Brexit update: Electric vehicles, international arbitration and vaccine wars

Brexit and Electric Vehicles

Under the terms of the UK-EU Trade and Cooperation Agreement of December 2020 (TCA), there is an important concession for electric vehicles insofar as the duty to have no more than 45% in value of product content for such vehicles sourced from outside the UK and the EEA is phased in over a six-year period ending on 31st December 2026 rather than being brought in right away or over a shorter time-frame than 6 years following the end of the UK-EU post-Brexit transition period on 31st December 2020.

In its Summary Document of December 2020 on the TCA and associated agreements, the UK Government highlights the fact that the rules of origin agreed for electric vehicles “will ensure that UK-made electric vehicles are eligible for preferential tariff rates”.

One of the most important components of an electric vehicle is the battery and unfortunately the UK is considered in some quarters to be a laggard in battery production for electric cars, certainly behind battery manufacturing giants such as China, South Korea and Japan from where many automotive components are supplied to car manufacturing companies in Europe, including Nissan, Toyota and Honda which have manufacturing facilities in the UK.

This explains the headline in the Business Section of the Sunday Times of 24th January 2021 “Six years to save Britain’s electric dream”, with the sub-headline “Giant gigafactories for batteries are key to the future of the car industry. We have until [31st December] 2026 to build a supply chain or face crippling tariffs.”

The UK Government’s announced policy is to phase out the sale of new petrol and diesel cars and vans in the UK by 2030 and to replace them by electric vehicles and in its press release of 18th November 2020 it has committed itself to £500 million of funding through its Automotive Transformation Fund over the next four years “to put the UK at the forefront of the design and manufacturing of the next generation of zero emission vehicles”. This is in addition to the UK Government’s announcement in the same press release that it is pledging £582 million in grants for those buying zero or ultra-low emission vehicles to make them cheaper to buy and to incentivise more people to make the transition to such vehicles.

The Sunday Times article makes it clear that Brexit has focused minds on the importance of the UK supporting the manufacturing of electric vehicles and batteries for electric vehicles in the UK – with Nissan helping the UK in that regard by its recent announcement that the bigger batteries needed for its Leaf EV model would be made at its Sunderland manufacturing facility, an announcement which (according to The Sunday Times) “offers hope that Sunderland will make more electric models in the future”.

We shall see what happens!

Brexit and Keeping Children Safe in Education

One of the concerns that Brexit has produced is the loss of UK access to certain confidential EEA criminal and unacceptable conduct databases.

This concern has arisen in the education context because the UK no longer has access to EEA records about teachers who have been sanctioned in EEA member states. The Teaching Regulation Agency is the body in England which would normally monitor such matters and on 18th January 2021 the UK’s Department of Education (DfE) published updated statutory guidance for England, entitled “Keeping children safe in education”, which in a revised paragraph 172 leaves out reference to the possibility of checking EEA records but does explain how schools and colleges in England can go about doing DBS (Disclosure and Barring Service ) – type checks on teachers who have lived or worked outside the UK.

The revised statutory guidance makes no reference to the EEA member states’ records which could be checked previously but does provide other avenues for English schools and colleges to carry out suitable checks. In particular, revised paragraph 172  of the statutory guidance  refers to UK Home Office guidance on “criminal records checks for overseas applicants” , which can be found in the UK Government website “Gov.UK”, and to the DfE guidance, entitled “Recruit teachers from overseas” and to the possibility of obtaining a letter of professional standing from the professional regulating authority in the country in which the teaching applicant has worked (more information about which can be obtained from the National Recognition Information Centre for the UK (UK NARIC).

Paragraph 173 of the statutory guidance states that some overseas qualified teachers can apply to the Teaching Regulation Agency for the award of qualified teacher status in England, which may be of help to English schools and colleges  receiving job applications from such teachers.

Clearly, issues relating to the safety of children in education are of the utmost importance and the UK Government seems to acknowledge that suitable work-arounds need to be available to compensate for the loss of UK access to relevant EEA databases.

Brexit, the CJEU and the Lugano Convention

One of the major objectives of the UK in the recent UK- EU “future relationship” negotiations was to remove the UK so far as possible from the jurisdiction of the Court of Justice of the European Union (CJEU). This objective appears to have been fulfilled in the UK-EU Trade and Cooperation Agreement of December 2020 (TCA) and other agreements which were signed up following the conclusion of those negotiations. The TCA and other agreements appear to be treated as normal treaties subject to public international law rather than falling within the jurisdiction of the CJEU or the UK courts.

However, the complexities of Brexit mean that nothing seems completely straightforward and as part of its overall post-Brexit agenda the UK has applied to accede to the 2007 Lugano Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters (the 2007 Lugano Convention). Protocol No.2 to the 2007 Lugano Convention provides for signatory states to pay “due account to” rulings of the CJEU, which may mean that UK courts would need to continue to take account of the case law of the CJEU, including in particular with regard to anti-suit injunctions.

The UK was in effect a party to the 2007 Lugano Convention through its former membership of the EU but now has had to apply again in its own right. The EU (now minus the UK) has not yet signalled agreement to the UK’s application to join the Convention as a non-EU member state and it may be that some separate protocol will need to be agreed between the UK and the EU to resolve the conundrum of the CJEU’s role vis-a-vis the UK, given the overall background to this matter.

The outcome will be of great interest to lawyers and others!

Brexit and Labour and Social Standards

Chapter 6 (Labour and social standards) of Title XI (Level Playing Field for Open and Fair Competition and Sustainable Development) to Part Two (Trade, Transport, Fisheries and other Arrangements) of the UK-EU Trade and Cooperation Agreement of December 2020 (TCA) contains  “non-regression” provisions whereby the UK and the EU undertake in the following terms:-

“A Party shall not weaken or reduce, in a manner affecting trade or investment between the Parties, its labour and social levels of protection below the levels in place at the end of the transition period, including by failings to effectively enforce its law and standards.” (Article 6.2.2).

The Chapter does leave the Parties (ie the UK and the EU) with a certain amount of discretion as to how they satisfy the terms of Article 6.2.2 by affirming “the right of each Party to set its policies and priorities in the areas covered by this Chapter, to determine the labour and social levels of protection it deems appropriate and to adopt or modify its law and policies in a manner consistent with each Party’s international commitments, including those under this Chapter”.

However, the general message set out in Article 6.2.2 seems clear but, as lawyers frequently say, the devil is always in the detail and in the UK at least there has been some debate as to what exactly Article 6.2.2 in particular and Chapter 6 in general require of the Parties. The new UK Government Business Secretary, Kwasi Kwarteng, has had to deny reports that the UK is planning to reduce EU-derived workers’ rights , such as the maximum 48-hour working week, and in a statement to the UK House of Commons on 25th January 2021 he is reported to have pledged that “we will not reduce workers’ rights” or “row back” on the 48-hour rule or cut the statutory holiday entitlement. He did, however, initially confirm that a review of UK employment law was under way and in an earlier statement to the House of Commons in the previous week he was reported to have said that “we wanted to look at the whole range of issues relating to our EU membership and examine what we wanted to keep”. In an interview with the ITV television channel’s Robert Peston, as reported in the Guardian newspaper on 27th January 2021, Mr Kwarteng is now reported to have said that the review into how EU employment rights’ protections could be changed in its application to the UK after Brexit is no longer going ahead.  All in all, a somewhat confused picture!

On the other hand, in the Queens’s Speech to UK Parliament in December 2019 following the UK General Election on 12th December 2019  confirmed the new UK Government’s intention to introduce an Employment Bill to Parliament with a view “to protect and enhance workers’ rights” and certainly there is some cross-party support across the UK Parliament for workers’ rights to be  increased.

Brexit has triggered a discussion in the UK about workers’ rights and it will be important to see how that discussion unfolds.

Brexit and Financial Services

In a wide-ranging address to the European Parliament’s Economic and Monetary Affairs Committee (ECON) on 25th January 2021,  the opening remarks of which were published by the European Commission on its website the following day, Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union (CMU), covered many topics which will be in her in-tray for 2021 and finally came to the subject of Brexit.

It is worth quoting her short remarks on Brexit in full because they appear to set a certain tone for the EU Commission’s approach to the consequences of Brexit in the future:-

“ …And finally, Brexit. I welcome the agreement reached on Christmas Eve, and I would like to pay tribute to the tireless work of Michel Barnier and his team.

The EU and the UK agreed to reach a Memorandum of Understanding on Financial Services by March 2021. Talks have not yet started.

We envisage a framework similar to what we have with the USA: a voluntary structure to compare regulatory initiatives, exchange views on international developments, and discuss equivalence-related issues.

It is not about restoring market access rights that the UK has lost, nor will it constrain the EU’s unilateral equivalence process.

Once we agree on our working arrangements, we can turn to resuming our unilateral equivalence assessments of the UK, using the same criteria as with all third countries, including AML and tax cooperation.

We will only take decisions where they are in the EU’s interest.

The UK intention to diverge requires a case-by-case discussion in each area. Equivalence and divergence are polar opposites.

If we set up regulatory cooperation with the UK, that gives us a good forum to examine these issues in detail.

I’m optimistic that over time, through cooperation and trust, we will build a stable and balanced relationship with our UK friends.

As with all our cooperation frameworks, I will aim for maximum transparency with the Parliament and Member States. I want to continue the good example set by Michel Barnier and his team in terms of transparency and cooperation.

Brexit is a significant regime change for the EU financial system.

We saw no volatility or disruption in markets when the transition period ended on December 31st. Market participants were prepared, reflecting on the work by EU and national supervisors.

We will continue to monitor any disruption for EU consumers and firms.

There were some quick adaptions – for example, trading in EU shares moved back to the EU without disruption.

We have given banks until mid-2022 to reduce exposures to UK Central Counterparties. A technical group will assess the issues involved…”.

These remarks are certainly business-like and courteous but some may feel are somewhat lacking in “entente cordiale”!

Whether this approach will help the European financial services sector (in the broader sense of including both the UK and the EU) in the long run or even just the narrower interests of the EU financial services sector remains to be seen.

Brexit and International Arbitration

The rules affecting the cross-border enforcement of foreign arbitral awards are not as such affected by Brexit because the UK was and remains a signatory in its own right to the 1958 New York Convention on the Recognition of Enforcement of Arbitral Awards (“the New York Convention”), which provides for the enforcement of arbitral awards across 166 member parties (including all the EU member countries).

The New York Convention obliges contracting states to ensure that their courts give effect to private arbitration agreements and to recognise and enforce arbitration awards made in other contracting states – or, in other words, it applies to arbitrations that are not considered as domestic awards in the state where recognition and enforcement are sought.

The New York Convention works alongside the UNCITRAL Model Law on International Commercial Arbitration, which also appears unaffected by Brexit.

There is some anecdotal evidence to suggest that there is an increasing use of arbitration clauses in English law contracts as a result of Brexit and the adverse impact of Brexit on the recognition and enforcement of court judgments between the UK and the EU but the long–term effect (if any) of Brexit in this context is as yet unclear.

The UK-EU Trade and Cooperation Agreement of December 2020 (TCA) did not cover questions of court jurisdiction and the reciprocal enforcement of court judgments and whilst the issues arising from this may be largely resolved if the EU agrees to the UK’s application to adhere to the 2007 Lugano Convention to which the EU is a party, the EU has not so far signalled its agreement to the UK’s application as at 28th January 2021.

Whether in practice the UK (and in particular London) will be affected by Brexit as an internationally recognised and preferred forum for international arbitration is a separate but related issue and no doubt will be the subject of much scrutiny by lawyers and others in the coming years.

Brexit and Switzerland

The UK and Switzerland have much in common economically, given that they are both very independent-minded countries bordering the EU and given their strength in particular industry sectors such as financial services. It was unsurprising, therefore, to  read the “news story” published on the UK Government’s HM Treasury website on 27th January 2021 under the banner “ UK and Switzerland to deepen co-operation on financial services”.

The news story stated that “following successful initial exploratory talks, the two countries will move forward with negotiations on the ambition of delivering a comprehensive mutual recognition agreement that would reduce costs and barriers for UK firms accessing the Swiss market, and vice versa”.  The news story confirmed that “negotiations are expected to cover a wide range of sectors such as insurance, banking, asset management and capital markets, including market infrastructure”. The news story also pointed out that “earlier this month , the UK laid regulations aimed at granting share trading equivalence to Switzerland’s trading venues”, that “subject to parliamentary approval [these regulations] will come into force on 3 February 2021”and that “once the UK decision is in force it’s expected that the Swiss will reciprocate by removing restrictions on UK trading revenues”.

The UK Government seems to be focused (amongst other priorities) on small but economically successful non-aligned countries such as Switzerland – Singapore might be another example –   as being the types of country with which (albeit non-exclusively) the UK should seek to build trade alliances in the UK’s post-Brexit world.

This would not have surprised the great 17th century English poet, John Donne, who wrote that “no man is an island entire of itself: every man is a piece of the continent, a part of the main” (Meditation XVII) .

Countries, like individuals it seems, need to build alliances in the real world!

Brexit and Vaccine Wars

The EU was reported to have triggered Article 16 of the Ireland / Northern Ireland Protocol to the UK-EU Withdrawal Agreement of October 2019 in an apparent effort to prevent Northern Ireland being used as a back door to the export of EU–manufactured coronavirus vaccines from the EU into the UK in line with EU’s attempt to secure supplies of these vaccines for its own populations in preference to supplies to third countries, including the UK. It has since been reported that the EU has now withdrawn its attempt to trigger Article 16.

Article 16  of the Protocol enables either the UK or the EU to unilaterally put in place temporary safeguarding measures (subject to following a consultation and information procedure) if the application of the Protocol “leads to serious economic, societal or environmental difficulties that are liable to persist, or to diversion of trade…”.  The EU’s attempt to suspend parts of the Protocol in its own interests recalls the UK’s earlier apparent attempts to circumvent the Protocol through the introduction of overriding provisions into the UK’s Internal Market Bill of 2020, which attempts were also subsequently withdrawn,

The Protocol, which was drawn up very much with the need to preserve the benefits of the 1998 “Good Friday” peace agreement in mind, appears now to have survived two attempts to junk it or downgrade it in a way that clearly even alarmed Michel Barnier, the chief EU Brexit negotiator. He is quoted in an interview in The Times of 30th January 2021 as saying in reference to the dispute over vaccine supply: “ We are facing an extraordinarily serious crisis [ie the Covid-19 pandemic], which is creating a lot of suffering, which is causing a lot of deaths in the UK, in France, in Germany everywhere. And I believe that we must face this crisis with responsibility, certainly not with the spirit of one upmanship or unhealthy competition….”.

In a separate dispute, the UK’s apparent refusal to accord full diplomatic recognition to the EU ambassador and delegation to the UK on the ground that the EU is not a sovereign state but merely an international organisation representing its member states is another example of possible spatting between the UK and the EU following the expiry of the post-Brexit transition period on 31st December 2020, notwithstanding the signature of the UK-EU Trade and Cooperation Agreement of December 2020 and other agreements.

It is to be hoped that the spirit of jaw-jaw will not descend into petty acrimony or even worse.

Disclaimer: Nothing in the Legal Insights section and this blog is intended to provide legal or other professional advice and, if readers are interested, they should consider taking separate legal or other professional advice accordingly.