Deal or no deal – the EU Commission paper on preparations for no deal
The EU Commission has published a communication on preparations in the event of a no-deal Brexit.
Although both the UK and the EU have publically stated on numerous occasions that they are committed to reaching an agreement, the Commission’s statement is intended to provide a reminder of the need for businesses to prepare for all possible eventualities.
The paper notes that even if an agreement is reached, the UK’s relationship with the EU will inevitably be different once the UK has left the EU.
The communication identifies what the Commission considers to be the two most likely scenarios following the UK’s withdrawal:
1) a Withdrawal Agreement is ratified before 30 March 2019, in which case EU law will cease to apply in the UK on 1 January 2021, following the transition period; or
2) failure to reach an agreement on the terms of the UK’s departure, in which case there will be no transition period and all EU law will cease to apply from 30 March 2019.
The communication highlights the potential disruption for businesses if no agreement is reached. However, the Commission stresses that planning contingencies for the worst possible outcome is not a sign of mistrust in the negotiations and it continues to devote “very significant resources and committing great efforts to achieve an agreement”. Rather, the intention is merely to highlight the precautionary steps that should be taken because the outcome of the negotiations cannot be predicted at this stage.
Accordingly, the Commission provides illustrations of challenges in relation to various sectors and industries.
For example, in relation to customs, the Communication advises businesses to prepare for a situation where shipments of goods to and from the UK are subject to customs procedures and controls under EU rules for both exports and imports. This includes additional documentation and data requirements for business, processing and controls for customs, and infrastructure requirements for both. It is of note, however, that the Commission states that it is facilitating the UK’s accession to the Common Transit Convention which would allow goods to move “quite freely under customs supervision across different jurisdictions” The Common Transit Convention is a procedure that allows non-community goods on which duty has not been paid to move from one point in the EU to another. Current participants are EFTA countries, Macedonia and Serbia. As the paper notes, this is particularly significant because the Convention would allow for goods going from one part of the EU to another via the UK.
Similarly, with regard to financial services, the communication seeks to provide advice on steps to prepare for a possible “no deal” scenario centres. As we have noted previously, there is concern that any sudden loss of passporting rights could inhibit a variety of lending and loan market activities for UK banks, and the Commission urges that businesses in all financial services sectors prepare for this scenario. More positively, the communication does concede that, in relation to contracts, “there does not appear to be an issue of a general nature linked to contract continuity as in principle, even after withdrawal, the performance of existing obligations can continue” - although as the paper correctly notes, it is important that “every type of contract needs to be looked at separately”.
Negotiations between the EU and the UK will continue throughout the summer. The Commission’s paper provides a timely reminder not just to businesses of the importance of contingency planning but also to the negotiators on both sides of the mutual advantages of reaching a deal.