Britain tries to engineer soft landing with final tweaks to EU laws

4 January 2019 11:00am

31 December 2018. By Matthew Holehouse.

The negotiations over the UK’s withdrawal treaty are all but over. But in Brussels, a second Brexit negotiation is continuing at pace.

The UK government is using its remaining months as an EU member state to tweak draft laws entering the bloc’s rulebook in the hope of softening the landing — and has enjoyed a moderate degree of success in getting its amendments passed.

The UK is targeting provisions in European law on the treatment of non-member “third countries” in fields such as competition, financial services, security and foreign policy. Its planned tweaks include widening the eligibility for funding for external bodies under EU programs, and lowering the barriers for non-EU companies seeking market access.

The push over the past year is revealed in correspondence between ministers and lawmakers on the European Scrutiny Committee of the House of Commons. The panel issues weekly reports on the progress of EU legislation and the implications for the UK. Since the Brexit referendum, it has asked ministers to explain how draft laws might affect businesses after the UK’s departure.

The exchanges underscore how the focus on negotiations on trade and security between the teams of Olly Robbins and Michel Barnier over the UK’s future is only half the story.

With the EU unwilling to develop “bespoke” arrangements in fields such as data transfers or financial services, the cooperation on offer will be defined by existing provisions cast in EU law — as will the UK’s accompanying obligations. Many rules facing UK businesses, such as the surveillance regime for high-risk products, might never come up in Brexit negotiations.

Widening equivalence

One significant UK push is to broaden the range of financial services covered by the EU’s equivalence regime. The UK and EU have agreed this will be the basis for market access post-Brexit, although the UK regards the current coverage as insufficient.

In recent months the UK has pushed to benefit from new EU rules on covered bonds — a type of debt obligation seen as very safe investments because they are secured against a pool of ring-fenced, low-risk assets.

The EU directive proposed in April would set harmonized standards for these bonds, triggering regulatory or prudential reliefs.

The original proposal doesn’t create an equivalence mechanism that would extend these benefits to a non-EU state, but says the European Commission should consider introducing one after three years. This has been reduced to two years following negotiations among national governments.

The UK pushed and failed to have one introduced immediately during negotiations, lawmakers said in a report on Nov. 28.

In a letter to the committee, Treasury minister John Glen noted: “Expanding the scope of the existing equivalence framework to include activity not currently covered is a core pillar of the economic and regulatory arrangement we have proposed.”

Weakening surveillance

In a second case, the UK is pushing to weaken a new market surveillance regime for certain regulated products such as toys, safety clothing, boats and batteries.

The UK is threatening to vote against the regulation over a proposal that any regulated product should have an appointed “responsible person” living inside the EU who can answer to market surveillance authorities — a much more onerous requirement for British companies to fulfil after the UK has left the bloc.

The UK is supporting a push to restrict this obligation to the most high-risk products. “Officials have worked with like-minded member states to resist the initial proposed provisions on the basis that they were disproportionate, would create a barrier to trade, and would be costly to businesses,” business minister Kelly Tolhurst said in a letter on Nov. 13.

Delay, dilute, widen

The push to loosen rules affecting external states covers a range of sectors. The UK has successfully delayed the introduction of new competition rules on supermarket supply chains until after it’s left the bloc. Ministers warned they’d refuse to vote for the package, which the UK regards as burdensome, unless the implementation period was extended from six months to two years.

In another case, the UK raised concerns over proposals to tighten the rules on antibiotics in livestock. Extending the rules to cover all imports, as well as meat reared inside the EU, posed a “significant restriction” in trade from external states, the UK complained.

In June, the UK successfully argued against commission proposals to tighten the obligation of neighboring countries to apply EU competition and environment law if they wish to participate in Acer, the EU’s energy regulator. The bloc has repeatedly said adherence to such “level playing field” provisions will be a precondition to trade after Brexit.

The UK has also pushed, without success, for amendments to new legislation to link national police and immigration databases, allowing the UK to participate.

“The UK has repeatedly raised this concern as we believe there will be circumstances where member states will need to share information with third countries for the prevention of terrorism or serious crime,” policing minister Nick Hurd said in a letter in August. In a follow-up letter in November, he admitted there’d been “no appetite for lifting the absolute bar on sharing with third countries.”

Money troubles

The ongoing negotiations on the bloc’s 2021-2027 budget cycle are another major British focus.

The UK says budget discussions are “primarily” a matter for the remaining 27 member states. But it still has an interest because these negotiations set the possibilities and conditions for the participation of foreign states in a range of EU programs, regarded by the British as among the greatest perks of membership.

In particular, the UK has given close scrutiny to the framework for Horizon, the EU’s science and research cooperation fund, which is a major source of revenue and cross-border cooperation for British universities.

In June, then-universities minister Sam Gyimah told lawmakers the UK would “seek to influence the shape of the proposal to create a program which would operate in the mutual interests of the UK and the EU.” Gyimah subsequently told the committee the UK was happy with the direction of travel in negotiations.

The UK also wants to a play a continuing role in the EU’s overseas aid and foreign-policy program. It’s lobbying to introduce a “third country” provision to the 89.2 billion-euro ($102 billion) Neighbourhood, Development & International Cooperation Instrument. This would allow it to contribute funds to the program, and secure several levels of consultation on spending and bidding rights for UK aid bodies.

“As for all discussions on external action instruments under the new Multi-Annual Financial Framework, we are using every opportunity to press for expansive provisions on ‘third country’ participation,” said foreign office minister Alan Duncan in a letter to the committee in October. “We maintain that sufficient oversight arrangements are needed to enable a UK contribution to the NDICI after exit.”

Similarly, the UK secured amendments to the 2021-27 European Defence Fund, a 13 billion-euro arms research program, to open the door to British participation after Brexit.

The fund as originally designed restricted participation to EU or EEA states, and the subsidiaries of foreign defense companies on EU soil, subject to strict criteria of necessity.

“We do have concerns that it could be implemented in a way which is very inward-looking and protectionist,” junior defense minister Stuart Andrew told lawmakers in a letter in August. UK officials would “make our case for a more open and outward-looking regulation,” he wrote.

In a subsequent letter in October, Andrew said UK concerns were shared with other states, and that the revised text “is now broadly acceptable.”

Outside, looking in

The two-and-a-half years since the Brexit referendum have given the UK an unusual status. Many countries want to tweak the EU’s rulemaking for non-members, but no other country has been able to do it from the inside.

The sun will set on the UK’s membership in March, but its interest will remain.

A new commission will take office in November 2019, triggering a fresh wave of legislation in which the treatment of the bloc’s neighbor will likely be a major focus.

The future of UKRep, the British mission to the EU which does the heavy lifting of interpreting and influencing new legislation, is the subject of major debate in the British government. Officials are studying how Norwegian, US and Canadian missions go about the business of shaping EU law from the outside.

“Once we have left the European Union, I imagine that we will have a very large and very active embassy in Brussels that will spend a great deal of time and effort seeking to make input to the debates that are going on within the EU,” chancellor Philip Hammond told lawmakers last month.

“The EU decisions will still be very important to the UK, but we will be seeking to influence them through analysis and hard work, rather than through the exercise of voting power.”

Brexit Special Report