Executive summary

At a press conference on 19 March 2018, David Davis (for the United Kingdom (UK)) and Michel Barnier (for the European Commission and the European Union Member States (EU27)) acclaimed a joint text of the Withdrawal Agreement as a "decisive step" in negotiations. The text published follows negotiations over the weekend and includes the proposals for a transition agreement ending in December 2020. During that transition period, the UK will remain subject to EU law, within the single market and the Customs Union. The UK will be able to negotiate, sign and ratify trade agreements during the transition period and these will come into force at the end of the transition period, unless an earlier date is agreed with the EU.

There remains a lot of work still to be done in finalizing the Withdrawal Agreement and some significant issues are still to be resolved. These include the question of the Northern Ireland/Ireland border and most particular the concept of a "backstop" protocol to the Withdrawal Agreement, if no other agreement can be reached to avoid a hard Irish border. The question of governance of the Withdrawal Agreement and the role of the Court of Justice of the EU is also to be agreed (with the exception of its role in reviewing citizens' rights).

The draft agreement will be put before the European Council Summit of 22-23 March where it is expected to be approved. The deal has been broadly welcomed by business. However, as was highlighted in the press conference, legal certainty on an agreement will only come with legal ratification, probably towards the end of 2018. The key decision for business will be to determine how to react to the transition agreement that is now in principle on offer and whether to adapt their plans to a December 2020 end date.

Detailed summary

The joint text of the Withdrawal Agreement published on 19 March is color coded – green for text that has been agreed in full, yellow for areas where there is political agreement but not yet agreement on the detail and white where further negotiations are required.

Some of the key points included in the joint text are:

• The transition agreement which is included in the text is to end on 31 December 2020. During this period, the UK will remain part of the single market and Customs Union.
• During the transition period, the UK may negotiate, sign and ratify international agreements entered into in its own capacity in the areas of exclusive competence of the EU, provided those agreements do not enter into force or apply during the transition period, unless so authorized by the EU.
• There will be a binding backstop agreement (a Protocol) on the question of the Northern Ireland/Ireland border but the terms of the backstop have to be agreeable to both parties. There is as yet no agreement on the right operational approach, but the negotiators agree to engage urgently in the process of examination of all relevant matters announced on 14 March and now under way. Both parties are committed to discussing all options and there is agreed language that should a subsequent agreement be reached between the EU and the UK, the Protocol shall not apply.
• Agreement is still needed on the governance provisions of the Withdrawal Agreement (except for those addressing citizens' rights).
• The text covering citizens' rights and the financial settlement is agreed. Citizens arriving in the EU or the UK during the transition period will have the same rights as those arriving before.
• There is an explicit "good faith" clause that "The Parties shall, in full mutual respect and good faith, assist each other in carrying out tasks which flow from this Agreement. They shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising from this Agreement and shall refrain from any measures which could jeopardise the attainment of the objectives of this Agreement."
• As ever "Nothing is agreed until everything is agreed." Legal certainty on the agreement only comes through the ratification process.

Michel Barnier will now attend the General Affairs Council on 20 March and the European Council Summit on 23 March to report to the European Council on the joint text. It is hoped that, in addition to approving the joint text, the European Council Summit will also provide Michel Barnier with the necessary mandate and guidelines to commence negotiations with the UK on the future relationship between the UK and the EU beyond the transition period.

What now for business?

With Brexit readiness plans having been largely driven by a March 2019 end-date, business now faces a critical strategic choice:

• Work on the basis that the European Council summit on 22-23 March produces enough political certainty that a transition period will happen, risking disruption if the politics ultimately fail, or
• Opt for business certainty, focus resource on current readiness plans working to the March 2019 deadline and potentially lose ground to competitors who chose to wait and see.

This is a significant decision. The lead times needed for a number of key actions mean that, with only one year to go to March 2019, businesses will now need to decide which strategic choice they will make - doing nothing may itself be making a choice.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United Kingdom), London

• Mats Persson
  mpersson@uk.ey.com
• Claire Hooper
  chooper@uk.ey.com
• Chris Sanger
  csanger@uk.ey.com
• Marc Bunch
  mbunch@uk.ey.com

Ernst & Young LLP (United Kingdom), Bristol

• Matthew Watt
  mwatt1@uk.ey.com

Ernst & Young LLP, UK Tax Desk, New York

• James A. Taylor
  james.taylor1@ey.com

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ATTACHMENT

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