Brexit Update: Brexit and Joe Biden, food supply to NI & border control posts

By November 16, 2020News

Brexit and Mr Biden

The apparent success of President–Elect, Joe Biden, and Vice President–Elect, Kamala Harris, in the US Presidential Election of 3rd November 2020 has raised questions about its implications for the UK in their negotiations with the EU for a new post-Brexit transition period relationship after that transition period comes to an end  on 31st December 2020.

Mr Biden is sometimes portrayed as unsympathetic to Brexit (in contrast to his predecessor, Donald Trump) and appears particularly concerned about any knock-on effect that Brexit might have on the Good Friday Belfast peace agreement relating to Northern Ireland.

This may have prompted a stark letter to The Times, published on 7th November 2020, from Sir Nigel Sheinwald, UK Ambassador to the USA 2007-2012, in which he wrote that Boris Johnson’s “best path to forging a productive relationship with Biden starts in Brussels. Biden and his team respect the UK’s international credentials but they saw Brexit as a major mistake. After a Biden victory and a failure to reach a trade deal with the EU, Britain would occupy a lonely place in the world. Hence, Johnson should get the UK/EU post-Brexit deal done as quickly as possible. That would pave the way for the steady rebuilding of Britain’s relationship with the EU on security and foreign policy that a Biden administration would want. Even if Biden had a limited trade agenda, there would be support for a future UK/US deal, but only if Britain’s basic relationship with the EU was stable and friction over Northern Ireland was avoided…”.

There is speculation separately that if both the UK and the US were to join (or in the US case, re-join) the so-called Trans-Pacific Partnership Agreement, this would be one way of ensuring an effective free trade relationship between the UK and the USA through the back door and that, therefore, Brexit should not be so much of a bone of contention for a new Biden administration in the USA but others argue that this seems over simplistic and that “back door” deals are rarely satisfactory anyway.

If there are pressures on the UK to reach a post-Brexit deal with the EU in the light of the prospective change of the US administration, there is an argument that there must be pressures on the EU to reach a deal as well.

Let us see what happens!

Brexit and Food Supply in Northern Ireland

The fourth meeting of the specialised joint committee for Northern Ireland set up under the UK-EU Withdrawal Agreement and its Ireland/ Northern Protocol took place on 5th November 2020 and, whilst both sides were able to report on some progress, the UK Government press statement following the committee meeting did touch upon unresolved issues in relation to Northern Ireland as follows:-

“The UK also noted the importance of agreed arrangements respecting Northern Ireland’s place in the UK’s customs territory and internal market, and supporting the smooth flow of trade. In this context, there remain significant outstanding issues to be resolved on the practical solutions necessary for trusted traders such as supermarkets, and on how to classify which goods are at genuine and substantial risk of entering the EU market.”

The EU press statement following the committee meeting also stressed the urgent need to resolve outstanding issues with regard to the implementation of the Protocol.

A report in The Times on 9th November 2020, under the heading “Food supply danger” in Northern Ireland, went much further in stating that supermarkets in Northern Ireland have warned that shoppers there could be faced with empty shelves unless there is clarity on about these supermarkets’ trading status when the Brexit transition period ends.  Concerns are expressed in The Times report that existing EU rules might make it illegal to transport food products such as minced meat and bread from Great Britain to Northern Ireland following the end of the post-Brexit transition period.

The Times report quotes “retail sources” as saying “that the requirement for 24 hours of pre-notification for the transfer of goods is impractical for fresh food, while the health and sanitary certification standards required will add a huge administrative burden”. The Times report also quotes senior sources at Sainsbury’s and Marks & Spencer and Irish/UK packaging manufacturer, Smurfit Kappa, as well as at the UK Food and Drink Federation, as expressing concerns about the lack of clarity in relation to the rules which will apply to the import of foodstuffs from Great Britain to Northern Ireland following the end of the post-Brexit transition period.

According to The Times report, a UK government spokesman has said: “ We are working with supermarkets on this issue [of food imports into Northern Ireland from Great Britain] and discussions continue with the EU. The UK and the EU have committed to an intensified process of engagement to resolve all outstanding issues with the implementation of the Northern Ireland Protocol”.

The Northern Ireland situation is and has always been one of the most complex aspects of the Brexit and post-Brexit negotiations and, whilst food supply into Northern Ireland is not the only sensitive issue affecting the discussions between the UK and the EU at the specialised committee level, it is clearly one of great importance.

Brexit and Border Control Posts

Live animals, animal products, plants, plant products and wood from the EU will need to enter Great Britain (England, Wales and Scotland) via a border control post (BCP) from July 2021. This rule already applies to those animals and goods coming from a country outside the EU.

In England, the competent authority for designating a facility as a BCP is the UK Department for Environment, Food & Rural Affairs (Defra) or the Food Standards Agency depending on the type of product concerned. In Scotland it is the Scottish Government or Food Standards Scotland and in Wales it is the Welsh Government.

On 9th November 2020, the UK Government published a guidance note on the requirements necessary for an operation serving a port or airport to be able to set up as a BCP, based on EU criteria  that the UK apparently accepts. It is noteworthy to see the UK and the EU aligned on what these criteria are.

According to the UK Government guidance note, in order to be designated as a BCP the operation in question must comply with requirements on facilities, equipment and staff, including having:-

>>> a sufficient number of suitably qualified staff;

>>>  premises and facilities appropriate to the nature of volume of consignments;

>>>  equipment to enable the performance of checks, including IT equipment;

>>> access to service of official laboratories; and

>>> arrangements in place to prevent risks of cross contamination and comply with biosecurity standards.

These requirements are based on Article 64(3) of EU Regulation 2017/625 on official controls.

To comply with biosecurity standards, the operation in question must also meet requirements for:-

>>> unloading areas;

>>> inspection rooms/areas;

>>> storage facilities; and

>>> changing rooms.

These biometric standards requirements are based on EU Commission Regulation 2019/1014 on minimum requirements for BCPs.

The criteria for the establishment of BCPs may seem as interesting to some as watching paint dry but the UK Government guidance represents a good example of the UK and the EU apparently working together.

Brexit and the UK Financial Services Sector

There has been concern expressed for some time within the UK Financial Services Sector that for whatever reason financial services have effectively been given a very low priority, if not ignored, in the UK-EU negotiations for a new post-Brexit trading relationship.

Whether this concern is justified or not, the UK Chancellor of the Exchequer, Mr Rishi Sunak, went some way in his statement on financial services to the House of Commons on 9th November 2020 to address this concern by giving details of some unilateral UK Government initiatives and decisions with a view to strengthening the competitive position of the UK financial services sector.

Mr Sunak’s statement dealt with the following topics:-

Equivalence – Mr Sunak announced a set of financial services equivalence decisions relating to the EU and EEA member states and that he was “ready to continue the conversation” with the EU in respect of those issues where the UK had not yet taken equivalence decisions. He also announced the publication of a detailed framework document on the UK’s approach to equivalence.

Access to UK Markets – Mr Sunak announced (i) the launch of an enquiry into the UK’s  overseas regime, which would report in 2021, with a view to ensuring that overseas firms can access the UK’s financial markets in a way which is predictable, safe and transparent; (ii) a review of the UK’s future listings regime, which would report early in 2021, with the aim of increasing the number of new companies that want to list in the UK; and (iii) the publication shortly of a consultation on reforms to the UK’s regime for investment funds.

Payments and Digital Currencies – Mr Sunak confirmed that new proposals would be published shortly to support the UK payments sector, following the conclusion of the first stage of the Payments Landscape Review initiated with a call for evidence in July 2020.  He also confirmed the publication shortly of a consultation on so-called stablecoins with a view to ensuring that these currencies meet the same standards expected of other payment methods. In addition, he mentioned that the Bank of England and HM Treasury were currently considering whether central banks can issue their own digital currencies, as a complement to cash.

Sustainable finance – In a recognition of the growing acceptance worldwide of “green finance” initiatives, Mr Sunak announced (i) plans to require greater climate disclosures by large companies and financial institutions across the UK economy, by 2025; (ii) the implementation of a new “green taxonomy“ classification intended to assist firms and investors in understanding the impact of their investments on the environment; and (iii) plans for the UK Government to issue their first ever Sovereign Green Bond in 2021, subject to market conditions.

Commenting on the Chancellor’s statement in an article for The Times on 11th November 2020  headed “It’s not too late for finance industry to come in from cold on Brexit negotiations”, its Banking Editor, Katherine Griffiths, referred in particular to Mr Sunak’s “pledge” as part of the announced “equivalence” agenda that UK firms with operations inside the EU – which includes most big UK banks – would not have to hold extra capital against those businesses, because the UK Government deems EU rules to be equivalent to UK rules, and so of a similar level of risk. Ms Griffiths suggested that the Mr Sunak’s pledges on equivalence might hopefully lead to an UK-EU agreement on cross-border share and derivatives trading (which forms the core of current UK-EU cross-border activity in this sector) but, if not, that this is why Mr Sunak has made the various other announcements in his statement with a view to ramping up generally the UK financial sector’s ability to stand on its own two feet.

The fate of the UK and EU financial services sectors may well come into sharper focus during the final period of UK-EU post-Brexit negotiations in 2020 prior to the end of the transition period.

Brexit and the UK National Security and Investment Bill

One of the main slogans of the pro-Brexit campaign at the time of the 2016 UK Brexit Referendum and subsequently was that Brexit was about “taking back control” of the UK’s affairs from the EU.

Now that Brexit has happened and the post-Brexit transition period is due to come to an end on 31st December 2020, it seems that the pro-Brexit leaning UK Government is trying to demonstrate what it means by “taking back control” and a prime example of this is perhaps the National Security and Investment Bill, which was introduced to the House of Commons and given its first reading on 11th November 2020. Though this Bill is in a way quite distinct from Brexit and is designed to address a different “problem”, namely the perceived threat of takeovers by potentially hostile powers of the UK’s key private sector industries, particularly those with a military or defence focus, it does appear to sit well with the UK Government’s Brexit agenda. It is quite possible that the Bill, which follows on from the UK Government’s 2017 and 2018 Green and White Papers on the national security and infrastructure investment review, would have happened anyway, Brexit or no Brexit, but it seems clear that Brexit may have made the UK Government more single-minded in pursuing its own agenda as far as foreign take-overs with national security implications are concerned.

The Bill provides for the setting up of a new statutory regime for UK Government scrutiny of, and intervention in, investments for the purposes of protecting UK national security. The Bill will impose mandatory notification duties to the relevant Secretary of State in the case of proposed takeovers in designated sensitive industry sectors – and so far we know that 17 such sectors are currently being considered as likely to fall within the scope of such mandatory notification duties, including the energy, telecommunications, artificial intelligence, defence, engineering, biology, cryptographic authentication, computing hardware and military and dual use sectors.

The Bill will enable the relevant Secretary of State to “call in “ actual or proposed takeovers which are considered to have a national security implication and will also provide for such takeovers to be voluntarily notified for review, even where there is no absolute requirement to make such notification.

The Bill will give the relevant Secretary of Stare strong enforcement powers, including the imposition of conditions on, and the prohibition and unwinding of offending takeovers as well as sanctions for non-compliance with the regime (including fines of up to 5% of worldwide turnover or £10,000,000, whichever is higher). The Bill also creates criminal offences, which can result in imprisonment of up to five years. Transactions covered by mandatory notification that take place without clearance will be legally void.

The Bill, if passed, will result in amendments to UK Enterprise Act 2002 so that particular types of national security sensitive takeovers in defined product sectors will now be dealt under the provisions of the Bill, if passed, rather than under the earlier provisions of the 2002 Act.

The lead editorial in The Times of 12th November 2020 concerns itself with the Bill and begins with the banner headline ”Hard Sell – New measures to protect firms from takeovers by hostile states are welcome. But it is important that Britain remains open for business.” The editorial makes the point that other countries such as the USA and France already have similar interventionist powers in place and that various EU States look set to follow suit. However, the editorial concludes with the comment that “The UK’s openness to investment has long been a competitive advantage on the global stage. Foreclosing it entirely would endanger the economy as much as any hostile power.”

Interesting times!

Brexit and the Immigration and Social Security Co-ordination (EU Withdrawal) Act 2020

On 11th November 2020, the UK passed into law its new Immigration and Social Security (EU Withdrawal) Act 2020 (“the Act”), which is expected to come fully into force immediately following the expiry of the post-Brexit transition period on 31st December 2020.

The Act is a short one, so far as UK immigration legislation goes, and will end free movement of persons into the UK from the EU under retained EU law and should also enable substantive policy changes to be made to EU social security rules which were initially retained in UK law following Brexit.

Though the Act does not itself introduce into UK law the new points-based immigration system, which will apply in the UK after the end of the transition period and which has been introduced by other UK legislation including changes to the UK Immigration Rules, the Act provides the trigger for the new system to apply to all EU nationals as well as to non-EU nationals. According to the UK Government press release of the 11th November 2020, which accompanied the passing of the Act, the UK Government clearly sees the Act as part of an agenda enabling the UK to choose in the UK’s own perceived best interests whom to allow to come into the UK for work, business or investment purposes. The press release refers, for instance, to the UK Government’s plans to introduce “special schemes to enable more scientists, academics, investors, entrepreneurs, and health and care workers to come to the UK easily”.

The press release also confirms that Irish citizens will continue to be able and live in the UK as they do now and it also reminds stakeholders that “if you’re an EU, EEA or Swiss citizen living in the UK before 31 December 2020, you and your family can apply to the EU Settlement Scheme to continue living in the UK after 30 June 2021”.

Some would say that the Act is placed at the heart of the UK Government’s Brexit project, whether this is for better or for worse.

Brexit and the UK Parliament’s Role in ratifying a future UK-EU Relationship Agreement

In anticipation of at least the possibility that the UK and EU will reach an agreement on the terms of their new post-Brexit relationship, the House of Commons Library published an insight article on 11th November 2020 into the process of the UK Parliament’s involvement in the approval of  UK treaties under Part 2 of the UK’s Constitutional and Reform Act 2010 (CRAG).

The UK Parliament’s role is essentially one of scrutinising new UK Government treaties during a statutory period of 21 sitting days from the date of the submission of the treaty in question to Parliament for  scrutiny, with the additional power under section 20 CRAG  for the House of Commons to postpone ratification of a treaty by a resolution passed during such period of 21 sitting days.

The UK Government can in certain circumstances override the UK Parliament’s scrutiny and postponement powers by invoking section 22 CRAG and can, with sufficient Parliamentary support, ensure that new primary legislation is passed dispensing with the UK Parliament’s powers in an appropriate case. Even if the UK Government were to override the UK Parliament’s powers under CRAG, however, this might not prevent debates on the treaty taking place in the UK Parliament in any event.

Relating this timely analysis to the current UK-EU negotiations for a new post-Brexit transition period relationship agreement, the House of Commons Library insight article quotes Lord Frost, the UK Government’s chief negotiator, as telling the House of Lords EU Committee in early October 2020 that the UK Government “assumes” that there will be primary legislation to implement “at least some of” any UK-EU treaties into domestic law, but the article states that “nothing further is known is yet known about this”.

Clearly, given the short time that there is left to reach a new relationship agreement with the EU prior to the end of the post-Brexit transition period on 31st December 2020, the UK Government would need to move quickly to get any necessary constitutional approvals in place if that agreement were reached at the UK Government level.

Brexit and simplifying the UK prudential regime for small financial institutions

On 12th November 2020, Sam Woods, Deputy Governor at the Bank of England (BoE) for Prudential Regulation and Chief Executive Officer, Prudential Regulatory Authority (PRA), made an important policy speech at the Mansion House in the City of London, on the prudential regulation of UK–based financial institutions following the end of the post-Brexit transition period on 31st December 2020.

His speech was headlined “Strong and Simple” and, whilst he was clear about the need to maintain “high prudential standards in the UK”, particularly after the grim experience of the financial crisis from 2008 onwards, he also made clear his view that following the post-Brexit transition period neither the EU nor the UK would wish “to be shackled in lockstep” to the other as developments in financial regulation occurred in both jurisdictions. In the UK, in particular, he noted (although not in so many words) the tradition of flexible and proportionate regulation often based on adaptive rulings from regulators rather than being entrenched in more rigid statutory rules  set out in primary, secondary or other legislation.

Mr Woods was envisaging in particular that once the UK was no longer subject to the capital requirements imposed by the EU Capital Requirements Regulation (575/2013), simpler and more relaxed capital requirements could be introduced in the UK for smaller financial institutions based in the UK and he spoke of the existing universal arrangements being replaced by a more” graduated” prudential regime in which UK firms could migrate from a very simple regime through a series of steps to the full Basel-based regime as they become larger or involved in more complex activities, or both. He would want to keep the design of the new graduated regime “strong and simple” and hence the title of his speech.

How well these ideas will go down in the EU is a matter of some speculation at this stage, bearing in mind the EU’s concerns that as a condition of any new UK-EU relationship agreement taking effect after the post-Brexit transition period the EU has often expressed the need to preserve a “level playing field” for open and fair competition, but, as quoted in “The Times” of 13th November 2020, Mr Woods did make it clear in his speech that “we [in the UK] have no interest whatsoever in a race-to-the-bottom approach to financial regulation”.

The policy ideas put forward by Mr Woods in his speech seemed carefully calibrated to test the reaction of his City of London-type audience as well as the financial services sector both in the  UK and beyond and we may well be seeing these ideas translated into practice in the months ahead.

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