Brexit & UK trade, Brexit comment, In-depth briefings, UK-EU negotiations

Technical briefing: EU Commission offers glimpse of ‘hard’ Brexit

Be prepared to run away from Britain, and to run fast. That is, in short, the message the European Commission is sending to non-EU exporters and to UK exporters as part of its ‘Brexit preparedness’ activities with businesses representatives. The commission has been issuing a long list of notices to a flurry of economic sectors over the last two or three weeks, briefing them on the legal and practical consequences of the UK’s withdrawal from the EU in a scenario involving no further trade agreement with Britain.

 

The aim is to make economic players aware of the potential drastic steps they need to take once Britain is outside the bloc. The target audience is international exporters or investors based in the UK and dealing with the EU, British firms selling in the EU27, and EU firms involved in the UK.

 

The commission is basically telling everyone to be prepared in case the Brexit negotiations fail and the UK becomes a third country as of 30 March 2019, as a result of the Article 50 EU withdrawal process.

 

The EU and Britain are trying to secure a standstill transition period by next month to allow the delicate economic and legal separation process to be smoother and less painful than a ‘hard Brexit’ – immediate full exit with no trade agreement – would entail. But negotiations aren’t going very well. Last Friday, EU chief negotiator Michel Barnier said that “a transition period is not a given”.

 

Company law, procurement, VAT and more

 

This is the language included in practically all notices sent around during the last week: “In view of the considerable uncertainties, in particular concerning the content of a possible withdrawal agreement, stakeholders, including [representatives of given professional sector] are reminded of legal repercussions which need to be considered when the United Kingdom becomes a third country.”

 

It all starts with company law. “UK incorporated companies will be third country companies and therefore not automatically be recognised by the …. member states,” the commission notice says. The text adds that under current rules, “member states will not be obliged to recognise the legal personality and limited liability of companies, which are incorporated in the United Kingdom, but which have the central administration or the principal place of business in the EU-27”.

 

EU27 branches of UK-based businesses might not be recognised in EU27  states. UK business register BRIS will not longer be connected to the EU system. And the European Company law form will no longer be available in Britain.

 

The commission further warns every economic operator shipping goods across the Channel or Irish Sea that value-added tax, currently not applied to imports from the EU, will start applying. Also “a company established in the United Kingdom carrying out taxable transactions in a member state of the EU may be required by that member state to designate a tax representative as the person liable for payment of the VAT in accordance with the [EU’s] VAT Directive”.

 

Are you a hotel in London taking online bookings from EU visitors? Well, you might want to think about “standard contractual clauses” – model contracts – for the EU tourist to agree that his or her personal data can be transferred to the UK. Otherwise, non-EU status under the bloc’s data protection rules – not least the brand new General Data Protection Regulations –means there’s no business.

 

Any UK plan to bid for a local railway equipment or telecommunications project in the EU will be subjected to the EU’s local content requirements in the area of water, energy, transport and postal services, an EU note says. Defence contracts will, after Brexit, be subject to member states’ sovereign decision to source from Britain. UK security clearances under public tendering contracts will no longer be recognised. All other tenderers “shall be subject to the same rules as any third country tenderer” with which the EU has no procurement agreement.

 

Almost each economic sector and regulatory area will be affected by Brexit in some way or another in the Brexit scenario outlined in the notices.

 

Sector-specific notices

 

In the table below, we have listed the main sectors and some further regulatory areas about which the commission has released notices. Not every important sector has been covered by the commission so far. The EU executive body hasn’t yet said anything about REACH, the chemicals regulation, or trademarks, two examples of complex areas of regulation faced with potential disruption in case of a hard Brexit. The commission is still thinking about a fisheries scenario for a hard Brexit.

 

The areas about which the commission has communicated include those most exposed to Brexit, such as finance, automotive and food safety, and other industries sensitive to animal, plant or human health and life, not least pharmaceuticals.

 

The principle that applies to all these areas is identical. These sectors involve some type of approval by national authorities to release goods or operate in the EU market. If the authority that gives such approval is based in the UK, the commission recommends that operators wishing to continue to enjoy EU-approved status apply for it in advance of the planned withdrawal date in another EU member state, or, when relevant, in an European Economic Area (Norway) or European Free Trade Area (Switzerland) country.

 

Business in Britain has already warned it will start to make adjustments related to Brexit at least one year ahead of withdrawal date. This means a transition agreement by this March is required if Brexit isn’t to trigger a major run by British companies or foreign businesses getting into the EU market via the UK.

 

The commission  confirmed to Borderlex today that if there is a transition agreement as envisaged by the EU – continued full application of the EU acquis – the scenario set out in the Brexit preparedness notices won’t apply. “If such an arrangement is reached, the UK would continue to benefit from EU acquis for the full transition period,” an official confirmed.

 

In reality, there will likely be no absolute certainty about a standstill transition period until the very last minute of the Article 50 negotiations, i.e. until late March 2019. One can expect many companies to start taking appropriate measures now – and many are already. Regardless of how Brexit turns out in the end, at least now they know how best to go about it.

 

Content of ‘Brexit preparedness’ notes released by EU Commission

 

As of 8 February 2018

 

All notices are available by following this link. The table is only a simplified rendition of the notices’ contents. We recommend reading the notices themselves for further and more precise information.

 

Sector

Brexit consequences and measures recommended by commission

 

FINANCE AND AUDIT
Asset management
  • Types of funds covered: UK VECA, UCITS, AIF, SEF, ELTF, MMF
  • These EU-regulated investment funds (from real estate to money markets) will no longer benefit from EU-level authorisation and will be treated as third country products
  • Some member states have a special preferential status called NPPR – commission recommends to seek them out
Banking
  • Coverage: banking, payment services and e-money issuance
  • Will no longer have EU passport. Need to register for authorisations as branches in EU27.
  • EU27 banks operating in Britain are required to adapt their structures and compliance procedures to take into account that their UK-based activities will be considered non-EU operations
Credit rating
  • Credit ratings agencies will be deregistered by the European regulator ESMA as of Britain’s withdrawal date.
  • Credit ratings for regulatory purposes issued in UK will no longer be recognised in EU
Financial instruments
  • UK investment firms will no longer benefit from MiFID authorisation
  • EU27 subsidiaries of UK firms can benefit from MiFID authorisation if they seek and obtain it in a EU27 member state
  • EU27 branches need to comply with national requirements
  • UK based trading or execution venues – regulated markets,  multilateral trading facilities, systematic internalisers – will no longer be allowed to trade with EU counterparts. These and OTFs (organised trading facilities) will no longer be covered by MiFIR derivatives trading obligation
  • “EU counterparts would need to reassess their trading arrangements to ensure continued compliance with their obligations under the MiFID framework”
  • UK-based central counterparties CCPs “will no longer benefit from the open and non-discriminatory access to EU trading venues”
  • The commission calls on companies to reassess their ongoing contracts across Channel.
  • NOTE: “This notice is without prejudice to any equivalence decisions that may be adopted by the EU”
Insurance
  • UK insurance undertakings will no longer benefit from the famous EU ‘passport’ (in this case ‘Solvency II’ authorisation to operate in the EU). Even online service provision will be prohibited
  • Branches in EU need to seek authorisation under Solvency II in EU27 member state
  • Reinsurance: Need to comply with EU member state rules
  • Contract continuity might be affected
  • EU27 insurance groups with operations in the UK will see some compliance, solvency requirements changed due to non-EU status of these operations
Post trade financial services
  • Derivatives traded on a UK regulated market will no longer fulfil the definition of exchange traded derivatives under EU law. These will become over the counter OTC derivatives
  • OTC derivatives will need to be cleared in the EU27. EU27 companies using such OTC will have higher capital charges
  • “This notice is without prejudice to any equivalence decisions that may be adopted by the EU”
Statutory audit
  • Natural persons or audit firms will no longer be entitled to carry out statutory audits under the EU’s Statutory Audit Directive
  • EU27 supervised companies with UK subsidiaries need to take into account that UK auditors will be considered third country auditors (involves ad hoc approval by EU member states)
ANIMALS, PLANTS, FOOD
Animal killing
  • UK certificates of competence to slaughter animals will no longer be valid in EU
  • Need to apply for certificate in EU27 member state if wish to continue professional activities in the EU
Animal breeding
  • Breed societies and operations in UK will no longer be listed as recognised entities in EU regulations
  • ·Commission calls on relevant entities to register in an EU27 member state if they want to operate in EU27 post withdrawal date
Seeds and other plant reproduction material

 

  • “Varieties of agricultural and vegetable species have to be maintained in an EU27 Member State in order for their seed to be allowed to be marketed within the Union”
  •  “Fodder plant seed, vegetable propagating material, seed potatoes and seed oil and fibre plants must be examined and accepted by at least one member state and listed in the Common Catalogues”
  • Vine propagating material, forest plants need to be allowed in one EU member state
  • Plant breeders currently applying to get into the Common Catalogue in the UK are asked to start applying somewhere else in the EU
  • “Imports of seed and propagating material from third countries are subject to the respective provisions of each directive concerning recognition of equivalent requirements of third countries”

 

Food safety

 

Food labelling

  • Food origin labels where presentation refers to EU/nonEU
  • Mandatory labelling of name or business name of the Eu27 importer of food from the UK
  • Mandatory health identification marks

Foods requiring Commission approval

  • Food additives, food flavourings, vitamins and minerals used in food, food supplements, novel foods, genetically modified food = some food business operators need to be established in the EU27 or have representatives based in the EU27, namely food contact materials, GMO food

Food of animal origin:

  • Is prohibited in EU, unless fulfils long list of requirements (compliance with various EU regulations) currently imposed on third country food exporters.
  • “Each consignment undergoes documentary and identity checks, as well as at an appropriate frequency physical checks”
Natural mineral waters

 

  • Concerns rules on exploitation and marketing of natural mineral waters
  • Waters from non EU state need to be recognised by an EU member state as natural mineral waters according to EU Directive from 2009
  • UK waters will no longer be recognised. Third country waters the UK currently recognises will not be recognised in EU27
CHEMICALS – HAZARDOUS SUBSTANCES – WASTE
Biocidal products
  • Suppliers of biocidal products wishing to sell into the EU will need to have a representative established in the EU/EEA/Switzerland
Import licences
  • Waste, certain hazardous chemicals, ozone depleting substances, mercury
  • UK licences no longer acceptable for imports into EU27 and vice versa
Waste
  • UK not being in EU and not member of Basel convention/EFTA, mixed municipal waste will no longer be imported into the EU
  • Exports of waste of electrical/electronic waste, of municipal waste for recycling, of packaging waste, of end-of-life vehicles, to UK only if UK deemed to treat waste in conditions deemed equivalent to the EU’s
TRADE
Import/export licences Concerns:

  • specimens of endangered species
  • cultural goods
  • rough diamonds
  • dual use
  • drug precursors
  • genetically modified organisms
  • firearms and ammunitions
  • military technology and equipmenttorture/capital punishment goods

 

“import/export licences issued by the United Kingdom as an EU member sate on the basis of Union law are no longer valid for shipments to the EU27 from third country countries or vice versa

INDUSTRY
Industrial products
  • Conformity assessment bodies: “UK Notified Bodies will lose their status as EU Notified Bodies and will be removed from the Commission’s information system on notified organisations (NANDO)”.
  • Commission calls on economic operators using UK notified bodies to ensure they switch to certificates delivered by an EU27 conformity assessment body
Car type approvals
  • Car exporters to EU need an EU approved representative. After Brexit, non EU exporters with a UK representatives are asked to switch to another member state approval body
  • Conformity certificates released by the UK will no longer be recognised in the EU27
Pharmaceuticals
  • Marketing authorisations issued in the UK will no longer be recognised in the EU 27 after withdrawal; Qualified Persons for Pharmacovigilance (QPPV) will no longer be recognised in EU; UK producers will need to prove they abide by EU Good Manufacturing Practices…
EU ‘Ecolabel’
  • Ecolabels issued in the UK after withdrawal dates will no longer be recognised in the EU27. Commission recommends seeking EU27 competent body to award Ecolabels.

 

One Comment

  1. roderick.abbott@ecipe.org

    (some time later) Don’t like “majority of 52 to 48” which fails to capture fact that the %ages are of votes cast. Abstainers chose NOT to vote, but disfranchised had no choice. There is no majority of the electorate, still less of “the people”. So how did this become ‘the people have voted’ ?

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