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Getting ready for a No-Deal Brexit - A Spanish look from outside

Getting ready for a No-Deal Brexit - A Spanish look from outside

Article from March 31, 2019 - MPs have rejected Theresa May’s EU withdrawal agreement on the day the UK was due to leave the EU. The government lost by 344 votes to 286, a margin of 58.

It means the UK has missed an EU deadline to delay Brexit to 22 May and leave with a deal.

From the moment the United Kingdom communicated its decision to leave the European Union, the Spanish government established a system of inter-ministerial coordination and liaison with the territorial administrations to work on the impact of Brexit.

As of October 2018, the preparation works were intensified to face a scenario of no deal withdrawal, and a system of coordination between administrations has been created to facilitate the flow of information.

The Government's contingency planning pursues two key goals. First, to preserve the interests of Spanish and British citizens who may have exercised their right to free movement before the date of withdrawal. Second, to preserve the normal development of trade flows and Spain's economic interests. In order to achieve these objectives, three lines of action have been approved and will be acted on: the regulatory framework, logistics and communications.

Given the urgency of the situation, the Government decided to enact Royal Decree-Law 5/2918 of March 1, that we summarize in this urgent report, that considered essential in the light of the material matters regulated therein.

With regard to the validity of the Royal Decree Law (hereinafter, RDL) as the adequate legal instrument to be used in this case, it should be pointed out that article 86 of the Constitution allows the Government to issue Decree-Laws "in cases of extraordinary and urgent need", provided that they do not affect (i) the functioning of the basic institutions of the State, (ii) the rights, duties and freedoms of citizens regulated in Title I of the Constitution; and (iii) the legal regime governing the Autonomous Regions or the general election law.

The RDL is a constitutionally valid instrument, provided that, as our Constitutional Court has repeatedly ruled (Judgments Nº 6/1983 of 4 February, F. 5; Nº 11/2002 of 17 January, F. 4; Nº 137/2003 of 3 July, F. 3, Nº 189/2005 of 7 July, F. 3; Nº 68/2007, F. 10, and 137/2011, F.7), the purpose behind the enactment of emergency legislation is to cope with concrete situations falling within the goals of the government and which, for reasons that may have been difficult to foresee, require immediate legislative action within a period even shorter than the urgent procedure foreseen by the rules governing the parliamentary processing of laws; in particular, when the relevant legislative procedures are beyond the control of the administration.

In order to undertake this exceptional course of action, it must be established that 'there is a necessary connection between the defined emergency situation and the specific measure taken to deal with it (Judgments of the Constitutional Court Nº 29/1982 of 31 May 1982, FJ 3; Nº 182/1997 of 20 October 1997, FJ 3 and Nº 137/2003 of 3 July 2003, FJ 4)'.

The government considers that such requirements are met in this case because the withdrawal of a Member State under the procedure provided for in Article 50 of the Treaty constitutes an unprecedented event in the history of the EU. Furthermore, in view of the imminent expiration of the deadline for ratification of the UK withdrawal agreement and given the significance of the consequences of a no deal withdrawal (without a transitional period), urgent consideration has been given to adopt the measures necessary to minimize the disruptions that an unorderly withdrawal would necessarily entail.

In this sense, in line with the Action Plan adopted by the European Union, the purpose of the Royal Decree-Law is to establish the basic contingency measures falling within the government’s scope of authority, to facilitate a transition to the new situation and thus set off, to the maximum extent possible, the undesirable effects of a withdrawal without agreement, and to protect the interests of citizens and economic operators who exercised their rights conferred by the Treaties.

Under such scenario the Government considered that in case the ordinary (even if urgent) legislative procedures had been followed, it would not have been possible to timely adopt measures to mitigate the effects of such a no deal withdrawal, whereby the Treaties and the entire “acquis communautaire” will cease to apply to relations with the United Kingdom on the 30th March 2019.

This situation is considered even more mandatory in the light of the recent call for general Spanish national elections and the forthcoming European elections.

The measures provided for in the Royal Decree-Law have clear characteristics:

First, they are essential of a temporary nature, setting deadlines for each of the envisaged actions, (which may vary according to the specific sectors concerned) but allowing for possible extensions in certain cases.

Some of the actions foreseen in the Royal Decree-Law will be suspended by the Government after a minimum period of two months from their coming into effect if the competent British authorities fail to grant equivalent treatment to Spanish individuals or legal entities in each of the relevant areas.

Second. They respect, in the opinion of the government, the division of competences established by the Treaties and are compatible with EU law.

Third. The measures adopted are aimed at protecting the interests of citizens and economic operators who exercised their right of free movement conferred by the Treaties in areas of national competence and which may be affected by the withdrawal of the United Kingdom. In the specific case of the Colony of Gibraltar the provisions of the four memoranda of understanding signed on 29 November 2018 with the United Kingdom have also been taken into account.

Fourth. They are intended to offset, as much as possible, the undesirable effects of a no deal withdrawal of the United Kingdom in those areas of State competence which are deemed mandatory to facilitate a smooth transition to the new situation.

The government has made clear that the effectiveness of the legal transitions regulated by the Royal Decree-Law will be contingent upon the United Kingdom granting reciprocal treatment to Spanish citizens and economic operators. This condition of reciprocity will be verified upon the entry into force of this Royal Decree-Law, through specific mechanisms provided to such effects.

Regulated matters are as follows:

1. With regard to citizenship. In order to avoid the most damaging effects that an exit without agreement would have on United Kingdom nationals who have exercised the right to free movement prior to the date of withdrawal, different social security and health care measures are adopted to ensure access to these rights to citizens who have had (or continue to have) links with the United Kingdom.

A specific section of the RDL regulates the rights of residence and work of United Kingdom nationals residing in Spain and their family members in order to avoid a situations of irregularity, creating an ad hoc regime allowing for registration, as third-country nationals, of United Kingdom nationals and their family members that had become residents in Spain before the date of withdrawal.

The application to obtain this status must be submitted within twenty-one months of the United Kingdom's no deal withdrawal from the European Union, by those individuals who had (i) a certificate of registration or (ii) a residence card as a family member of an EU citizen; and even by those who did not have such documents but could prove in any other way that they were residents in Spain before the date of withdrawal.

Until such date, registration certificates and family cards will remain valid as long as they are not replaced by the new documents. Furthermore, in order to ensure legal certainty for UK nationals and their family members residing in Spain before the date of withdrawal, regardless of whether they were in possession of EU certificates or EU citizen family cards, their residence status in Spain will remain legal.

2. Regarding Residence Rights. Further to the above, the Royal Decree-Law regulates the requirements for access to the long-term residence by United Kingdom nationals residing in Spain and their family members who have resided legally and continuously in the Spanish territory for at least five years.

The regulation is aware that technical adjustments may be necessary to implement its principles, which adjustments are left to subsequent action by the Council of Ministers.

3. On the Recognition of Professional Qualifications. A specific section regulates access to, and exercise of professions as well as the recognition of professional qualifications (which in some cases may be automatic) and the rules applicable to the access to and maintenance of the status of public employees of UK nationals at the service of Spanish public administrations.

4. On Social Security. The Royal Decree-Law includes two articles dealing with the necessary measures to protect workers registered under the British and Spanish social security systems in those aspects that are considered most relevant and requiring urgent action in situations not foreseen in international instruments intended to permanently regulate the coordination of both systems. Such measures relate exclusively to situations that may arise prior to the date of withdrawal of the United Kingdom.

In this regard, it is expressly established that Spain will continue to allow for remittance to United Kingdom nationals of the contributory pensions and their corresponding revaluations recognized by our social security system, regardless of the country of residence of the beneficiaries.

It also provides for the accumulation of insurance periods credited in Spain by Spanish and UK nationals prior to the date of withdrawal, in order to grant entitlement to and calculate the amount of both (i) contributory retirement, permanent disability and death and survivor's pensions as well as (ii) any benefits for temporary incapacity, maternity and paternity leaves to which they may be entitled.

5. With regard to Health Care. Section 6 of the RDL sets forth the rules applicable to the provision of health care services in the absence of an express international, bilateral or multilateral instrument, articulated around two basic principles: continuity and reciprocity. Thus, it is expressly provided that, for a period of twenty-one months from the entry into force of the RDL, Spain will continue to provide health care to UK nationals on the same terms and under the same conditions effective prior to the withdrawal of the United Kingdom from the European Union, provided that the United Kingdom guarantees these same conditions to those persons entitled to receive health care in the UK at Spain's expense.

Likewise, in order to ensure the correct provision of health care services, it is specifically acknowledged that the existing health cards (or other valid documents entitling to receive health care assistance in Spain) will continue to be valid. Section 7 allows students from the UK or Gibraltar educational systems, (during the 2019-2020 and 2020-2021 academic years), to continue to enjoy the procedures for access to Spanish universities on the same terms established for students from educational systems of other Member States of the European Union, provided that these students meet the academic requirements of their national educational systems to access their own national universities.

6. In the field of international police and judicial cooperation. The withdrawal of the United Kingdom from the European Union will cause the termination of (i) Law 23/2014 of 20 November on the mutual recognition of criminal decisions in the European Union, (ii) Law 11/2003 of 21 May regulating joint criminal investigation teams within the European Union, (iii) Organic Law 7/2014 of 12 November on the exchange of information on criminal records and recognition of criminal court decisions in the European Union, and (iv) Law 31/2010 of 27 July simplifying the exchange of information and intelligence between the law enforcement authorities of the Member States of the European Union, as well as the instruments for judicial cooperation in civil and commercial matters which are confined to the Union.

As a result, as of such date, the procedures for international judicial cooperation between the two countries will be governed by the provisions of the international conventions in force between the parties and by the respective applicable national legislation. In this regard, the RDL specifically provides that those bilateral treaties and conventions that were in force between Spain and the United Kingdom at the time of the accession of both States to the European Union and which were replaced at that time by the corresponding rules of European Union law, (such as the Treaty on Extradition between Spain and the United Kingdom, done at London on 22 July 1985), would not automatically come again into effect simply because of the withdrawal of the United Kingdom from the Union, and should not be deemed to be included among the surviving international conventions referred to in the RDL. For all these reasons, it is necessary to clarify the transitory regime applicable to police and judicial cooperation procedures, distinguishing whether they were initiated prior to the entry into force of this Royal Decree-Law or thereafter.

7. In the field of Economic Activities. Three fundamental aspects are dealt with.

7.1. A legal framework is established to ensure the continuity of financial service contracts entered into in Spain by financial institutions established in the United Kingdom or Gibraltar. As London is one of the main global financial centres, a UK withdrawal without an agreement could have a damaging impact on the financial systems. In order to avoid that increased uncertainty and loss of access to the European market could affect financial stability or even unfavourably impact on the customers of financial services, the RDL includes a section on contingency measures related to financial services. This section is in addition to the steps taken by the European Commission, which has limited its action to ensuring the critical functions of the European financial system that depends on access to the UK market.

With the general aim of strengthening legal certainty, protecting the clients and avoiding any risk of financial instability, Article 19 of the RDL states that the validity of ongoing contracts will not be affected by the withdrawal of the United Kingdom, a fact that the European Commission has already highlighted in its communications. In addition, a temporary regime is established to ensure that adaptation of the UK to “third country” status does not lead to disruption in the rendering of any services associated with such contracts or, alternatively, to facilitate the relocation or termination of contracts of those entities not wishing to continue their activities in Spain. The temporary regime will apply to financial activities subject to authorization. Activities connected with the management of contracts not requiring authorization will not be subject to the temporary scheme.

7.2. The customs authorities are authorized to process, as soon as this RDL is published and even before it comes into effect, applications that may be submitted by the operators concerned with regard to the decisions provided for in Article 22 of the Union Customs Code, in anticipation of the future status of the UK as a third country.

7.3. The RDL expressly foresees the rules that would govern the transitional situation of economic operators acting in the United Kingdom or Gibraltar with regard to public procurement procedures initiated prior to the United Kingdom's withdrawal from the European Union. In such cases, British economic operators will be treated in the same way as companies from the other Member States of the European Union. Such a situation is also consistent with the transitional legislation that has been governing public procurement in Spain.

8. With regard to driving licences. An attempt is being made to give a suitable alternative to citizens residing in Spain and holding a British driving licence, which licences are currently valid for driving in our country as it is a licence issued by a Member State of the European Union, but which will cease to be so upon the withdrawal of the United Kingdom. To such effects, a transitional period of nine months is established, during which holders of a driving licence issued by the British authorities who have acquired a residence in Spain will be able to exchange their driving licence for a Spanish licence in accordance with current Traffic Regulations, which will allow them to continue driving in our country after the withdrawal of the United Kingdom.

Notwithstanding the above, during this transitional period of nine months, this exchange will only be possible if the current system of verification of driving licences established within the European Union is maintained, as it would otherwise not be possible to exchange driving licences issued by the United Kingdom.

At the end of this nine-month period, the driving licences issued by the British authorities would be subject to the Spanish rules on driving licences issued by third countries, and it will no longer be possible to exchange them for a Spanish licence; at least, until a bilateral agreement on the exchange of driving licences with the United Kingdom is executed in the future.

For the purpose of exchanging driving licences issued in other Member States or third countries, Articles 18 and 21 of the General Drivers' Regulations, approved by Royal Decree 818/2009 of 8 May, require licence holders to have established their normal residence in Spain, a concept defined in the second additional provision of the aforementioned regulation.

9. Regarding Defence and Dual-Use Materials. Article 23 of the Royal Decree-Law declares the continuing validity of the authorizations issued pursuant to article 2 of the Regulations on the Control of Foreign Trade in Defence Materials, Other Materials and Dual-Use Goods and Technologies, approved by Royal Decree 679/2014, of 1 August, whose country of destination or country of origin is the United Kingdom, and which may be in force at the time of withdrawal.

10. In the field of Land Transportation. Chapter V lays down provisions in the field of land transportation, which, subject to due reciprocity conditions, will allow carriers to operate between Spain and the United Kingdom, as well as render public services for the departure of embarked passengers bound for an airport in the United Kingdom.

Article 25 of the RDL lays down measures allowing hauliers established in the United Kingdom to transport goods to or from the United Kingdom, provided that such hauliers are licensed to develop transportation activities in the United Kingdom, with the exception of those types of hauling currently liberalized under EU legislation.

Article 26 provides, that the occasional carriage of passengers by bus on Spanish territory by undertakings established in the United Kingdom, will be governed by the framework provided for in international treaties to which both the United Kingdom and Spain or the European Union are parties; or , alternatively, will be governed by the framework provided for in the rules of international organizations to which both the United Kingdom and Spain or the European Union are members.

All of this will apply to take into consideration that as of 1 April 2019 the United Kingdom will become a full member of the Interbus Agreement.

In addition, the authorizations for the regular international carriage of passengers currently in force between the territory of the United Kingdom and the territory of Spain will be valid until they expire.

11. Concerning airport services. The withdrawal of the United Kingdom from the European Union will have a significant effect on the public grants received by Aena S.M.E., S.A., under Law 21/2003, of 7 July, on Air Safety, and in the Annual Resolutions of its Board of Directors, which fixes the relevant amounts on a yearly basis, with effect from 1 March each year.

In this sense, it is foreseen that for the purposes of applying the economic benefits foreseen in Law 21/2003, the United Kingdom shall continue to be regarded as a valid international destination until February 28, 2020, in the understanding that this would minimize any possible adverse effect on the arrival of British passengers. The Royal Decree-Law closes with a Final Section, which includes the additional and final provisions necessary to complete the contents of the regulation.

The provisions in this Final Section include, in particular, the following:

(a) The third additional provision deals with the special arrangements applicable to the carriage of goods and passengers by bus to or from Gibraltar.
(b) The fourth additional provision governs applications for recognition and declaration of equivalence of degrees from UK Universities, Centres and Institutions by providing that the Apostille of the Hague Convention shall not be required in those cases where such degrees may have been submitted to the Spanish authorities prior to the effective withdrawal of the United Kingdom.
(c) The fifth additional provision governs the impact of the United Kingdom's withdrawal on Public Contracts, providing for the possibility of applying articles 119 and 120 of Act 9/2017 of 8 November on Public Sector Contracts (emergency procedures) under the terms set out in such provisions.

Finally, the sixth final provision establishes that the RDL will come into effect on the day the Treaties of the European Union will cease to apply to the United Kingdom in accordance with the provisions of article 50.3 of the Treaty on European Union, thus solving the regulatory loophole that would occur in such event.

Notwithstanding the foregoing, the Royal Decree-Law shall not enter into force in the event that, prior to that date, a Withdrawal Agreement enters into force between the European Union and the United Kingdom pursuant to article 50.2 of the EU Treaty.

Article by Héctor Rodríguez Molnar, Lawyer and CBA Associate in Madrid, Spain