Part 2 – Does the Brexit Transition Period Apply in the Domestic Jurisdictions of the Other 27 Member States?

    View Authors June 2018

    As set out in Part 1 of this series, Articles 121 and 122 of the draft Withdrawal Agreement provide that “Union law” shall continue to apply in respect of the UK until 31 December 2020.

    However, the term Union law as it is defined in Article 2 of the draft Withdrawal Agreement seems to only catch European Union (EU) law and not the domestic laws of the other EU27 member states. The EU can only legislate on its level and cannot directly change the domestic laws of its member states.

    This means that any reference in the domestic laws of the 27 other member states to “European Union” or “Member State of the European Union” does not relate to the UK after 29 March 2019, unless the domestic legislators of the 27 other member states also provide in the domestic rule books on all levels (for example in Germany on federal level, on the level of the 16 German states and on all relevant municipal levels) a similar rule. If the legislators in the 27 other member states of the EU do not provide for a rule which similar to Article 122 (6) of the draft Withdrawal Agreement states that the UK shall be treated until 31 December 2020 as if it was still a member state, then there would be gaps in the domestic laws of the 27 other member states of the EU.

    For example, the German Act on Nationality (Staatsangehörigkeitsgesetz) provides a general principle that there shall not be dual nationality. However, it also provides a very wide exemption for other member states of the EU. This means that currently a German national can acquire British nationality in addition to its German nationality without having to waive his/her German nationality. In addition, someone with British nationality can obtain German nationality in addition to his/her British nationality without having to give up his/her British nationality. However, since the exemption from the general “one nationality only” rule only applies to other member states of the EU, the rule will not apply after 29 March 2019. After this, German nationals cannot, in principle, acquire British nationality as a second nationality and British nationals cannot acquire German nationality as a second nationality. Since this rule is contained in the German Act on Nationality, Article 122 (6) of the draft Withdrawal Agreement will not apply, because that provision only applies to Union law and not German law, since it says the following:

    “Unless otherwise provided in this Agreement, during the transition period, any reference to Member States in the Union law applicable pursuant to paragraph 1, including as implemented and applied by Member States, shall be understood as including the United Kingdom.”

    The German Act on Nationality is neither Union law nor does it implement Union law. Therefore, Article 122 (6) of the Withdrawal Agreement does not apply to it.

    The same principle would, for example, apply to the rules of the German Mortgage Bond Act, which provide that loans lent to UK public entities and loans secured over UK real estate are currently eligible as cover assets for the issuance of German Covered Bonds. This is possible because the German Covered Bond Act refers to public entities and real estate in other member states of the EU. However, once the UK is no longer a member state of the EU, such UK-related loans need to be removed from the cover stock of German Covered Bonds, since Article 122 (6) of the Withdrawal Agreement does not apply, because the German Covered Bond Act is neither Union law nor does it implement Union law into German law.

    It is unclear whether the words “including as implemented and applied by Member States” in Article 122 (6) of the Withdrawal Agreement (as set out above) are intended to make it directly applicable in the domestic laws of each of the other EU27 member states, insofar as such domestic laws implement, for example, EU Directives, and whether the consequence of such applicability would be to modify on a domestic level the domestic law of the EU27 member states without their parliaments getting involved. The careful rewording of these words throughout the drafting process suggests that there was such an intention. In the first draft of 7 February 2018, such words were not included. In the second draft of 28 February 2018, the words “as implemented and applied by Member States” were introduced. In the third draft of 15 March 2018, the additional word “including” was added. However, it would not be compatible with general EU rules that the EU legislator can directly legislate into the domestic level and in the domestic laws of the EU member states.