs Union system and of course dependent on these principles resurfacing following the rejection of the Withdrawal Agreement on 15 January 2019, if the EU and UK return to discuss these aspects when the dust settles, the far-reaching and ambitious Political Declaration provides a framework for not only regulatory alignment but also close cooperation in relation to the provision of services post-Brexit.

If you would like further information please contact Alan McCarthy or any member of A&L Goodbody’s EU, Competition & Procurement team.

Date published: 21 January 2019