Deal done? What does the UK/EU agreement on phase 1 of Brexit mean for tech?

Brexit predictions are not something for the faint hearted. For those who had put their money on achieving ‘sufficient progress’ by December, the last week has been a nervous one. But after the interrupted lunches, panicked phone calls and late-night travel to Brussels, the Prime Minister has managed to secure a deal that both the EU and (for now at least) her party, can support.

Those late nights have, however, clearly been productive. Today’s deal looks to have met a number of concerns raised by techUK members. While many areas of detail were already well known, there are a number of welcome surprises in the text of the agreement, particularly around EU citizens living and working in the UK tech sector.

 

EU Citizens

From the outset this has been a top priority for the industry. With almost 200,000 EU citizens contributing to UK tech, at every level of seniority, ensuring that their right to remain is clear, simple and certain is vital. Securing a deal ahead of Christmas is particularly welcome, given the very real worry of workers returning home to families over the winter break and potentially deciding not to come back.

The headlines of the deal were already well known- every EU citizen who resides in the UK prior to 29 March 2019 will have the right to apply for ‘settled status’ giving them the right to continue to live in the UK. EU Citizens will be given ‘adequate time of at least two years’ to make an application for settled status. Those who have already received an alternative form of visa- such as permanent residency, will be able to have that residency document converted into the new ‘settled status’ provision.

The process for securing settled status has also moved significantly since the UK’s original proposal. There will now be no collection of biometric data, the system will have to be a simple application process and will have to be issued either free of charge or for a fee “not exceeding that imposed on nationals for the issuing of similar documents”. That suggests a final charge similar to a UK passport. This reflects calls for techUK to make the system as simple and clear as possible. The only people who could be rejected for settled status are those with serious criminal convictions. This should be seen as reassuring for the many EU-born tech workers worried about the hoops that would have to jump through to continue to live in the UK.

Another key part of the agreement is the right for EU citizens to continue to enjoy family rights. For the tech sector, which is competing globally for talent, the ability to say clearly that worker’s family lives are not affected is very important. The agreement ensures that children born or adopted can secure settled status as can direct family members such as parents or grandparents. Unlike in the original proposals, that right to bring in family members has no cut-off date and lasts the entire lifetime of the settled status holder.

One of the concerns raised with the Government’s original plan by techUK was the amount of time someone could spend outside the UK before their settled status was deemed to have come to an end. Originally this was planned to only last two years. For tech companies, who regularly second staff across a global network, this led to worries that employees or family members seconded from the UK could lose their settled status. The final agreement extends this period to five years, a welcome step to cover those individuals and their families who may be transferred in and out of the UK.

It’s worth noting the agreement on enforcement of Citizen’s Rights. There has been a lot of talk about the role of the European Court of Justice (ECJ). Under the agreement, UK courts will have to have due regard to the decisions of the ECJ and will have the ability to seek the opinion of the ECJ in order to interpret a case. After very heated discussions on this issue, the agreement reaches of compromise of the ECJ being responsible for overseeing these decisions for a period of eight years form the point that an EU Citizen applied for settled status.

Finally, it’s important to bear in mind the rights of UK citizens in the EU. National Governments in the EU 27 will have to come up with similar systems to the UK one of settled status. However, the agreement is clear that any system, including the UK’s can be more generous than what is set out. One major difference is that, after March 2019, UK citizens will lose the ability to move to another EU 27 state, unless this is agreed as part of the second phase of negotiations. Effectively, the rights that UK citizens enjoy to move freely across the EU to work will come to an end, meaning that the right to remain in a particular country will be based on the rules of that country, not the whole of the EU.

 

Ireland and Northern Ireland

In the end the biggest sticking point for securing sufficient progress was not money but the Northern Irish border. For those heavily involved in Brexit this is somewhat unsurprising. The logical tautology of the UK leaving the Customs Union, preventing a ‘Hard Border’ on the island of Ireland and ensuring no border between Norther Ireland and the rest of the UK is almost impossible to solve.

It’s therefore unsurprising that the agreement today doesn’t actually try to solve it. Instead, the can has been kicked down the road. There are of course some clear commitments, most importantly to maintaining the principles of the Good Friday agreement, but on the really difficult issues there is simply a statement that the parties hope to resolve them as part of the overall UK/EU agreement.

If that proves impossible, then the next step will be for the UK to “propose specific solutions to address the unique circumstances of the island of Ireland.” What the solutions are is still not clear, but given the previous talk of ‘technological solutions’ by officials on both sides, this is something which tech companies will be watching closely. The importance of finding a path through this issue means that there are likely to be real opportunities to develop the kind of unique approaches that tech can deliver.

The agreement also provides a final backstop on the border issue. It makes clear that if no solutions are put forward then the UK will “maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future support North-South cooperation”. Effectively this is a commitment to, in the absence of an alternative, Northern Ireland maintaining full regulatory cooperation with the EU in any rules or regulations that might impact the border.

Despite what some have suggested this is not a commitment to staying in either the Single Market or the Customs Union, though doing so would achieve the desired outcome. There are a range of ways this could be achieved, though doing so without creating separate rules for Northern Ireland compared to the rest of the UK would be highly complex. It also represents a big ‘what if’ over the rest of the negotiations because if this failsafe is needed, it would likely lead to significant instability, not least in the Conservative/ DUP confidence deal at Westminster.

One final point worth nothing is that, due to the rules around the Common Travel area, Northern Irish Citizens will now be in the unique situation of being able to secure an Irish (and therefore EU) passport while other UK citizens will be denied any form of EU passport. This could make Northern Irish staff a valuable commodity for those seeking personal able to easily cross jurisdictions!

 

Financial settlement

As expected the agreement does not contain a final ‘divorce’ bill though somewhere around £25 billion (net) is being quoted by UK officials. The interesting point to remember is that this is just the ‘divorce’ part of the payment, as the agreement makes clear, future participation, for example in Horizon 2020 or the European Investment Fund, would likely require addition UK funding.

The text on the financial settlement contains one bit of very good news for tech. It guarantees UK participation in all the programmes of the current Multi-Year Financial Framework (MFF), which runs to 2020. That includes crucial facilities such as Horizon 2020. While this was already expected to be part of the agreement on any financial settlement, confirmation of its inclusion is welcome.

However, one big gap for tech is that the Union space programmes, including Galileo and Copernicus are explicitly excluded from the financial settlement. While the agreement makes clear that cooperation in this area can still be discussed as part of negotiations in the second phase of talks, it does mean further uncertainty for an important part of the UK tech.

The agreement also sets out a specific agreement around the European Investment Bank (EIB). This is important to UK tech as the EIB both funds significant infrastructure projects but also holds the UK’s stake in the European Investment Fund, which is vital for UK Venture Capital funding for tech. Under the agreement the UK will come out of the EIB, with our capital stake (around £9 billion) slowly paid back in annual instalments over the nine years from 2019. As techUK’s Breaking the Brexit Bank report notes, the slow withdrawal from the EIB means the value of withdrawing at all is severely diminished.

However, withdrawal is not yet certain, the text states that the UK wishes to explore continued participation with the EIB, which is a welcome confirmation to tech of the UK’s ambition to remain part of bank.

 

Separation issues

There are also a number of points in the text about so-called ‘separation’ issues. These are really important to businesses, given that they pertain to things like goods on the market when the UK leaves the EU. Under the agreement, goods on the market will be able to freely circulate and services offered for sale without need for modifications or changes. This is a welcome step to ensure that, in the run up to the UK’s exit, companies aren’t forced to hold back products.

The separation issues also include a commitment of Euratom, which is important for a number of tech companies dealing with nuclear materials. While limited in specifics, it makes clear that ongoing cooperation on these sensitive materials is desired by both sides.

 

So is that is all settled?

While the agreement is a formal document, it is important to remember it is not the Withdrawal Agreement itself. That will be finalized at the end of the process. Instead it just sets out the commitments for what will be in that agreement.

This means that all of these issues are subject to change, on the principle that ‘nothing is agreed until everything is agreed’. This can be viewed as both a positive and a negative. On the one hand, issues could still be unpicked should a deal be hard to reach. However, on the other, if a close relationship were to be agreed between the UK and the EU on future partnership, then elements could no longer be necessary. For example if (though unlikely) the UK agreed to continued free movement of people, then the package on EU Citizens in the UK would no longer be necessary.

The one thing the agreement does achieve is that it makes a ‘no deal’ much less likely. With commitments already made on EU Citizen’s Rights, and the crucial wording on maintain “full alignment” in Northern Ireland if no alternative can be reached, it seems likely that this document will become the backstop for decisions, even if no future trade deal could be reached.

Of course, what is important now is that the UK and EU urgently begin talks on what the future agreement will look like, starting with agreement on a transition to give businesses confidence about the immediate future. While today’s agreement has had a difficult birth, the real challenges are likely still to come as we try and negotiation agreements on everything from data flows, market access to services, future immigration regimes and customs checks. One thing is certain, the Prime Minister is in for an awful lot more late nights before we can truly say deal done.

 

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