Category: EU

Brexit: Can the Remainers Stop a No-Deal Brexit?

Brexit has driven fault lines through British politics as seen at no time since the 1680s. Fervent ‘leavers’ and fervent ‘remainers’ can be found in both of the main political parties, although most favour various compromise options in between.

This is reflected in the composition of the UK Parliament and has resulted in an impasse, with Parliament rejecting both the transitional ‘deal’ to leave the EU negotiated by former Prime Minister Theresa May at the end of 2018 and the prospect of leaving the EU without a deal – a ‘no deal’ Brexit. The election of Boris Johnson as the new UK prime minister and his appointment of a government leaning firmly towards leaving the EU, with or without a deal on October 31, 2019, throws up some distinctive legal challenges: If a new deal cannot be struck with the EU, is a no-deal Brexit inevitable, or can the remainer MPs stop it?

Concluding a new deal with the EU by October 31 is challenging, not least given the limited time available for negotiating it and having it approved by the European and UK Parliaments. This is compounded by the complexity of the issues the UK government seeks to renegotiate, particularly the Irish backstop, and the EU’s no-renegotiation stance – although it has indicated willingness to revisit the nature of the future relationship between the EU and UK.

The legal position on a no-deal Brexit is set out in the European Union (Withdrawal) Act 2018, as amended in April 2019. This Act sets Brexit date at October 31, 2019. It also requires Parliament to approve any withdrawal agreement with the EU. What it does not require is that there should, in fact, be a withdrawal agreement. Consequently, the Act does not require parliamentary consent for a ‘no deal’ Brexit. Prime Minister Johnson does not, accordingly, need to secure any parliamentary majority for this. And since the Act will prevail over any parliamentary vote to reject a no-deal Brexit, he does not have to comply with any vote passed to the contrary.

The first legal route open to remainer MPs is to seek to amend the 2018 Act. The problem that they would have is timing. Parliament is in recess until September 3. There is usually a further recess from mid-September to the second week in October for the party conference season. Even if the second recess were to be abandoned, there is insufficient time for an amending bill to be passed before October 31 using normal parliamentary procedures. There is provision for emergency legislation to be passed very quickly, but this would require a consensus among all parties and the support of the government, both of which seem unlikely given the split between remainers and leavers within the main parties and the new government’s express intention to achieve Brexit by October 31.

The second legal route open to remainer MPs is to force a general election. Under the terms of the UK Fixed-term Parliaments Act 2011, Leader of the Opposition Jeremy Corbyn would need to propose a motion of no confidence in Prime Minister Johnson’s government. At present, the Conservatives have a majority of one in Parliament, but only with the support of the Democratic Unionist Party from Northern Ireland. However, a number of Conservative MPs have indicated that they would be prepared to bring their own government down on this issue. An unknown factor is whether leaver MPs in the Labour Party are prepared to abstain or even vote against such a motion.

A motion of no confidence under the 2011 Act requires only a simple majority of MPs voting in favour. However, there are still timing issues. The earliest that such a motion can be proposed is September 3. If passed, it would trigger a cooling-off period of 14 days for an alternative government to be formed. At the end of this period, if, as he would be entitled to do, Mr Johnson were to remain prime minister, UK electoral law would require him to announce the date for a general election within a further 25 days. However, there is no requirement for the election actually to be held within a particular time. Although the Queen must be consulted about the date, this is a formality. Prime Minister Johnson would, therefore, be within his constitutional rights to call an election only after the October 31 Brexit deadline has passed and the UK has left the EU.

Remain supporters have indicated that their strategy, if they are able to force an election, would be to rely on the legal status of the ‘standstill’ or status quo convention to prevent a no-deal Brexit on October 31. When an election is called, the government immediately becomes a caretaker administration. By parliamentary convention (‘convention’ in the sense of accepted practice), this administration should not embark on any major new projects and may not use the UK civil service for such a purpose. Cabinet Secretary Sir Mark Sedwill, the head of the civil service, is reported as having expressed the view that the ‘standstill’ in this situation would be that the UK remains in the EU. However, government spokespersons have said that this would involve the civil service effectively acting in contravention of the 2018 Withdrawal Act.

It seems likely, if this scenario develops, that the matter will be referred to the UK Supreme Court. The British constitution is not written down and relies on many traditions and convention, some of considerable antiquity. However, there is precedent in a December 2018 Supreme Court case, which decided that the legislative consent motions passed by the Scottish Parliament under the Scotland Act 1998 could not be used to affect the validity of the 2018 Withdrawal Act. It had been argued that the convention requiring the Scottish government to be consulted on any UK legislation that involved matters devolved to Scotland was absolute. The Supreme Court disagreed, on the basis that a convention could not take precedence over a statute. On this basis, any reference to the Supreme Court seeking to block the operation of the 2018 Act through convention would likely fail.

It is often said ‘a week is a very long time in politics’. Prime Minister Johnson may be able to secure some last-minute concessions from the EU negotiators enabling a withdrawal agreement to be approved by Parliament, but this looks challenging. Legal routes to block Brexit are also likely to meet several hurdles. Consequently, at this stage, Britain’s exit from the EU on October 31 looks the more likely outcome. Whether that means an abrupt departure from the EU, or whether a managed ‘no-deal’ Brexit could be achieved through negotiation and agreement on key matters, remains to be seen.

©2019 Greenberg Traurig, LLP. All rights reserved.
This article was written by Gillian Sproul at Greenberg Traurig, LLP.
For more Brexit developments, please see the Global Law page on the National Law Review.

Brexit – Here We Go Again

The new Prime Minister of the UK, Boris Johnson, has taken up office following his decisive (66% : 34%) victory in the contest among Conservative Party members who were presented with a choice between him and the Foreign Secretary, Jeremy Hunt. He promised during the campaign to take the UK out of the EU by 31 October (when the extension to the Article 50 Brexit process expires) “do or die”. In his first speech as PM, he again underlined his determination that the UK should leave the EU by 31 October. He said that his intention was that this should be with a new deal – “no deal” was a remote possibility which would only happen if the EU refused to negotiate. But it was right to intensify preparations for “no deal”, which could be lubricated by retaining the £39 billion financial settlement previously agreed with the EU.

So the starting gun for the next phase of Brexit has fired.

What Does the Campaign Tell Us About the Approach to Brexit?

The Conservative leadership election campaign happened in two parts. The first, among MPs, whittled the long list of candidates down to two. Perhaps conscious of the broad spread of opinion among Conservative MPs, both final candidates took a nuanced line during that phase, stressing their desire to leave the EU with a (revised) deal. In the second phase, which involved selection between the two by the broader membership of the Conservative Party (roughly 160,000 people), the tone hardened notably. Polling suggests that a majority of the Conservative Party membership puts delivering Brexit ahead of the economy, the survival of the union of the UK and even the survival of the Conservative Party itself (polling after Theresa May’s European Parliament elections suggests that two thirds of party members voted for another party in those elections, with nearly 60% voting for Nigel Farage’s Brexit Party). Only averting the prospect of a Jeremy Corbyn-led Labour Government is apparently a higher priority for Conservative Party members. Responding to this sentiment, the position of both candidates became harder through the second phase of the campaign. While both favoured leaving with a deal, both were clear that the threat of a “no deal” exit must be real in order to stimulate further negotiations with the EU. Both, therefore, also favoured ramping up “no deal” preparations. In the end, the main difference between the two candidates was that Jeremy Hunt could countenance a “short” further delay to Brexit if that was necessary to secure a deal from the EU, whereas Boris Johnson promised that the UK would leave the EU on 31 October “come what may, do or die”. Significantly, in one of the last public hustings during the campaign, Boris Johnson also ruled out making changes to the Irish border backstop in the Withdrawal Agreement. His approach to how to deliver Brexit could be summarised as: deliver on citizens’ rights straight away, have a “standstill” on trade (not clear how this differs from the transitional period in the Withdrawal Agreement – it would certainly involve zero tariffs on both sides, but unclear whether it would involve regulatory alignment (see trade negotiations section below), still less continued jurisdiction of the European Court of Justice), resolve the Irish border through a comprehensive trade agreement and create “constructive ambiguity” about whether/when the UK would accept the €39 billion exit settlement in the Withdrawal Agreement – presumably making it contingent on the trade agreement. Boris Johnson called for optimism and determination to secure this outcome.

What Do the Key Ministerial Appointments Tell Us About Brexit?

In appointing his Cabinet, Boris Johnson has made far-reaching changes which shift the profile of government decisively towards pro-Brexit. All ministers were required to subscribe to keeping the possibility of “no deal” Brexit open. The principal portfolios concerning Brexit are all held by people who are either comfortable with, or even favour, a “no deal” Brexit. This looks like – and is no doubt intended to be seen in Brussels as – a government fully committed to a “no deal” Brexit, if necessary. Perhaps the most interesting appointment was, however, not of a minister at all, but of Dominic Cummings, campaign director for Vote Leave in the 2016 referendum, as a senior adviser. Taken together, this looks like a team both strongly committed to delivering Brexit and ready for a public campaign (election or referendum), if necessary.

What Happens Next?

The new Prime Minister effectively has more than five weeks’ respite from Parliamentary scrutiny, as Parliament starts its summer recess and returns on 3 September. This gives him time to consolidate his team, articulate his strategy (including boosting preparations for a “no deal” Brexit), and explore the possibilities for further negotiation with the EU. But even within his own party, on both pro-Leave and pro-Remain sides, he is, in effect, on probation.

The Parliamentary arithmetic has not changed significantly from that faced by Theresa May, but by carrying out such a substantial eviction of Mrs May’s ministers, Boris Johnson is likely to have increased the number of opponents to his Brexit policies on the Conservative back benches. They now also have an important figurehead in former Chancellor Philip Hammond. The Prime Minister has no majority without the support of the 10 Northern Ireland Democratic Unionist Party (DUP) MPs. And, within the Conservative Party, the hard Brexit supporting European Research Group (ERG) is now balanced by an anti “no deal” faction bolstered by ministers who resigned because they could not support his approach to Brexit or were sacked by him. Technically, the government’s majority, including the 10 DUP MPs, is down to two (three including one MP under criminal investigation). A by-election on 1 August is likely to reduce that by one. If the PM tries to push through a deal based on the existing Withdrawal Agreement (with changes to the accompanying Political Declaration about the future relationship, to which the EU has said it is open), he risks losing the DUP and some ERG from his majority. If his policy becomes “no deal”, he risks losing the more pro-European faction. In either case, he lacks a majority to deliver the result. The two big questions are whether Parliament (which has a substantial anti “no deal” majority) can find a way to erect a legal barrier to a “no deal” Brexit and, if not, how many Conservative MPs would really vote against their own party in a confidence vote to force either a change of direction or a fresh election – several have already indicated that they would do so if necessary. All of which points to the same Parliamentary deadlock Theresa May faced returning in September. So, unless the PM can come up with a renegotiated deal which the DUP and ERG would accept, the only way out of the deadlock would be to go back to the people. Mr Johnson’s strong opposition to a further referendum would make that a politically difficult choice. Current polling suggests that an election before Brexit is delivered would be a high risk strategy for the Conservatives.

As one influential commentator put it, the strategy may be to try for a new deal and see if the EU blinks. If they do not, go for “no deal” and see if Parliament blinks. If it does not, hold an election or referendum – an election is probably higher risk, but can be done more quickly and does not involve going back on strongly expressed views of the Brexiteers, including Mr Johnson.

What About the Europeans?

The debate about Brexit over the Conservative Party leadership campaign has been an entirely Brit-on-Brit affair, with reference to the EU position, but no engagement with it. European leaders’ reactions to Boris Johnson becoming Prime Minister have been polite, but also uncompromising, showing no willingness to re-open the Withdrawal Agreement. Michel Barnier looked forward to working with the Johnson Government to facilitate the ratification of the Withdrawal Agreement – signalling that negotiation is possible about the accompanying Political Declaration on the future relationship, and possibly other complementary accords, but not the Withdrawal Agreement itself. If the EU sticks to this position – and the EU team follows the UK Parliamentary arithmetic closely, so they know how much resistance there will be to “no deal” – the prospects for finding an agreed way forward look slim.

So “No Deal”, Then?

In April, we assessed the possibility of a “no deal” Brexit as very low. It has clearly now increased and, with a Cabinet committed to “no deal” if there is not a new deal, there are a number of ways in which it could come about. But Parliament’s majority against “no deal” remains, and there remain a number of obstacles to “no deal” in Parliament and in the economic analysis of the impact of “no deal” Brexit if the UK and EU are not able to agree on tariff-free trade using GATT XXIV. While some form of political process – such as an election – looks more likely than moving straight to “no deal” if the EU talks fail to yield a result, companies should certainly now put in place “no deal” contingency arrangements.

Free Trade Agreements

There are three interlinked free trade agreements (FTAs) in play: EU-US, EU-UK and UK-US. During the leadership campaign Boris Johnson spoke about making very rapid progress on the UK-US FTA (at one stage suggesting having a limited agreement in place by 31 October), but also about finding the long-term solution to the Irish border issue in the UK-EU FTA. In practice, it is likely that the UK-EU FTA has to come before the UK-US FTA, not least because the more the UK aligns to US regulatory standards through a UK-US FTA, the harder the solution to the Irish border issue will be – nowhere more so than in agriculture. The UK-EU FTA also has a unique character, in that the two parties start from a position of zero tariffs and complete regulatory alignment and the negotiation will, therefore, be about how far and in what respects to diverge. Both the EU-US and UK-US FTAs will have to address some highly charged political issues (agriculture, public procurement (in particular healthcare) and climate change); it could be argued that the UK would secure a better result on these issues by allowing the EU to find a politically workable way forward with the US first.

In an illustration of the complex interaction in the trade policy approach, the UK government has not been able to roll-over the EU-Canada FTA (CETA) into a bilateral UK-Canada FTA. This is because the Canadian government has analysed the impact for Canadian businesses of the UK moving to the interim “no deal” tariff policy published by the UK earlier this year – 87% of imported goods would be tariff-free to prevent harm to consumers – and concluded that the impact would be small. UK exporters to Canada would, however, face full Canadian WTO tariffs, rendering trade in some sectors unviable.

However the order of negotiations takes place, the three FTAs are effectively interlinked, and it will be important to ensure, for example, that something desirable in the UK-US FTA is not rendered more difficult to achieve by something agreed within the UK-EU FTA.

 

© Copyright 2019 Squire Patton Boggs (US) LLP
For more Brexit developments, see the National Law Review Global page.

Lessons in Becoming a Second Rate Intellectual Power – Through Privacy Regulation!

The EU’s endless regulation imposed on data usage has spooled over into academia, providing another lesson in kneecapping your own society by overregulating it. And they wonder why none of the big internet companies arose from the EU (or ever will). This time, the European data regulators seem to be doing everything they can to hamstring clinical trials and drive the research (and the resulting tens of billions of dollars of annual spend) outside the EU. That’s bad for pharma and biotech companies, but it’s also bad for universities that want to attract, retain, and teach top-notch talent.

The European Data Protection Board’s Opinion 3/2019 (the “Opinion”) fires an early and self-wounding shot in the coming war over the GDPR meaning and application of “informed consent.” The EU Board insists on defining “informed consent” in a manner that would cripple most serious health research on humans and human tissue that could have taken place in European hospitals and universities.

As discussed in a US law review article from Former Microsoft Chief Privacy Counsel Mike Hintz called Science and Privacy: Data Protection Laws and Their Impact on Research (14 Washington Journal of Law, Technology & Arts 103 (2019)), noted in a recent IAPP story from Hintz and Gary LaFever, both the strict interpretation of “informed consent” and the GDPR’s right to withdraw consent can both cripple serious clinical trials. Further, according to LaFever and Hintz, researchers have raised concerns that “requirements to obtain consent for accessing data for research purposes can lead to inadequate sample sizes, delays and other costs that can interfere with efforts to produce timely and useful research results.”

A clinical researcher must have a “legal basis” to use personal information, especially health information, in trials.  One of the primary legal basis options is simply gaining permission from the test subject for data use.  Only this is not so simple.

On its face, the GDPR requires clear affirmative consent for using personal data (including health data) to be “freely given, specific, informed and unambiguous.” The Opinion clarifies that nearly all operations of a clinical trial – start to finish – are considered regulated transactions involving use of personal information, and special “explicit consent” is required for use of health data. Explicit consent requirements are satisfied by written statements signed by the data subject.

That consent would need to include, among other things:

  • the purpose of each of the processing operations for which consent is sought,
  • what (type of) data will be collected and used, and
  • the existence of the right to withdraw consent.

The Opinion is clear that the EU Board authors believe the nature of clinical trials to be one of  an imbalance of power between the data subject and the sponsor of the trial, so that consent for use of personal data would likely be coercive and not “freely given.” This raises the specter that not only can the data subject pull out of trials at any time (or insist his/ her data be removed upon completion of the trial), but EU Privacy Regulators are likely to simply cancel the right to use personal health data because the signatures could not be freely given where the trial sponsor had an imbalance of power over the data subject. Imagine spending years and tens of millions of euros conducting clinical trials, only to have the results rendered meaningless because, suddenly, the trial participants are of an insufficient sample size.

Further, if the clinical trial operator does not get permission to use personal information for analytics, academic publication/presentation, or any other use of the trial results, then the trial operator cannot use the results in these manners. This means that either the trial sponsor insists on broad permissions to use clinical results for almost any purpose (which would raise the specter of coercive permissions), or the trial is hobbled by inability to use data in opportunities that might arise later. All in all, using subject permission as a basis for supporting legal use of personal data creates unnecessary problems for clinical trials.

That leaves the following legal bases for use of personal data in clinical trials:

  • a task carried out in the public interest under Article 6(1)(e) in conjunction with Article 9(2), (i) or (j) of the GDPR; or

  • the legitimate interests of the controller under Article 6(1)(f) in conjunction with Article 9(2) (j) of the GDPR;

Not every clinical trial will be able to establish it is being conducted in the public interest, especially where the trial doesn’t fall “within the mandate, missions and tasks vested in a public or private body by national law.”  Relying on this basis means that a trial could be challenged later as not supported by national law, and unless the researchers have legislators or regulators pass or promulgate a clear statement of support for the research, this basis is vulnerable to privacy regulators’ whims.

Further, as observed by Hintze and LaFever, relying on “the legal basis involves a balancing test between those legitimate interests pursued by the controller or by a third party and the risks to the interests or rights of the data subject.” So even the most controller-centric of legal supports can be reversed if the local privacy regulator feels that a legitimate use is outweighed by the interests of the data subject.  I suppose the case of Henrietta Lacks, if arising in the EU in the present day, would be a clear situation where a non-scientific regulator can squelch a clinical trial because the data subjects rights to privacy were considered more important than any trial using her genetic material.

So none of the “legal basis” options is either easy or guaranteed not to be reversed later, once millions in resources have been spent on the clinical trial. Further, as Hintze observes, “The GDPR also includes data minimization principles, including retention limitations which may be in tension with the idea that researchers need to gather and retain large volumes of data to conduct big data analytics tools and machine learning.” Meaning that privacy regulators could step in and decide that a clinician has been too ambitious in her use of personal data in violation of data minimization rules and shut down further use of data for scientific purposes.

The regulators emphasize that “appropriate safeguards” will help protect clinical trials from interference, but I read such promises in the inverse.  If a hacker gains access to data in a clinical trial, or if some of this data is accidentally emailed to the wrong people, or if one of the 50,000 lost laptops each day contains clinical research, then the regulators will pounce with both feet and attack the academic institution (rarely paragons of cutting edge data security) as demonstrating a lack of appropriate safeguards.  Recent staggeringly high fines against Marriott and British Airways demonstrate the presumption of the ICO, at least, that an entity suffering a hack or losing data some other way will be viciously punished.

If clinicians choosing where to set human trials knew about this all-encompassing privacy law and how it throws the very nature of their trials into suspicion and possible jeopardy, I can’t see why they would risk holding trials with residents of the European Economic Zone. The uncertainty and risk involved in the aggressively intrusive privacy regulators now having specific interest in clinical trials may drive important academic work overseas. If we see a data breach in a European university or an academic enforcement action based on the laws cited above, it will drive home the risks.

In that case, this particular European shot in the privacy wars is likely to end up pushing serious researchers out of Europe, to the detriment of academic and intellectual life in the Union.

Damaging friendly fire indeed.

 

Copyright © 2019 Womble Bond Dickinson (US) LLP All Rights Reserved.

U.S. Announces Possible Retaliatory Tariffs on European Union for Airbus Subsidies

The Office of the U.S. Trade Representative (USTR) announced in a Federal Register notice published July 5 that the agency is considering increasing duties on certain goods from the European Union (EU). This move is connected to a long-running World Trade Organization (WTO) dispute involving EU subsidies for Airbus, the aircraft manufacturing company.

The USTR has invited public comments on the proposed list and will hold a public hearing on Aug. 5, 2019.

Requests to appear at the hearing are due to the USTR by July 24, and written comments are due by Aug. 5. The public comment and hearing process will provide importers of goods from the EU, as well as domestic producers that compete with EU producers, the opportunity to be heard with regard to the products that may be subject to tariffs.

In April 2019, the USTR published a preliminary list of goods from the EU that could be targeted with tariffs, which included aircraft, motorcycles and wine. The July 5 list contains additional products, including whiskey, coffee, olives, pasta, cheese, pork, and metals, among other items. The goods on both lists are collectively worth about $25 billion of imports per year.

The tariffs stem from a WTO case filed by the United States in 2004, which was resolved by the WTO Appellate Body in 2011. In that case, European Communities and Certain member States — Measures Affecting Trade in Large Civil Aircraft (DS316), the Appellate Body found that certain EU subsidies for Airbus failed to comply with the WTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement).

The EU made certain changes to its subsidy regime in response to the Appellate Body’s decision, but the U.S. later asked the WTO to determine that the EU had not fully complied with the decision. That request led to another Appellate Body decision published in May 2018, in which the Appellate Body agreed with the U.S. that the EU was still not in compliance with the SCM Agreement.

The WTO is expected to determine the amount of retaliatory tariffs the United States can impose sometime this summer, and the April and July 2019 tariffs proposed by the USTR are likely being prepared in anticipation of the WTO decision.

 

© 2019 BARNES & THORNBURG LLP
For more from the Office of the US Trade Representative see the National Law Review page on Antitrust & Trade Regulation.

Brexit: Limiting the Damage

It is one of the ironies of history that the EU as it is today, starting with the single market, was largely made in Britain, the achievement, above all, of former prime minister Margaret Thatcher and her right-hand man in Brussels, the then Commissioner (Lord) Arthur Cockfield. The single market has long been viewed by observers in countries with less of a free market tradition as a typically British liberal invention. And yet it is this market, as well as the EU itself, that another Conservative government is now seeking to leave.

Britain has also left its stamp on key EU initiatives from regional policy to development assistance and fisheries. The EU’s interest in a common foreign and security policy originally stemmed from Britain. The EU’s comparatively transparent and accountable administrative rules date from the reforms introduced by former British Labour Party leader Neil Kinnock when he was Vice-President of the European Commission from 1999 to 2004. Thus, representatives of Britain’s two major parties have helped to make the EU what it is today.

If British prime ministers had explained to public opinion earlier the extent of their country’s influence on the EU, something that other Europeans never doubted, the referendum of 23 June 2016 might never have occurred.

A “Smooth and Sensible” Brexit

Be that as it may, Europeans on both sides of the English Channel are now grappling with the consequences of that vote. If reason and economic interest prevail, a “smooth and sensible” Brexit, as evoked by the British prime minister in Florence in September, might yet emerge.

This would involve a broad agreement, in 2017, on the principal aspects of the divorce settlement. This concerns mainly Britain’s financial commitments to the EU, the residence, professional and health rights of citizens living on both sides of the Channel after Brexit, and the need to maintain the Common Travel Area between Britain and Ireland and to avoid a hard border across the island of Ireland after Brexit. While Brussels, London and Dublin have affirmed their intention of achieving these goals, there are many practical and political issues to resolve.

If sufficient confidence and trust between EU and UK negotiators is established, it should also be possible to agree to the general terms of a future political and economic agreement between London and Brussels by the end of the year and to broach the question of transitional arrangements to smooth the way for government and business. The British government wishes to ensure that business need adjust to Brexit only once, hence the need for a smooth transition to a well-defined future relationship.

If good progress is made next year, the separation agreement and transitional arrangements could be drawn up by October 2018, allowing enough time for approval by EU and British institutions ahead of Britain’s exit from the EU at midnight between 29 and 30 October 2019. Little, except Britain’s lost vote in EU institutions, would then change for the next two to three years, as the UK continued to make payments to the EU budget, respect judgements of the European Court of Justice and accept the free movement of labour.

The breathing space would be used to negotiate, sign and ratify a two-part long-term agreement. The first part would cover trade and economic issues; it could take effect provisionally relatively quickly after agreement had been reached. The second part, though, would be a wide-ranging political agreement, involving security and even aspects of defence. Both sides have an interest in cooperation on armaments production and unconventional forms of conflict, as well as police and judicial affairs. This would involve the member states’ legal responsibilities and require ratification by all twenty-eight countries concerned. It might not come into effect before the mid-late 2020s.

This relatively benign sequence of events assumes that the British government is unified behind its negotiator, David Davies, and that the political situation in Britain and the EU remains generally stable. It also assumes that the EU can move beyond its rigid two-stage sequencing of the negotiations.

However, there may well be political upsets, involving a leadership competition in the Conservative Party and, perhaps, an early general election. The opposition Labour Party may come to power bringing a change in priorities but also differences of opinion in its own ranks. The British economy will be damaged by Brexit, according to leading economists, and public opinion is likely to react when this is widely felt.[1]Until now, the main impact has been a decline in sterling and rising inflation, raising the prospect of higher interest rates.

The “Cliff Edge” Scenario

Such uncertainties, as well as the divergent political agendas of London and Brussels, may make the smooth and sensible Brexit impossible to achieve during the limited time available. This opens the way to a second scenario, widely described in Britain as the cliff edge. Under this hypothesis, the December 2017 goal for achieving a breakthrough in the separation talks is missed. This further postpones discussion of transitional arrangements and a future long-term agreement.

Negotiations continue fitfully during 2018 but the two sides are too far apart to reach agreement by October 2018, which the EU chief negotiator, Michel Barnier, has designated as the effective deadline. If October passes without an overall agreement, it will probably be too late to secure the agreement of the European Parliament before 29 March 2019, when the two-year negotiating period initiated by the British government’s notification of withdrawal expires. Nonetheless, negotiations might well go down to the wire.

Unless all twenty-eight countries “stop the clock” at midnight, an old Brussels ruse, the UK would then leave the EU without an agreement. Business leaders have warned of the chaos this will bring. There will be an unmanageable fivefold increase in work at British, Irish and mainland European ports checking consignments, the suspension of air travel between the UK and the EU, pending the conclusion of a new air transport agreement, and other major disruptions.

Health, safety, veterinary and phytosanitary inspections, as well as the assessment of customs duties, would lead to long queues of lorries at ports on both sides of the channel. Neither side can build the necessary infrastructure and linked IT systems or recruit sufficient qualified staff in time to cope with dramatically increased requirements after a hard Brexit. Supply chains would be disrupted and many foreign-owned companies, which had not already relocated to remaining EU countries, would seek to do so rapidly.

The political and economic damage of going over the cliff edge would last for years and embitter the UK’s relations with the EU and third countries. Many would question the value of Britain’s WTO commitments in the absence of appropriate trading arrangements between Britain and the EU.

This then is a sketch of the cliff edge. Those who admire Britain for its pragmatism, fairness and common sense find it hard to believe that such a scenario might become reality. Surely, they say, Britain and the EU are involved in preliminary skirmishing of the type that precedes any negotiation. They are sure to come to their senses as the decisive deadlines approach. Nothing is less than certain.

A Tale of “Downside” Risks

The outcome may well diverge from either the optimistic or the pessimistic scenarios delineated above. However, the risks are mainly “downside” as the economists put it. British negotiators have not yet grasped the fundamentally asymmetric nature of negotiations between twenty-seven countries backed by European institutions on the one side and a single country seeking to leave the club on the other. It would be better for government, business and the public, if this reality were more widely recognized, leading to realistic negotiating targets. Indeed, Brexit is not really a negotiation at all in the usual sense. It is rather an effort by the leaving country to secure some exceptions from the club’s rules at the time of its departure. This is much akin to the efforts of a candidate (joining) country to achieve some, temporary, transitional exceptions to the EU’s rules.

The Brexit talks are essentially an exercise in damage limitation, mainly through transitional arrangements. When the divorce and transitional arrangements have been agreed, Britain and the EU can concentrate on negotiating a long-term partnership which will be in their mutual interest.

This post was written by Michael Leigh of Covington & Burling LLP., © 2017
For more Global legal analysis, go to The National Law Review

Positive Developments – EUTM

Trademark owners should take note of two new types of trademark protection available in the European Community as of October 1, 2017.

1. Certification Marks – although it has always been possible to register certification marks in a few individual EU member states, it was previously not possible to register a certification mark, for certification services, with the EUIPO.  This will change as of October 1, 2017 when it will now it will be possible to register certification with the EUIPO, covering all EU member states.  European Union certification marks are defined as marks that are “capable of distinguishing goods or services which are certified by the proprietor of the mark in respect of material, mode of manufacture of goods or performance of services, quality, accuracy or other characteristics, with the exception of geographical origin, from goods and services which are not so certified.”

2. Marks no Longer Need Graphic Representation – it will now be possible to file for sound, hologram, motion, and multimedia marks; marks can now be represented in any form using generally available technologies.  Unfortunately, it is still not possible to file for tactile, smell, and taste marks in the EU.

This post was written by Monica Riva Talley of Sterne Kessler © 2017
For more legal analysis go to The National Law Review

Brexit – Squaring Circle and involving European Court of Justice

Clash of Philosophies

There is a potentially irreconcilable clash of constitutional philosophies between the UK and the EU which results in certain “no go” areas on the EU side for the forthcoming Brexit negotiations.

Perspective of the EU27

EU UK FlagsThe EU27’s approach is driven by the perception that the European Union is not merely representative of a negotiable bundle of international trade treaties but is a supranational entity based on and subject to a constitution created by the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU). From the perspective of the EU and the EU27 , the constitution of the EU goes well beyond international treaties.  The Treaties establish a Union which is based on principles similar to those in Federal States.

Any of the member states of the EU (including the UK) accordingly is, from the perspective of the EU, not only a counterparty to an international treaty but an integral part of an autonomous Union. The driving principle of the European Union – which was correctly identified and repeated by Leave campaigners – is the supremacy of the EU’s legal order over the legal order of its member states, including the supremacy of the EU’s legal order over the constitutions of the member states.

One of the most important principles of the EU is laid down in Article 3 (2) TEU.  This provides that the EU is an area within which its citizens are free and can freely move. This is a general principle which is not restricted to trade but applies in all areas of life. In addition to such general principle Article 3 (3) TEU states that, inter alia, one of the consequences of this area of freedom and free movement is the internal market.

That is the context of the European Union placing the future rights of EU citizens in the UK at the forefront of any of the forthcoming Brexit negotiations.

Since the EU is bound to such constitutional order, any agreement with the UK pursuant to Article 50 TEU needs, from the perspective of the EU, to comply with such constitutional principles. “Constitutionality” is a major issue for the continental European member states since governments and politicians on the continent are used to be bound by constitutions which cannot be overridden by domestic governments or parliaments by simple act of parliament or government. Constitutions can only be amended or overridden if a qualified majority in Parliament and, in some member states, a referendum so approves. In some member states, such as Germany, there are even some constitutional principles which cannotbe changed by Parliament at all.

Perspective of the UK

The UK approach is driven by its perspective that the EU is simply the creation of a bundle of international treaties which establish a common market in which various different principles of free trade and free movement apply, and the contents of which can be freely negotiated between the various parties to such international treaties. Accordingly the UK takes the point of view that the agreements to be entered into pursuant to Article 50 TEU upon Brexit can be freely negotiated and that such negotiations are not subject to or restricted by overriding constitutional principles which are binding on the EU during such exit negotiations.

How to reconcile the differing points of view and how to involve the European Court of Justice

The two above described perspectives of the UK and the EU would appear to be legally irreconcilable, but there is a potential avenue out of such dead-lock by making use of:

(a) the fact that Article 50 (3) TEU does not conclusively state that the UK ceases to be a member state of the EU two years after the Article 50 Notice has been given, but in principle refers to the date on which the relevant withdrawal agreement becomes effective, which effective date can either fall on a date occurring after the two years or on a date occurring prior to the two years.

Accordingly, a simple withdrawal agreement could provide that Brexit becomes effective only once certain specified additional agreements have been finalized and entered into.

(b) the Commission, the European Parliament, the European Council and/or any member state (including the UK) being entitled to request from the European Court of Justice (ECJ) pursuant to Article 218 (11) TFEU legal opinions on any draft agreement – like the agreements between the UK and the EU on their future relationships – to be entered into with a third country (which the UK would be once the withdrawal agreement becomes effective) in order to avoid and/or mitigate concerns relating to the constitutionality of the future relationship agreement with the UK.

It is likely that the EU27 will at some stage call upon the European Court of Justice to opine on the constitutionality of the future relationship agreement(s) with the UK because of the fundamental nature of the agreement(s).

Samples of constitutionally important legal opinions rendered by the European Court of Justice in relation to Agreements which the EU had entered into in the past under Article 218 (11) TFEU (and its predecessors) include, for example:

– ECJ opinions 1/91 and 1/92 on the European Economic Area Agreement and the system of judicial review thereunder,

– ECJ opinion 1/94 relating to the EU agreeing to accede to WTO, GATS and TRIPs

– ECJ opinion 2/13 relating to the accession of the EU to the European Convention on Human Rights

– ECJ opinion 2/15 relating to the Free Trade Agreement with Singapore.

In relation to the Free Trade Agreement with Singapore the ECJ held on 16 May 2017 that such Free Trade Agreement is, because of its far reaching comprehensive content, a so-called “mixed-agreement” and therefore requires the consent of all 28 Member States of the European Union. Depending on the contents of the future relationship agreement between the UK and the EU, such agreement will also need to be ratified by the Parliaments of the EU27 Member States.

Agreements to be negotiated between the UK and the EU

The minimum number of agreements to be negotiated in the context of the UK leaving the EU pursuant to Article 50 is two:

(i) the withdrawal agreement on the details of the withdrawal “taking account of the framework for its future relationship with the Union” and

(ii) an agreement on the details of the future relationship between the EU and the UK.

Even though the minimum number of agreements to be entered into is two, it is likely that there will be more than two agreements since there are areas which need to be dealt with instantaneously (like aviation between the UK and EU27 and a potential accession of the UK to the ECAA Agreement in order to enable the flow of air traffic between the UK and the EU to continue as normal) irrespective of whether other areas may be dealt with at a later stage.

Whereas the withdrawal agreement can be adopted by the EU pursuant to a qualified majority decision pursuant to Article 50 TEU, any agreement on the details of the future relationship will require the “normal” majority contemplated in the TEU and TFEU for the relevant matters concerned, because Article 50 does not apply to such agreements on the details of the future relationship.

From the EU27 perspective, the principal items of the withdrawal agreement are those set out in the Brexit Negotiation Guidelines adopted by the European Council on 29 April 2017, the European Parliament on 5 April 2017 and the Non-Paper of the European Commission of 20 April 2017 and the Commission Recommendation for a Council Decision of 3 May 2017.

Withdrawal Agreement and the date at which it comes into force

The EU and the UK could agree that the withdrawal agreement is ratified in accordance with Article 50 TEU before the lapse of the two-year period but provides that it comes into force only after the agreement on principles for the future relationship has been (i) agreed on working level; (ii) submitted to and reviewed by the European Court of Justice pursuant to Article 218 (11) TFEU, and (iii) been ratified by the UK and the EU – or after the ratification process has been declared by the UK to be defunct.

That would mean that the UK would not cease to be a member state of the EU until there is an agreement on the principles for the future relationship without having to achieve this within the tight two years period.

The UK would also continue to enjoy all rights as a member state under existing international trade and other agreements entered into by the EU with countries around the world, like free trade agreements, air transportation agreements etc. until the ECJ has determined that the principles agreed between the UK and the EU in the agreement on principles for the future relationship are compliant with TEU and TFEU. Once this has been determined, the details of the future relationship could be negotiated in detail between the UK and the EU.

If the UK ceased to be a Member State on 30 March 2019 and “only” some transitory period or implementation period thereafter was agreed on during which certain specified EU rules continue to apply, this would not prevent the UK from losing its rights under existing International Agreements which had been entered into by the EU.

There is clarity in the approach of the EU27. The approach that the UK will take should become clearer after the General Election on 8 June, and later in the year as the UK government begins to identify its Brexit strategy in more detail, and identifies the trade offs it is prepared to make.  The historical and current political climate, as well as the sheer complexity of Brexit, is such that the UK cannot necessarily be expected the trade offs which history will regard as the “right” ones.

By Jens Rinze and Jeremy Cape of Squire Patton Boggs.

“WannaCry” Ransomware Attack Causes Disruption Globally – With Worst Yet to Come

A ransomware known as “WannaCry” affected 200,000 people in 150 countries over the weekend, locking computer files and demanding payment to release them. As of this morning, Australia and New Zealand users seem to have avoided the brunt of the attack, with the Federal Government only confirming three reports of Australian companies being affected.  Not that ransomware attacks tend to be the subject of reporting – there is quite a high rate of payment of affected users as the pricing is deliberately cheaper than most alternatives unless your back-up process is very good.

The ransomware utilises vulnerabilities in out-of-date, unpatched versions of Microsoft Windows to infect devices. It spreads from computer for computer as it finds exposed targets, without the user having to open an e-mail attachment or click a link as is commonplace in most attacks. Ransom demands start at US$300 and doubles after three days.

The U.K. National Health Service (NHS) was among the worst hit organisations, forcing hospitals to cancel appointments and delay operations as they could not access their patients’ medical records. The Telegraph suggested that 90 percent of NHS trusts were using a 16 year old version of Windows XP which was particularly vulnerable to the attack. More attacks are anticipated throughout the working week as companies and organisations turn on their devices.

The U.K. National Cyber Security Center has released guidance to help both home users and organisations limit the impact of the attacks. It can be read here.

Edwin Tan is co-author of this article. 

European Union Adopts Brexit Negotiation Guidelines

Brexit Bull HornOn April 29, a Special European Council, meeting as 27 member states (as opposed to the full 28 member states, as would usually be present), adopted the Article 50 guidelines (Guidelines) to formally define the EU’s position in Brexit negotiations with the United Kingdom. This follows the resolution of the European Parliament on key principles and conditions for the negotiations, adopted on April 5 (for further information, see the April 7 issue of Corporate & Financial Weekly Digest).

The Guidelines are set out under six headings covering:

  • core principles;
  • a phased approach to the negotiations;
  • agreement on arrangements for an orderly withdrawal;
  • preliminary and preparatory discussions on a framework for the EU-UK future relationship;
  • the principle of sincere cooperation; and
  • the procedural arrangements for negotiations under Article 50.

On May 22, the EU General Affairs Council is expected to authorize the opening of the negotiations, nominate the European Commission as the EU negotiator and adopt negotiating directives.

The Guidelines are available here.

Department of Commerce Releases Fact Sheet on EU-U.S. Privacy Shield

As we reported yesterday, the United States and the European Commission have reached a political agreement on a new framework for transatlantic data flows, referred to as the EU-U.S. Privacy Shield.  The U.S. Department of Commerce (“Commerce”) released a fact sheet yesterday to coincide with the announcement of the agreement.

The fact sheet includes a series of bullet points listing ways in which the Privacy Shield (1) “significantly improves commercial oversight and enhances privacy protections,” and (2) “demonstrates the U.S. Commitments to limitations and safeguards on national security.”  On the first point, Commerce states that “EU individuals will have access to multiple avenues to resolve concerns,” including alternative dispute resolution at no cost to individuals.  In addition, Commerce “will step in directly and use best efforts to resolve referred complaints” using a “special team with significant new resources.”  On the second point, the fact sheet references President Obama’s executive actions to enhance privacy protections and oversight relating to U.S. government surveillance activities.  Finally, Commerce states that “the United States is making the commitment to respond to appropriate requests” regarding U.S. intelligence activity, in a manner that is consistent with national security obligations.

Article By David J. Bender of Covington & Burling LLP
© 2016 Covington & Burling LLP