01 Apr 2019

The House of Lords followed the House of Commons in amending the EU (Withdrawal) Act 2018 definition of "exit day" from 29 March to 12 April 2019. On 29 March, the House of Commons' third rejection of the government's Withdrawal Agreement (WA), by a majority of 58 votes, precluded a longer extension to 22 May. Consequently, prospects of averting a "no deal" Brexit now depend either on the government securing approval for the WA at the fourth attempt, or the House of Commons' indicative votes procedure identifying an alternative approach through its second round on 1 April.

The first round of indicative votes on 27 March yielded eight "no" votes, rejecting suggestions ranging from "no deal" to revocation of the UK's Article 50 notice to a customs union with the EU. The second round offers MPs a further opportunity to identify an approach potentially capable of forming the basis for cross-party consensus. Meanwhile, to secure Parliamentary time for a fourth vote, the government must meet the Speaker's requirement for a motion that is sufficiently different in substance from both the second "meaningful vote" on 13 March and the 29 March motion on the Withdrawal Agreement without the Political Declaration. That could involve a "run off" between the WA and any approach that emerges from indicative votes on 1 April. Alternatively, perhaps as a final throw of the dice, it might involve a motion to approve the WA, but subject to a confirmatory public vote.

With other potential outcomes including a general election, political deadlock at Westminster and indications of diminishing patience within the EU institutions, the risk of a "no deal" outcome on 12 April remains one to be taken seriously – and it is one for which EU institutions have prepared.

Key elements of the EU's "no deal" contingency measures relevant to cross-border trade and business include:

  • PEACE programme: continuation of the PEACE programme in relation to Ireland until the end of 2020, followed by cross-border support for peace and reconciliation in the border counties of Ireland and Northern Ireland
  • Financial services: temporary, limited measures to ensure that there is no immediate disruption in the central clearing of derivatives, central depositaries services for EU operators currently using UK operators, and for facilitating novation, for a fixed period of 12 months, of certain over-the-counter derivatives contracts, where a contract is transferred from a UK to an EU27 counterparty
  • Air connectivity and safety: measures to ensure basic air connectivity in order to avoid full interruption of air traffic between the EU and the UK in the event of a “no-deal” scenario
  • Road connectivity: allowing for the continuation of safe basic road connectivity between the EU and the UK for a limited period of time, provided that the UK gives reciprocal treatment to EU companies and operators
  • Rail connectivity: ensuring the validity of safety authorisations for certain parts of rail infrastructure for a strictly limited period of three months to allow long-term solutions in line with EU law to be put in place. This is, in particular, related to the Channel Tunnel and will be conditional on the United Kingdom maintaining safety standards identical to EU requirements
  • Shipping: Re-alignment of the North Sea – Mediterranean Core Network Corridor, adding new maritime links between Ireland, France, Belgium and the Netherlands to the core network, and introducing a new funding priority to the Connecting Europe Facility (CEF): adapting transport infrastructure for security and external border check purposes.

EU measures by no means replicate the transitional period that would be available under the WA. In its press release, the EU Commission emphasised that:

In a “no-deal” scenario, the UK will become a third country without any transitionary arrangements. All EU primary and secondary law will cease to apply to the UK from that moment onwards. There will be no transition period, as provided for in the Withdrawal Agreement. This will obviously cause significant disruption for citizens and businesses. 

In such a scenario, the UK's relations with the EU would be governed by general international public law, including rules of the World Trade Organisation. The EU will be required to immediately apply its rules and tariffs at its borders with the UK. This includes checks and controls for customs, sanitary and phytosanitary standards and verification of compliance with EU norms. Despite the considerable preparations of the Member States' customs authorities, these controls could cause significant delays at the border. UK entities would also cease to be eligible to receive EU grants and to participate in EU procurement procedures under current terms. 

Similarly, UK citizens will no longer be citizens of the European Union. They will be subject to additional checks when crossing borders into the European Union. Again, Member States have made considerable preparations at ports and airports to ensure that these checks are done as efficiently as possible, but they may nevertheless cause delays. 

With those potential consequences in mind, the EU Commission "urges all EU citizens and businesses to continue informing themselves about the consequences of a possible “no-deal” scenario and to complete their no-deal preparedness". While Westminster debates, the same is, of course, true for UK businesses.