The economic consequences of Brexit have been talked about a lot, but now it turns out that the legal consequences may be of even higher importance.
The Three Basket Approach From Theresa May – Regulatory Divergence
As for the legal consequences of Brexit, it is worth taking a closer look at the three-basket approach, which was outlined by Theresa May during several speeches and which seems to be the British government’s favoured strategic approach towards regulatory divergence after Brexit.
“There will be areas which do affect our economic relations where we and our European friends may have different goals; or where we share the same goals but want to achieve them through different means.”
Theresa May, September 2017
The idea is to sort different areas and industries into three different baskets, whereby basket one means maintaining the same regulatory standards as the European Union by the same means. Sectors like aviation, car manufacturing and chemicals would be covered here. Basket two contains those areas where the United Kingdom wants similar outcomes but is willing to adopt different rules and regulations to achieve them. An example for this would be the UK financial sector and especially clearing institutions in the UK, which want to maintain passporting arrangements with the EU. The UK is reliant on mutual recognition from the EU side here. Basket three is the basket with all areas in which the UK wants to diverge from European standards. For these areas it would mean no mutual recognition and therefore customs controls.
The Cold Answer By The European Commission
“UK views on regulatory issues in the future relationship including ‘three basket approach’ are not compatible with the principles in the EuCo guidelines.”
Issued statement by the European Commission
The EU has dismissed the three-basket approach due to its buffet-style approach. For the EU it is more a take all or nothing offer concerning regulatory standards. Otherwise, Britain would have a Swiss-style agreement. Switzerland has over 200 bilateral treaties with the EU, which operate in all kind of areas. It is in the interest of the EU to avoid this regulatory jungle with the UK. Also, the often-reiterated idea from the British side of mutual outcomes through different regulatory standards is not beloved in Brussels, since an independent authority must supervise it and that would be very costly.
The government of the UK has outlined on several occasions that they intend to leave the customs union and the single market, so the final model can only be a Canada+ deal. It will be imperative for the UK to have mutual recognition of regulatory standards with the EU; otherwise, trade and exchange of services between the EU and the UK will become increasingly difficult and costly for firms. This would lead to a massive relocation of business activities of firms who have their primary market inside the EU.
It is a tough challenge for the Department for Exiting the EU to secure a deal which will allow regulatory divergence to secure the benefits of Brexit, such as free trade deals with third countries and less regulation of business, and at the same time not portray the image of cherry picking, which will be with no doubt rejected by the EU. The UK will not get a more favorable deal outside the Union than inside, at least this seems to be clear.
The Enforcement of Judgements And The Legal Status Of Citizens
Another very important issue is the future legal status of citizens and the mutual recognition of judgments. The latter is currently governed through European Union Regulation 1215/2010 (Brussels Recast Regulation). This will change after Brexit. It was outlined by some legal scholars, that the United Kingdom would seek to come under the umbrella of the 2007 Lugano Convention, the convention on jurisdiction and the enforcement of judgments in civil and commercial matters of the EFTA states. This convention governs the mutual recognition and enforcement of judgements between the EFTA states, namely Lichtenstein, Iceland, Norway and Switzerland and the EU. If the UK opts for this option, it would require a unanimous acceptance by the other state party to this agreement.
“They’ve made a huge contribution to our country, that’s why we want them and their families to stay. I’m absolutely clear that EU citizens living lawfully in the UK today will be able to stay,”
Theresa May, February 2017
Coming back to the first crucial point: the legal status of EU citizens in the UK. It was of utmost importance for the EU to find a settlement on the legal status of their citizens in the UK as a precondition to move onto phase two of the negotiations. A solution was found in December 2017, which nearly fulfilled all conditions the EU aimed for. Indefinite residential status will be granted for all EU citizens, who arrive before the 29th March 2019 and even during the transition period until the 1st of January 2021. The only conditions to fulfill for citizens is a residency of at least five years inside the UK, then they can apply for settled status. These rights are reciprocal for UK citizens in the EU. Only EU citizens arriving after the transition period are subjected to the new UK immigration regime.
The Legal Hiccups At The Irish Border
For Ireland, Brexit will have an especially hard impact. 12% of Irish trade is directly linked with Britain and Irish firms have deep ties with the UK economy. The two economies are truly interconnected and any disruption at the border would lead to huge consequences, without even talking about the threat to maintaining the peace at the border.
It seems clear that Brexit will inevitably lead to disruption at the Irish border. After ending phase one of the negotiations both parties lined out that they want to have no hard border in Ireland, but how they want to achieve this remains unclear. The UK and the European Union have different models and, so far, do not seem able to find a common denominator.
“The European Union, the 27 member states, stand firm and united when it comes to Ireland – for us, this is not an Irish issue, it is a European issue.”
Jean Claude Juncker, March 2018
The EU is threatening to keep Northern Ireland within the European customs union as a last resort. This is an unimaginable idea to Brexiteers and to the DUP party, since it would infringe the integrity of Northern Ireland as a part of the United Kingdom. The UK is
offering a Swiss model border with the approach to voluntarily cut and paste EU rules in sectors, which are mainly concerned with trans border trade on the island of Ireland. For the transition period, the EU agreed that the UK should align all rules that play a vital part for the north-south cooperation in Ireland. It will be interesting to see how much the UK and the EU are willing to give, to secure a frictionless Irish border in the future.
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