How to Make a Transitional Brexit Arrangement

In the White Paper on Brexit, the policy paper which the United Kingdom government published at the start of February, it is made clear that the UK is seeking some form of ‘hard’ Brexit. There will be no membership in the single market or of the common customs area. This has made the question of transition to the new trade regime a very important one for the UK economy. How the UK moves from the present arrangements to a new trade relationship after withdrawal is now a vital question.  Given how radically different the Brexit trade landscape will be, a period of smooth and orderly transition seems essential. But is it possible?

The White paper states that the UK government wants such a transitional arrangement, but it does not say how it will achieve it. It says that it expects ‘to have reached an agreement about our future partnership by the time the two year Article 50 process has concluded’. It also believes that it will be in the ‘mutual interest’ of all parties to have ‘a phased process of implementation, in which the UK, the EU institutions and Member States prepare for the new arrangements’. These statements are entirely open ended.

The truth is that a binding transitional agreement will be very hard to achieve. As I argued in an older post for this blog, the two most obvious possibilities will be extremely hard and time consuming to set up.

The first method would be to extend the United Kingdom’s membership in the EU, but to gradually remove some of its elements, eg the supervision of the Court of Justice or the free movement of workers. It is highly unlikely that the other member states would wish to create a second tier membership in this way. The obligations that arise from the single market are a result of the four fundamental freedoms that are enshrined in the treaties. Member states will be unwilling to compromise these general principles, even for a short period of time. But even if they did, this would require the amendment of the EU treaties, which would take enormous political capital and far more than two years to achieve.

The second method for a transitional agreement would be to create an entirely new international agreement between the UK and the EU. This would take effect in international law immediately on withdrawal. The problem here is that it would be a trade deal with all the required formalities of a treaty. It would potentially be a ‘mixed agreement’ between the UK and the EU, requiring ratification by all member states, in exactly the same way as a permanent agreement. It is very unlikely it will be ratified by all parliaments by the time withdrawal is likely to take place in 2019.

When I wrote about this in October, I did not consider one further option, which now seems to me possible, under certain conditions (for example, consent by the WTO under the ‘most favoured nation’ rules). It is clearly very difficult to bring about an international agreement, which would work as a common legal basis for both sides after withdrawal. But it is possible that these arrangements could be organised on the basis of two parallel legal grounds, one for each legal order. This would be a ‘parallel sources’ agreement.

More or less identical arrangements could be included both in an Act of Parliament, which would bind the United Kingdom (say in the ‘Great Repeal Act’ or an ad hoc ‘Transitional Arrangements’ Act) and in a EU Regulation which would bind the remaining members states under EU law (under Article 50 as well as under Art. 114 or 352 TFEU). The Regulation would be made under standard rules about EU secondary legislation.

There are two possibilities here. If such a EU Regulation was enacted before the UK left the EU (in order to take affect after the UK left), it would become law in the UK immediately by virtue of the still valid European Communities Act 1972. The Great Repeal Bill could repeal the 1972 Act for all other purposes except for this one. It could thus leave intact the Regulation in the UK’s legal order. The Regulation would thus take effect in the UK in the same way as EU law takes effect (ie not being subject to implied repeal) thus safeguarding EU citizens and businesses for the transitional period.

If such an EU Regulation was passed after the UK had left, by the remaining EU, then the UK could simply introduce its provisions by way of a new Act of Parliament made for that purpose in advance of withdrawal (where the EU Regulation could be included in a distinct schedule). This way the UK would be unilaterally bound to respect the arrangement by virtue of its own law.

This solution of ‘parallel sources’ is not, of course, perfect. It does not provide for the full reciprocity one expects under EU law, or the rule of law safeguards one has with the Court of Justice as an overriding and impartial dispute resolution mechanism that applies equally to all. So, UK nationals in Spain would benefit from the protection of the European Court of Justice under the EU Regulation, if the Regulations recognised them some rights of citizenship, but this would not apply to Spanish nationals in the UK. EU nationals and businesses would only have recourse to the UK courts alone (one assumes). Perhaps as an ad hoc solution for dispute resolution there could be a specialist tribunal applying EU law in London in order to defend the rights of EU nationals, with judges familiar with the law of the EU (eg retired judges from the ECJ, British or others). Other similar solutions could be found for a limited period of time, if politics allowed it.

A binding transitional arrangement seems to me to be the single biggest obstacle to an orderly withdrawal from the EU. Unless a transitional mechanism is found, the UK will go head first into the cliff of WTO rules. It is therefore very important to make something work in law. The proposal made here is one such practical solution. Constructing a transitional arrangement on the basis of two parallel sources, one domestic and one based on EU law, will not be perfect, but it may well be the only realistic way to construct a smooth transition on the basis of binding rules. It will not be an elegant or complete solution, but it could just work for a short period of time.

Pavlos Eleftheriadis is a fellow of Mansfield College at the University of Oxford.