And so it begins... It's official, we're on the road to Brexit

Below you'll find three articles which make up the latest Brexit Newsletter produced by ISOLAS – you can also download a PDF of the newsletter by clicking on the link below.

ISOLAS Brexit Newsletter – March 2017

In this newsletter I deal with the following matters:

1. The Article 50 process;
2. A summary of conclusions from a special report on the impact of Brexit in Gibraltar by the House of Lords Parliamentary Select Committee on the European Union and the matters that were raised in a debate about the report, including issues arising from the UK Criminal Finances Bill and, in the context of post-Brexit border flow, the Local Border Traffic Regulation; and
3. A brief analysis on the new Schengen border controls soon to be deployed later this week and how this development might offer a glimpse of the what is to come.

Triggering the departure – the clock is ticking

The British Prime Minister, Theresa May, has today formally notified the European Union of the United Kingdom's intention to leave the EU under provisions of Article 50 of the Lisbon Treaty. Whatever happens now save for in the instance of the EU member states unanimously agreeing to extend the time for negotiations, we will, two years from now, the UK and Gibraltar, be out of the EU.

Two years from now, the UK and the EU will have had to agree measures on many and varied issues we have already thought of, and a great deal many more that we haven't yet divined.

The Government in the UK will be targeting achievements in 12 separate fields, from taking control of our own laws to strengthening the union, from controlling immigration to protecting worker's rights. All of the Government's objectives were set out by the PM in her speech at Lancaster House, which objectives were re-jigged and published as the white paper on the United Kingdom's exit from, and new partnership with, the European Union.

What happens now, from a technical/procedural point of view has been a matter of significant discussion such that a reminder of the specific terms and the relevant issues is, today of all days, as timely as it is ever likely to be.

Article 50 of the Lisbon Treaty provides as follows:

1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.

2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it.

A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.

5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.

In order for the Brexit agreement to be approved by the Council on behalf of the Union, the European Parliament needs to consent and then a super qualified majority of the Council is required.

The consent procedure of the European Parliament requires an absolute majority – It is based on a single vote on consent with the majority of votes cast. http://eur-lex.europa.eu/summary/glossary/assent_procedure.html

The Council's qualified majority is defined by reference to Article 238(3)(b) of the Treaty on the Functioning of the European Union, which states that when the Council does not act on a proposal from the Commission or from the High Representative of the Union for Foreign Affairs and Security Policy, the qualified majority shall be defined as at least 72% of the members of the Council representing Member States comprising at least 65% of the population of these States

Art 50/Art 218(3) Interaction and interplay

The key point of interpretation of Article 50 which has arisen from the Article itself, is one which has not been resolved in the run up to the formal triggering of the process and is, in fact, likely to cause difficulty/disagreement in the negotiations ab initio.

Art 50 (2) provides that the "Union shall negotiate and conclude an agreement with the UK, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union." Art 50 (2) then goes on to state that "[T]hat agreement shall be negotiated in accordance with Art 218(3) of the Lisbon Treaty." It is in the specific context of the words 'That agreement...' that the divergence of positions emerges.

The EU's chief negotiator, Michel Barnier, has made clear that the first item on the agenda following formal notification of intended departure by the UK would be the conclusion of the 'divorce' agreement between the Union and the UK. It is expected that the EU will seek to include conditions on payment by the UK to the EU of budgetary commitments and pension liabilities as well as commitments in respect of narrow, technical issues such as the protection of rights of EU citizens in the UK/protection of UK citizens' rights in the EU in addition to the relocation of European authorities currently situated in the UK e.g., European Medicines Agency. In fact, reports suggest that Mr Barnier now has widespread support for a three stage approach to Brexit – withdrawal, transition and then a new relationship.

The EU is rallying behind a three stage approach to Brexit – withdrawal; transition; and a new relationship"

The UK Government's position in this regard is that the withdrawal by the UK from the EU cannot be negotiated in a vacuum, without regard for or negotiation of, ultimately, the residual relationship between the UK and the bloc.

The House of Commons Parliamentary Select Committee for Exiting the EU, in its first special report on Brexit suggested, in a manner that runs contrary to the position adopted by the EU, that the Article 50 process and an Article 218 negotiation are separate matters which can be dealt with in tandem. The Committee appears to separate the Article 50 notification on the one hand and a process of negotiation with the EU as 'a third country' (which is the premise of Art 218) on the other, as two separate issues. 

It appears that the EU's position in this respect relies on the suggestion that the language of Article 50 makes clear that the process for negotiations on the future relationship between the UK and the EU are to be conducted with the notifying party as a third country, i.e., as a country that is NOT part of the EU, a country that has already left – at the conclusion of Article 50 negotiations. Arguably of course, at the time of drafting Article 50, it was anathema to the draftsmen that any country would ever actually invoke it, lulling them into the, as it turned out, false sense of security that Article 50 didn't need too much thought in its construction.

In its response to the select committee's report, the Government did not directly address the issue of interpretation, reiterating instead its position that the nature and detail of the future relationship between the UK and the EU must form part of the agreement reached under the terms of Art 50.

Given the language of the Article and the confidence with which the Mr Barnier has asserted the EU's position, it would seem that the parties to these, the most important negotiations in the United Kingdom's recent history, may be mired in legal argument from the word go.

The consequences of Brexit for Gibraltar – House of Lords Special Report summary

In January this year, the House of Lords Select Committee on the EU published a report called "Brexit: Gibraltar", a report published following an inquiry by the Lords' Committee detailing the likely impact and issues for Gibraltar of the decision to leave the EU by the UK. 

The conclusions of the report can be summarised thus:

The economic implications

• A loss of Gibraltar's access to the Single Market would, unavoidably, have negative consequences for Gibraltar's economy, at least in the short term;
• Gibraltar heavily relies on free movement of workers and any restriction on that daily movement will seriously damage several key sectors of its economy, including the port, tourism, financial services and aviation;
• Any damage would also have a serious impact on the economy of the Campo de Gibraltar region;
• EU funding has played a significant role in Gibraltar's development. This funding has been guaranteed by the UK Government through to 2020 but some clarification is still required as to the extent of the funding and the criteria under which this will be provided by HM Treasury;
• Gibraltar's most significant economic relationship is with the UK itself – it will be important for Gibraltar to maintain and enhance its access to make up for loss of trade with the Single Market – It is the UK's responsibility to support Gibraltar by including it in any deals it may strike post Brexit.

The Frontier with Spain

• It is in the mutual interest of Gibraltar and Spain to maintain as free-flowing a frontier as possible following Brexit. The Local Border Traffic Regulation (EC1931/2006) could be used as a future basis for movement of labour between Spain and Gibraltar – the commitment to this by both sides would be required for this to be sustained.
• Common membership of the EU has seen much cooperation in the way of police and judicial cooperation. It will be vital for Gibraltar to continue to cooperate and equally for the UK Government to find a way to support a new and stable relationship between Gibraltar and Spain.

Implications for the sovereignty dispute

• The UK Government is poised to engage 'positively and pragmatically' with Spain but it's commitment to the double lock on sovereignty, namely that the sovereignty of Gibraltar will not pass nor will the UK Government enter into negotiations over Gibraltar's sovereignty against the wishes of the Gibraltarians, remains solid.
• The Government must be vigilant of the risk that Spain will seek to introduce the Gibraltar issue as part of the negotiations under Art 50 or any subsequent trade deal between the UK/EU.
• The UK Government should also be alert to any attempts by Spain to advance its territorial claims over Gibraltar through the medium of EU laws or policies, when the UK is 'out of the room' after Brexit

Gibraltar's future

• Gibraltar faces potentially significant consequences as a result of the decision by the UK to leave the EU;
• Gibraltar and the UK should be considered one state in the context of negotiations, even if a carve out could be agreed vis a vis local border issues between Gibraltar and Spain.
• A dedicated Joint Ministerial Council has been establishment to facilitate Gibraltar's involvement in the wide Brexit process.
• Government of Gibraltar has placed its trust in the UK – Gibraltar didn't want to leave;
• At this stage it remains to be seen whether Gibraltar will feel compelled to seek a differentiated future relationship with the EU but it is recognised that Spanish opposition may be an insuperable barrier to that – the favoured option is out of the EU with the UK over in the EU, without the UK..
• A microstate style status would require the support of the EU institutions and the 27 other member states and whilst this is unlikely, the EU itself has a continuing interest in promoting the economic wellbeing of Gibraltar as a neighbouring territory and in protecting the welfare of EU national border residents.
• It is essential that Spain, the UK and Gibraltar, once they lose the common forum provided by shared EU membership, redouble their efforts to find a structure through which open lines of communication can be maintained, promoting cooperation and good relations.

Debate by the House of Lords of the report 'Brexit: Gibraltar'

The report was then debated by the Lords in session on 21 March 2017. Lord Hannay of Chiswick, who had been part of the team that negotiated UK accession in the early 70's recalled that "In truth, we got a Goldilocks deal for Gibraltar: outside the customs union, exempted from the requirement to introduce a value added tax and inside what became, over the years, the biggest single market in the world. That deal has stood the test of time, which is attested to by the fact that 96% of Gibraltarians voted to remain last June." He also spoke of supposed supporters of Gibraltar's cause in Westminster who voted to leave by saying that "they threw Gibraltar under the wheels of that infamous battle bus, without having a clue what they were doing. They broke it, and we own it"

"they threw Gibraltar under the wheels of that infamous battle bus..." Lord Hannay of Chiswick, House of Lords, 21 March 2017

In acknowledging the comments, Baroness Goldie, replying in the debate for the Government, said that "The noble Lord, Lord Hannay, with some justification, described Gibraltar's position in the EU as a "Goldilocks deal". I do not disagree; it is a fairly accurate description. But I also observe that the UK has been an important support and bolster in that relationship. The UK remains and Gibraltar remains–and with that tandem of talent I am unable to share the pessimism of the noble Lord."

The Criminal Finances Bill

A technical point relating to certain provisions of the Criminal Finances Bill was also helpfully raised by Lady Butler-Sloss, who said that "Gibraltar has a commitment to transparency in the financial services sector, and is used as an example for other jurisdictions. It is committed to the central register of beneficial ownership under the EU anti-money laundering directive; it works closely with the United Kingdom Government on financial issues; it has an excellent record on the exchange of information, recognised by the OECD; and it has the same rating on that as the United Kingdom. I am sure that we in this House all hope that Gibraltar will remain a strong financial centre, whatever may happen in the future.

I must therefore tell Members of this House that it is very important that inappropriate amendments, which are being suggested by some Members, should not be allowed to have any adverse implications for Gibraltar. This measure must not be allowed to be to the detriment of Gibraltar. I therefore ask your Lordships to watch what any amendments tabled to the Criminal Finances Bill actually say. We must be sure that they are not passed–because if they are, there will be an opportunity for Spain to denigrate Gibraltar's financial services, which would obviously be to the detriment of Gibraltar. We must not allow Spain that opportunity."

In reply, Baroness Goldie acknowledged the importance of the point in saying that she "noted her concern about what possible amendments to the Criminal Finances Bill might mean and I will ensure that we look at that."

It is evident that there is much value in the work that the Government of Gibraltar has been doing in the very important context of putting our case to those whose responsibility it is to fight our corner, as was repeatedly acknowledged in the debate and throughout the report. It is by informing those whose job it is to represent us that we advance our case – it is only in the fullness of the knowledge of the issues on the ground and the threats that we see along the road that the UK can do the best job it can to minimise the impact of this unwanted chapter in our story.

"it is only in the fullness of the knowledge of the issues on the ground and the threats that we see along the road that the UK can do the best job it can to minimise the impact of this unwanted chapter in our story"

Local Border Traffic Regulation

One of these local issues where the perseverance of the Gibraltar Government could potentially bear fruit is in the identification of the Local Border Traffic Regulation, highlighted in the conclusions above, as the basis for which a continuing free flow of traffic at the border could be sought with Spain post-Brexit. Baroness Goldie acknowledged as much in saying that "The UK Government are working with the Government of Gibraltar to consider all options on the crucial issue of the border. As the committee noted in its report, the Local Border Traffic Regulation would, of course, require commitment from Spain."

In concluding her reply, she noted that she "was aware that the noble Lord, Lord Luce, is currently Chancellor of the University of Gibraltar. I had a look at its motto: "Scientia est Clavis ad Successum". I know that noble Lords are all scholars of Latin and do not require a translation, but it is simple: "Knowledge is the key to success".I suggest that knowledge by the UK of what Gibraltar and the Gibraltarian people need, knowledge of what our EU partners wish to achieve and their knowledge of what we seek to achieve make a good starting point for how we embark on these vital negotiations. If we approach these matters based on knowledge, all will benefit. The UK will benefit–and if the UK benefits, Gibraltar, too, will benefit."

New Schengen Controls at Gibraltar/Spain border – an interim acid test of the Spanish position on Gibraltar in the Brexit context?

On 7 March 2017, the Council adopted a regulation amending the Schengen borders code to reinforce checks against relevant databases at the external borders. These changes provide the Spanish Government with the mandate/justification to impose tighter border controls at its border with Gibraltar – every reason for Gibraltar to be expectant of what this might mean for the more than 10,000 daily cross-border workers.

The amendment obliges member states to carry out systematic checks against relevant databases on all persons, including those enjoying the right of free movement under EU law (i.e. EU citizens and members of their families who are not EU citizens) when they cross the external borders. The databases against which checks will be carried out include the Schengen Information System (SIS) and Interpol's database on stolen and lost travel documents (SLTD).

The checks will also enable member states to verify that those persons do not represent a threat to public policy, internal security or public health. This obligation shall apply at all external borders (air, sea and land borders), both at entry and exit. However, where systematic consultation of databases could lead to a disproportionate impact on traffic flows at a sea or land border, member states are permitted to carry out only targeted checks against databases, provided that this will not lead to risks related to internal security, public policy, or the international relations of the member states, or pose a threat to public health.

Whilst, of course, the reaction to the terrorist attacks is entirely to be understood and the strengthening of checks to be expected, there is a sense of foreboding at the level of Gibraltar's border with Spain – too often have EU/Schengen wide border checks been used unreasonably in the pursuit of political objectives to make the local community less suspicious than it is. In that context, local authorities will be keeping a close eye on these developments.

The detail and nature of the deployment of these new, enhanced identity checks at the border with Spain will act as something of a barometer for the position the central Spanish Government in Madrid may be taking in relation to the Gibraltar issue, given that the checks become operational immediately following formal notification by the UK under Article 50. 

Clause 5 of Annex VII of the new Regulation deals specifically with the issue of cross-border workers.

5.1.

The procedures for checking cross-border workers are governed by the general rules on border control, in particular Articles 8 and 14.

5.2.

By way of derogation from Article 8, cross-border workers who are well known to the border guards owing to their frequent crossing of the border at the same border crossing point and who have not been revealed by an initial check to be the subject of an alert in the SIS or in a national data file shall be subject only to random checks to ensure that they hold a valid document authorising them to cross the border and fulfil the necessary entry conditions. Thorough checks shall be carried out on those persons from time to time, without warning and at irregular intervals.

5.3.

The provisions of point 5.2 may be extended to other categories of regular cross-border commuters.

As the Chief Minister has said on a number of occasions recently when he gave evidence to the House of Commons Parliamentary Select Committee on Exiting the EU, the good will of the politicians in Madrid is much more important than the letter of the law in relation to the free flow of cross-border workers. With cooperation and understanding, there doesn't need to be an issue at the border.