Saturday, 24 March 2018

A Bridge to Nowhere? The Brexit transition period: analysis and annotation

Professor Steve Peers, University of Essex

Last week saw significant developments in the Brexit talks. On Monday March 19th, the EU27 and the UK agreed on a large part of the proposed withdrawal agreement, most notably the details of a transition period (lasting from Brexit day in March 2019 to the end of 2020) which the UK was particularly concerned to agree. (There were earlier drafts of the entire agreement on February 28 and March 15). Subsequently, on Friday March 23rd, the EU27 decided that there was sufficient progress in the talks to move to adopt its guidelines for the future relationship with the UK, which will take the form (for now) of a declaration linked to the withdrawal agreement. Ultimately, that future relationship will be regulated by separate treaties ratified after Brexit day.  

For now, though, I will focus on the core issue of the transition period, since it attracted a lot of controversy during the week, in particular as regards fisheries and trade issues. I’ve previously annotated a first draft of the transition period rules, as proposed by the Commission, and then updated that in light of the UK response to that draft.  These followed on from the negotiation guidelines on the transition period adopted by the EU Council in January, which I annotated here.

Overall, the UK has obtained some concessions during these talks: explicit powers to hold treaty talks with non-EU countries; the possibility to abstain on controversial EU foreign policy measures which it would have vetoed as a Member State; some greater consultation rights; an attempt to consider the UK still part of treaties with non-EU states for the time being; and protection against any grab of fisheries catches in UK waters. However, the UK government had to concede on issues which it had placed much stress on: taking fisheries catch issues out of the transition period and not extending all acquired rights to EU27 citizens who came to the UK during this period.

It seems likely that the UK government was concerned about the economic impact of not agreeing a transition period a year before Brexit day; in the event, that prospect has been averted. But then again, the transition period is only one part of the withdrawal agreement, and some controversial issues in the rest of that agreement have yet to be agreed; the agreement would also then have to be ratified. So we can’t be certain that the transition period will apply in practice yet.

For those concerned about the transition period making the UK a “vassal state”, it should be noted that some Leaver supporters had long advocated an interim period after EU membership based on being a member of the EEA, which would have given the UK more rights to consultation over EU legislation, less coverage by new EU laws, the possibility of refusing to apply new laws and a different court to apply them in a less mandatory way. So such critics might wish to ask why the UK government did not pursue such an approach to the transition period – or explain why they have never bothered to present a serious alternative proposal of their own (besides, obviously, not continuing with Brexit at all).

The annex to this blog post is a detailed annotation and analysis of the agreed rules on the transition period in the withdrawal agreement. Before that though, I look in detail at two other issues: how the specific provisions on the transition period fit into the agreement as a whole; and what happens if the two sides want to extend the transition period, given that it might be difficult to agree all aspects of the UK/EU future relationship by the agreed deadline of end-2020.

Structure of the withdrawal agreement

The recent deal on the transition period, which also includes agreement on a large part of the rest of the withdrawal agreement, can only be understood fully in the context of the rest of that agreement, which I’ll summarise here.

Part One of the withdrawal agreement (Articles 1-7) sets out the “Common Provisions”. These deal with basic issues like definitions and territorial scope. This Part is agreed except for the rules on interpretation of the agreement (Article 4).

Part Two of the withdrawal agreement (Articles 8-35) deals with citizens’ rights. It is entirely agreed. It will mostly not apply until the end of the transition period, and as part of the recent agreement, the UK government has accepted that EU27 citizens arriving in the UK during the entire period will retain the same rights as those who arrived before Brexit day.

Part Three of the agreement sets out “separation provisions” (Articles 36-120). These deal with issues like what happens to European Arrest Warrants pending at the end of the transition period. This part will largely apply as from the end of that period. It has been partly agreed, as follows: issues of goods on the market, public procurement, and Euratom: mostly agreed; pending criminal and police proceedings, data protection: mostly not agreed; civil litigation: conflict of laws points agreed, but jurisdiction and mutual recognition points not yet agreed; intellectual property rights: mostly agreed; pending ECJ cases and administrative proceedings (like competition investigations): not agreed; and other institutional issues (like privileges and immunities): agreed.

Next, Part Four sets out the rules on the transition period as such (Articles 121-126). These provisions are annotated below. As noted already, this part is fully agreed.

Part Five concerns the financial settlement (Articles 127-150). It incorporates the earlier agreement that the UK is takes part in the EU’s financial rules until the end of the transition period. (The end-2020 cut-off date of the transition period in Article 121 matches the end of the current EU budget cycle). This part is also fully agreed.

Part Six sets out “Final Provisions” (Articles 151-168). This part is partly agreed. For instance, the rules on ECJ jurisdiction over EU citizens (which applies, for the most part, for eight years after the end of the transition period) is agreed (Article 151). So is the clause on a new authority to help guarantee EU citizens’ rights, which might be shut down at the end of that same eight-year period (Article 152).  The UK and EU have agreed to continued ECJ jurisdiction over EU budget law rules referred to in the financial settlement part, but not yet to that Court’s continued jurisdiction over "separation rules" (Article 153). The existence of a Joint Committee to monitor the agreement and take some decisions to implement it is agreed (Articles 157-159), but the rules on dispute settlement (Articles 162-165) – some of which would apply during the transition period and some of which would apply from after that point – are not.

There will also be Protocols on Irish border issues and UK bases in Cyprus, both of which would apply from the end of the transition period; the latter has not yet been proposed. The parties have agreed that there will be a "backstop" text on Irish border issues, which will apply if no other solution can be found. This is a controversial issue, but the text has been partially agreed: the Common Travel Area (fully agreed); equality rights (agreed as a policy); movement of goods issues (not agreed); but electricity market and state aids clauses agreed as a policy; a vague reference to other North/South cooperation is agreed in principle; and some institutional issues are agreed.

Overall, then, a substantial proportion of the withdrawal agreement is already agreed in principle. The main issues outstanding – in increasing order of political difficulty – are parts of the separation provisions, the general rules on dispute settlement, and Irish border issues.

Note that I have separately annotated the withdrawal agreement provisions on: the common provisions and citizens’ rights; the final provisions (mainly focussing on dispute settlement and the role of the CJEU); and the Irish border. (These annotations concern earlier drafts of the agreement, although there are not vast changes in the March 19th version; I hope to prepare an updated annotation of the entire text eventually).

Extending the transition period?

As noted above, it’s widely believed that at least for some issues, it may prove necessary to extend the transition period, since negotiations on the future EU/UK relationship might not be complete by the end of 2020. Leaving aside the politics of the issue, is that legally possible?

First of all, a procedural point: it would arguably be possible to settle this (and other legal questions about the withdrawal agreement) in advance, by using the special power to ask the ECJ to interpret a planned agreement between the EU and a non-EU country in advance (see Article 218(11) TFEU). While the UK is not now a non-EU country, it will be when the withdrawal agreement applies, and while Article 50 TEU does not refer to Article 218(11), such a quibble is excessively pedantic: the ECJ has always interpreted its jurisdiction on this point widely, and the point of asking it questions on the withdrawal agreement would be consistent with the established purpose of Article 218, which is to avoid in advance complications which may arise from legal problems which may arise in a future agreement between the EU and a non-EU country. This reasoning applies a fortiori if one of the questions is whether the withdrawal agreement can even be amended after Brexit day, in part or whole: if it can’t, then the complications which may arise will be greater than ever.  

Although the Court has to give its rulings in such cases before a treaty enters into force (the withdrawal agreement is set to come into force on 30 March 2019: Article 168), and its judgments usually take over a year to decide, it can fast-track rulings into four to six months if necessary. However, since any adverse ruling by the ECJ would mean that the draft withdrawal agreement would have to be amended to address the Court’s concerns, and in any event there would need to be time for ratification of the agreement after the Court’s judgment, the clock is ticking if the Court is going to be asked to rule on the draft.

Moving to the substantive issue, can the withdrawal agreement be amended after Brexit day, and if so, how?  The drafting of Article 50 TEU is not explicit on this point, but it seems to set out special rules only relating to a state in the process of withdrawal – not a state which has already left. So Article 50 can’t apply after Brexit day to amend the withdrawal agreement. At first sight, though, other EU treaty provisions could be the basis of an EU power to amend the withdrawal agreement after Brexit day, with the mutual agreement of the UK. This might lead to a more difficult process of amendment, since Article 50 provides for the EU only as a party to the withdrawal agreement, not its Member States, as well as qualified majority voting, rather than unanimous voting; and there is a good chance that requirements of unanimous voting and national ratification would apply after Brexit day.

But at least it would be possible – or would it? Some have argued not, for two reasons. The starting point is the rule in the Vienna Convention on the Law of Treaties (Article 39), which says simply that the parties to a treaty can amend it using the general rules on negotiating a treaty, “except in so far as the treaty may otherwise provide.” The withdrawal agreement does not explicitly rule out amendments, or explicitly provide for them either, except for a few amendment powers for the Joint Committee which it sets up to amend it. Does that mean a contrario that the parties can’t amend it otherwise? Such an interpretation is not EU practice: for instance, the Association Council set up to implement the EU/Turkey Association Agreement has very broad powers, yet he EU and Turkey have also agreed Protocols to that treaty in practice.

The second argument: given that the Article 50 powers expire on Brexit day, should it necessarily follow that the EU is prohibited from using other powers to amend the withdrawal agreement after Brexit day? In the absence of express wording to that effect, this argument that the agreement must be legally “frozen” is untenable. The text of the agreement already specifies that other treaties can replace it as regards foreign policy and the Irish border, and it would be odd if the parties could not choose to amend it otherwise even on a minor point – for instance, to take a different (or supplementary) approach to how to deal with European Arrest Warrants pending at the end of the transition period, or to add rules on how to deal with issues that were left out of the withdrawal agreement because the parties forgot about them or couldn’t agree on them at the time. For example, the draft agreement has no “separation” rule on what happens to the transfer of responsibility for asylum applications which are pending at the end of the transition period.

To some extent, the dynamism of the agreement itself inherently raises the possibility that new legal issues will arise which weren’t foreseen when it was signed – given that the UK will be bound by new EU laws which are adopted during the transition period, and even earlier laws which are adopted between the signature and entry into force of the withdrawal agreement. (There might be quite a few of the latter, since Brexit day coincides with the end of a European Parliament term, when a large batch of outstanding legislation is usually agreed). The post-signature case law of national, EU and international courts might raise issues that the parties might choose to take into account too.

However, this brings to another problem. Any prospect of providing in the withdrawal agreement itself for an indefinite renewal of the transition/implementation period could raise legal issues as to whether this falls beyond the scope of Article 50 TEU, given that (on the EU’s interpretation, at least) Article 50 cannot serve as the basis for a permanent future relationship with the EU. Amending the withdrawal agreement post-Brexit to the same effect might arguably run into the same problem.

Could this issue be avoided entirely, by simply adopting a new EU/UK treaty post-Brexit, which simply includes the transition period rules in the withdrawal agreement? Those rules could, for instance, constitute the first phase of the future EU/UK relationship in a post-Brexit association or partnership agreement, being replaced by more permanent rules whenever those are agreed. There’s an argument that this would be “going too far” as compared to what the EU treaties permit as regards a permanent relationship with a non-EU state, but it seems little more significant than the EU/Turkey agreement discussed above, which provides for Turkey to fully join the customs union, internal market and common agricultural policy.

Whether either one of the parties could denounce the withdrawal agreement is a different question – which could be particularly relevant for EU27 citizens living in the UK, or those concerned about the Irish border. Denunciation of treaties is regulated by Article 56 of the Vienna Convention, which provides that:

1. A treaty which contains no provision regarding its termination and which does not provide for denunciation or withdrawal is not subject to denunciation or withdrawal unless:

(a) It is established that the parties intended to admit the possibility of denunciation or withdrawal; or

(b) A right of denunciation or withdrawal may be implied by the nature of the treaty.

It is hard to see how either of these criteria is satisfied here. There’s no express clause on denunciation and the parties contemplate the agreement lasting some time, not only eight years after the end of the transition period (Articles 151 and 152) but for the lifetime of the citizens protected by Part Two (Article 35). That same clause points to the nature of the treaty being indefinite – otherwise the citizens’ rights protected by Part Two would be undermined. Equally there is no final time limit on the Irish Protocol, with only the possibility of replacing it by an alternative set of rules.

Finally, it’s worth noting that Article 50 expressly provides for the alternative of extending EU membership – although the UK government does not seem interested in that idea. While that would give the UK a full role in the EU while talks continue, it would not avoid the EU side’s belief that there is a legal problem negotiating fully on the future relationship as long as the UK is a Member State. There is also the possibility that the withdrawal agreement has a different date of entry into force than the two-year default set out in Article 50; but again the UK government may not be enthused about staying in the EU longer.

Both solutions would raise the political difficulty of the UK participating in the next elections to the European Parliament. While some argue that the UK could simply be exempted from this, I doubt the legal validity of excluding any current EU Member State from participation in EU elections; and such a decision would surely be vigorously litigated by those who wanted to vote.   

Finally, during the transition period any attempt to rejoin the EU would be subject to the normal rules on new Member States’ accession, as noted in Article 50(5) TEU. These could well be fast-tracked for a country which already applies most EU law (as in the example of Iceland), but the question will arise whether the UK’s opt-outs and budget rebate will still remain. The issue here is whether they will automatically expire on membership, or whetehr the Treaties and legislation will have to be revised to remove them. (The exemption from Schengen should necessarily stay in any event, as it’s necessarily linked to the Irish exemption on the same issue, due to the Common Travel Area).

Barnard & Peers: chapter 27

Photo credit: Der Speigel



Article 121

Transition period

There shall be a transition or implementation period, which shall start on the date of entry into force of this Agreement and end on 31 December 2020.

Background: The Commission’s proposal referred to ‘transition’ only. It reflected para 22 of the EU Council negotiation directives. The UK proposal preferred the term ‘implementation’, which is the UK government’s proposed term. As a compromise, both terms are used here, although the withdrawal agreement refers solely to a ‘transition’ period in all other Articles of the withdrawal agreement. The UK raised some questions about the end date, but eventually agreed to it.

Comment: The key issues are how the transition period relates to the rest of the agreement, and whether it can be extended. See the discussion above on these issues.

The end date is convenient for the EU27 side as it corresponds with the end of the current multi-annual EU budget cycle. The UK’s desire for a more flexible date reflected its uncertainty about the timing of being ready post-Brexit, although its paper referred to a transition/implementation period of “around two years”, as the Prime Minister mentioned before.

Note that Article 122, discussed below, provides conversely for the transition period to be potentially curtailed early as regards foreign policy issues.

Article 122

Scope of the transition

1. Unless otherwise provided in this Agreement, Union law shall be applicable to and in the United Kingdom during the transition period.

However, the following provisions of the Treaties and acts adopted by the institutions, bodies, offices or agencies of the Union shall not be applicable to and in the United Kingdom during the transition period:

(a) provisions of the Treaties and acts which, pursuant to Protocol (No 15) on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland, Protocol (No 19) on the Schengen acquis integrated into the framework of the European Union or Protocol (No 21) on the position of the United Kingdom and Ireland in respect of the area of freedom, security and justice, or pursuant to the provisions of the Treaties on enhanced cooperation, were not binding upon and in the United Kingdom before the date of entry into force of this Agreement as well as acts amending such acts;

(b)  Article 11(4) TEU, Articles 20(2)(b), 22 and the first paragraph of Article 24 TFEU, Articles 39 and 40 of the Charter of Fundamental Rights of the European Union, and acts adopted on the basis of those provisions.

Background: The JHA exclusion reflects the final sentence of para 13 of the negotiation directives; the other exclusions are not mentioned in those directives.

The UK accepted the Commission’s proposal, although the exclusions from the Charter were added during negotiations. The UK wanted to move the second exclusion clause to an Annex, and exclude a number of other Treaty clauses: Article 10(4) TEU (EU political parties); Article 12 TEU (provisions on national parliaments, apart from 12(a), on consultation of national parliaments); Article 20 TEU (enhanced cooperation); Article 69 TFEU (national parliaments and JHA measures); Article 223 TFEU (some rules relating to the European Parliament); Articles 293-297 TFEU (some rules on the decision-making process); Articles 326-334 TFEU (enhanced cooperation, except the UK could still opt in to JHA measures it had opted out of, by using this process); Article 353 TFEU (Treaty amendments); Article 354 TFEU (suspension of EU membership); part of the Protocol on national parliaments; and some provisions of the Euratom treaty.

Comments: Union law is defined in Article 2. Sub-paragraph 1(a) keeps the UK’s existing opt outs from the single currency, Schengen, Justice and Home Affairs (JHA) law and enhanced cooperation (a system where some Member States go ahead and adopt EU law without the others), except where the UK opted in to EU laws in these areas before Brexit day. Paragraph 4 says more about enhanced cooperation, while para 5 says more about JHA.

Sub-paragraph 1(b) excludes the Treaty rules and legislation related to the European citizens’ initiative (on that process, see the case law discussed here) and also voting and standing for office in the European Parliament and local government. There is no transitional clause on the situation of those EU27 citizens who were elected to local government in the UK (and vice versa) before Brexit day, even in the “Separation Provisions” of Part Three of the withdrawal agreement. Conversely other EU citizenship provisions will logically still apply. This includes the “Ruiz Zambrano” case law on UK citizen children with non-EU parents, which I discussed here.

2. Should the Union and the United Kingdom reach an agreement governing their future relationship in the area of the Common Foreign and Security Policy and the Common Security and Defence Policy which becomes applicable during the transition period, Chapter 2 of Title V of the TEU and the acts adopted on the basis of those provisions shall cease to apply to the United Kingdom from the date of application of that agreement. 

Background: The UK accepted this proposed text. This paragraph is partly consistent with a statement adopted by the Council when it adopted the negotiation directives. However, that statement also referred to the “fight against terrorism and international crime”, which are JHA issues.

Comments: There are also provisions on foreign policy in paragraph 7 and in Article 124(6) and (7).

This is the only area where the transition period contemplates a potential early end to the transitional period. By contrast, the UK Prime Minister’s Florence speech referred to the possibility of ending the transitional (or ‘implementation’) period early for a number of issues at different times. An early end to the transition period in this field would avoid the awkward situation where the UK becomes bound by foreign policy measures which it could have vetoed if it were a Member State, although note that Article 124(6) preserves that possibility in certain circumstances. It would also end a possibility for linking defence issues to trade issues, although the UK policy in the Florence speech (and since) was not to insist upon such a link. A more recent speech by the Prime Minister (discussed here) goes into more detail on what a “future relationship” treaty in this area might include.

Legally it is questionable whether the UK and EU would actually be constrained by the withdrawal agreement if they wanted to sign a treaty replacing these rules in other fields of EU law during the transition period. However, this point goes back to whether the withdrawal agreement can be amended at all, as discussed above.

3. During the transition period, the Union law applicable pursuant to paragraph 1 shall produce in respect of and in the United Kingdom the same legal effects as those which it produces within the Union and its Member States and shall be interpreted and applied in accordance with the same methods and general principles as those applicable within the Union.

Background: This proposed para transposes para 14 of the Council negotiation directives, which refer explicitly to the direct effect and supremacy of EU law. The UK agreed to the EU proposal without amendment.

4. The United Kingdom shall not participate in any enhanced cooperation:

(a)  in relation to which authorisation has been granted after the date of entry into force of this Agreement; or

(b)  within the framework of which no acts have been adopted before the date of entry into force of this Agreement.

Background: This paragraph is not reflected in the Council negotiation directives. The UK agreed to the EU proposal.

Comments: On “enhanced cooperation”, see also para 1(b) of this Article, discussed above. This clause is particularly relevant to the proposal on the financial transaction tax, which is subject to the enhanced cooperation process (without UK participation) but where there is no agreement yet (see more on the background to the tax proposal here). Now this paragraph is agreed, the suggestion that the UK might somehow become bound as such by the tax during the transition period is therefore, as things stand, frankly scaremongering. There is a risk that the tax would have some extraterritorial effect upon the City of London, but that risk would equally exist if the UK were still a Member State, since it could not veto an enhanced cooperation measure that it was not participating in. It could also have such an effect if the UK were no longer even a “transition” ex-Member State.

5. During the transition period, in relation to measures which amend, build upon or replace an existing measure adopted pursuant to Title V of Part Three of the TFEU by which the United Kingdom is bound before the date of entry into force of this Agreement, Article 5 of Protocol (No 19) on the Schengen acquis integrated into the framework of the European Union and Article 4a of Protocol (No 21) on the position of the United Kingdom and Ireland in respect of the area of freedom, security and justice shall continue to apply mutatis mutandis. The United Kingdom shall, however, not have the right to notify its wish to take part in the application of new measures pursuant to Title V of Part Three of the TFEU other than those referred to in Article 4a of Protocol No 21. 

In order to support continuing cooperation between the Union and the United Kingdom, under the conditions set out for cooperation with third countries in the relevant measures, the Union may invite the United Kingdom to cooperate in relation to new measures adopted under Title V of Part III TFEU.

Background: This paragraph is reflected in the fourth sentence of para 13 of the Council negotiation directives. The UK proposed to amend it, to add: a) the power to opt in to an international agreement which was not yet in force on Brexit day; b) the power to opt in to additional new JHA measures (ie not just those amending existing acts the UK was bound by) if agreed with the EU; and c) for an early removal of this issue from the withdrawal agreement. As noted above, this is consistent with a statement of the Council, but not the Commission’s proposal. It is also the subject of a recent speech by the Prime Minister. For an analysis of the speech and a proposed “future relationship” treaty, see here.

During negotiations, the EU agreed to add the second sub-paragraph as a compromise. This does not give the UK the power to opt in to all new measures, but recognises the possibility of EU cooperation with the UK as a non-EU country in this field.

Comment: The agreed text means that the UK can opt in to new JHA laws amending JHA laws which it is already bound by. Note that the UK has already opted out of the ‘Dublin IV’ proposal on allocation of asylum seekers, so the suggestion that it could be bound by that law during the transitional period is pure scaremongering. On the other hand, it cannot opt in to new JHA measures which do not amend JHA laws which it is already bound by. At most it can seek to cooperate with the EU in those measures as a non-EU country, on the same basis as other non-EU countries.

At the end of the transition period, the winding up of cooperation in this field is dealt with by the proposed separation provisions in Articles 58-61 (criminal law) and Articles 62-65 (civil litigation). The majority of those proposed provisions have not been agreed yet. There is no proposal for how to deal with pending proposals to transfer responsibility for asylum seekers (the “Dublin III” Regulation) at the end of that period.   

One provision relevant to this field was initially added in the March 15 draft (in Article 123(7)), but then moved to Article 168 of the treaty, which has been agreed at the level of policy, but not in detail. It provides for the possibility, as from Brexit Day, of refusing to surrender a State’s own citizens under the European Arrest Warrant (EAW) law:

When making the written notification referred to in this Article, the Union, in respect of any of its Member States which have raised reasons related to its fundamental structures, may declare that, during the transition period, that Member State will not surrender its nationals pursuant to Framework Decision 2002/584/JHA to the United Kingdom; in such a case, the United Kingdom may declare, no later than 1 month after the receipt of the Union declaration, that it will not surrender its nationals to that Member State

The March 19 draft adds references to “reasons related to its fundamental structures”, as well as the possibility of a reciprocal declaration by the UK. This clause raises some key questions, in particular what separation rule will apply to a European Arrest Warrant pending on Brexit Day, and whether some other obligation applies instead of surrender (extradition treaties often contain an “extradite or prosecute” rule, although the EAW law also applies to those who have been convicted already; in that case the obvious course would be to transfer the sentence using the applicable EU rules). Note that the majority of those surrendered are not nationals of the State surrendering them; Germany could still return UK citziens to the UK, for instance.

6. 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.

7. By way of derogation from paragraph 6:

(a) for the purposes of Articles 42(6) and 46 TEU and of Protocol (No 10) on permanent structured cooperation established by Article 42 of the Treaty on European Union, any references to Member States shall be understood as not including the United Kingdom. This shall not preclude the possibility for the United Kingdom to be invited to participate as a third country in individual projects under the conditions set out in Council Decision (CFSP) 2017/2315 on an exceptional basis, or in any other form of cooperation to the extent allowed and under the conditions set out by future Union acts adopted on the basis of Articles 42(6) and 46 TEU;

(b) where acts of the Union provide for the participation of Member States, nationals of Member States or natural or legal persons residing or established in a Member State in an information exchange, procedure or programme which continues to be implemented or starts after the end of the transition period, and where such participation would grant access to security related sensitive information that only Member States (or nationals of Member States, or natural or legal persons residing or established in a Member State) are to have knowledge of, in such exceptional circumstances the references to Member States in such Union acts shall be understood as not including the United Kingdom. The Union shall notify the United Kingdom of the application of this derogation;

(c) for the purposes of the recruitment of officials and other servants of the institutions, bodies, offices or agencies of the Union, any references to Member States in Articles 27 and 28(a) of the Staff Regulations and in Article 1 of Annex X thereto and in Articles 12, 82 and 128 of the Conditions of Employment of Other Servants of the European Union, or in the relevant provisions of other staff rules applicable to those institutions, bodies, offices or agencies, shall be understood as not including the United Kingdom. 

Background: Paragraphs 6 and 7 were split into two separate paragraphs during negotiations. Paragraph 6 reflects the second sentence of para 13 of the Council negotiation directives. However, paragraph 7 does not reflect those directives.

Comments: Paragraph 7(b) was in the Commission’s first draft. In its comments, the UK saw little point to this text and placed it in square brackets for further discussion. It was amended during talks to a) add the words “which continues to be implemented or starts after the end of the transition period”; b) reword “info which non-EU citizens aren’t meant to know” to read ““info which only EU citizens are meant to know” (paraphrasing); c) to add the word “exceptional” and d) to add the notification requirement in the final sentence. These amendments don’t appear to be significant.

Paragraph 7(a) was added in the March 15 draft and accepted by the UK. It concerns “permanent structured cooperation” in the area of defence, from which the UK decided to opt out when most Member States decided to trigger that process recently (in the 2017 Council Decision referred to in the text of para 7(a)). I noted in my earlier annotations that it was odd not to mention this point. The text sets out a compromise: the UK continues its opt out but, like JHA measures, can cooperate as a non-EU country in this and other future defence measures. Note that following paragraph 2 there may be an early EU/UK treaty in this area which would likely address this issue. 

Paragraph 7(c) was added in the March 15 draft and accepted by the UK. It excludes the UK from EU staff legislation.

Article 123

Institutional arrangements

1. Notwithstanding Article 122, during the transition period Article 6 shall apply.

Background: The UK accepted the Commission’s proposal here.

Comments: Article 6 (which has been agreed) states that the UK should be regarded as a Member State when Union law (defined in Article 2(a)), refers to Member States, except as regards EU institutions, governance of agencies, or voting in the committees that oversee the adoption of implementing measures by the Commission.

In effect, although Article 2(b) implicitly defines the UK as not a Member State, the UK will remain a de facto Member State during the transition period for the purposes of substantive EU law, but not institutional EU law.

Note that paragraph 5 is an express derogation from paragraph 1, and that Articles 124 and 125 lay out specific rules on external action and fisheries.

2. For the purposes of the Treaties, during the transition period, the parliament of the United Kingdom shall not be considered to be a national parliament of a Member State, except as regards Article 1 and, in respect of proposals which are in the public domain, Article 2 of Protocol (No 1) on the role of national parliaments in the European Union.

Background: This paragraph does not explicitly reflect anything in the Council negotiation directives. The UK accepted the Commission proposal on this in principle, but the two exceptions were added in the March 19 draft.

It’s not clear what the exception for Article 1 of the withdrawal agreement is meant to do, since Article 1 only sets out the basic purpose of the agreement. The exception for Article 2 of the Protocol on national parliaments means that proposals for EU legislation will still be sent to the UK parliament. However, the rest of that Protocol will no longer apply to the UK parliament: it concerns EU consultation documents (Article 1); national parliament objections (Article 3); a waiting period (Article 4); Council agendas (Article 5); simplified Treaty amendments (Article 6); the Court of Auditors (Article 7); bicameral parliaments (Article 8); and COSAC, the joint EP/national parliament body (Title II).

Comments: It arguably is implicit that if the UK is not part of the EU institutions, there is no requirement to consult the UK’s national parliament on proposed EU measures. But even if there is no longer a legal obligation to do so, it is hard to see what harm would be caused by consulting the UK parliament, or what legal rule would prevent the EU agreeing to do so outside the context of the formal role for national parliaments of Member States set out in the Treaties. Ultimately it seems that there was a compromise which partly accepts the case for a continued link with the UK parliament during the transition period.

3. During the transition period, provisions of the Treaties which grant institutional rights to Member States enabling them to submit proposals, initiatives or requests to the institutions shall be understood as not including the United Kingdom.

Background: A footnote here states “This should in particular concern Articles 7, 30, 42(4), 48(2) – (6) and 49 TEU and Articles 25, 76(b), 82(3), 83(3), 86(1), 87(3), 135, 218(8), 223(1), 262, 311 and 341 TFEU.This text was added in the February 28 draft.

Comment: This exclusion follows from the removal of the UK from the institutional law of the EU.

4. For the purposes of participation in the institutional arrangements laid down in Articles 282 and 283 TFEU and in Protocol (No 4) on the Statute of the European system of central banks and of the European Central Bank with the exception of Article 21(2) of that Protocol, during the transition period, the Bank of England shall not be considered to be a national central bank of a Member State.

Background: This paragraph does not explicitly reflect anything in the Council negotiation directives. The exception for article 21(2) of the ECB Protocol was added to the March 19 draft; it means that the Bank of England can still act as a fiscal agent for those buying government debt without this violating the Treaties’ no-bailout clause.

Comments: Arguably it’s implicit that if the UK is not part of the EU institutions, it follows that the Bank of England does not have the status of a national central bank in its relations with the ECB.

5. By way of derogation from paragraph 1 and from Article 6, during the transition period, representatives or experts of the United Kingdom, or experts designated by the United Kingdom, may, upon invitation, exceptionally attend meetings or parts of meetings of the committees referred to in Article 3(2) of Regulation (EU) No 182/2011, of Commission expert groups, of other similar entities, or of bodies, offices or agencies where and when representatives or experts of the Member States or experts designated by Member States take part, provided that one the following conditions is fulfilled:

(a) the discussion concerns individual acts to be addressed during the transition period to the United Kingdom or to natural or legal persons residing or established in the United Kingdom;

(b)  the presence of the United Kingdom is necessary and in the interest of the Union, in particular for the effective implementation of Union law during the transition period.

During such meetings or parts of meetings, the representatives or experts of the United Kingdom or experts designated by it shall have no voting rights and their presence shall be limited to the specific agenda items that fulfil the conditions set out in point (a) or (b). 

Background: The first half of this paragraph reflects para 19 of the Council negotiation directives, and the second half elaborates upon that rule. Note that a statement by the Commission commits itself to issue a guidance document on how to apply this rule consistently in practice.

The UK objected to the first draft and obtained the removal of the words “case-by-case” during negotiations, as from the 19 March draft. However, the UK also objected to the word “exceptional”; wanted the test of “necessary and in the interests of the Union” to be dropped; and suggested more consultation on other measures in a new para.

A footnote refers to the official publication of Regulation 182/2011, which sets out general rules for Member States’ participation in committees which govern the Commission’s use of implementing powers.

Comments: As in many other aspects of the transition period rules, it is questionable whether it is really necessary to limit the UK’s purely consultative role to this extent. Certainly there is only a weak argument that it is legally required. There was, however, a small compromise on this point during negotiations.

6. During the transition period, the United Kingdom shall not act as leading authority for risk assessments, examinations, approvals and authorisations at the level of the Union or of Member States acting jointly referred to in the [acts/provisions] listed in Annex [y+6].*

Background: This paragraph does not explicitly reflect anything in the Council negotiation directives. The UK objected to it but accepted it, although the last phrase (beginning “acting jointly…”) was added in the March 15 draft. The annex it refers to is not yet drafted, and the footnote (added in the March 19th draft) states that “Agreement on this paragraph is conditional on the provision of an exhaustive list in Annex y+6, building on an indicative list already provided.”

Comments: It is not so obviously implicit that the UK’s exclusion from the EU institutions means that it cannot have a role as lead authority in risk assessment et al. Put another way, this is arguably an issue of EU substantive law – where the UK will in effect remain a Member State during the transition period – rather than EU institutional law, where it will not. If the EU can trust the UK to implement EU law, why not accept that it can have a role in risk assessment, et al?

7. During the transition period, where draft Union acts identify or refer directly to specific Member State authorities, procedures, or documents, the United Kingdom shall be consulted by the Union on such drafts with a view to ensuring the proper implementation and application of that act by and in the United Kingdom.

Background: This paragraph does not explicitly reflect anything in the Council negotiation directives. It was added in the March 15 draft. It reflects a compromise with the UK version which stated that when EU legislation is proposed, the EU “shall submit copies to the United Kingdom, and may seek advice from experts of the United Kingdom”.

Comments: Another issue where the UK negotiators secured an amendment to the text, although it falls some way short of what the UK had proposed. In practice it is unusual for EU legislation to refer to specific Member State authorities.

Article 124

Specific arrangements relating to the Union's external action

1. Without prejudice to Article 122(2), during the transition period, the United Kingdom shall be bound by the obligations stemming from the international agreements concluded by the Union, or by Member States acting on its behalf, or by the Union and its Member States acting jointly as referred to in Article 2(a)(iv).** 

Background: This paragraph transposes para 17 of the Council negotiation directives. The cross-reference to Article 2(a)(iv) was added in the March 15 draft.

A footnote, added in the March 19 draft, states that: “The Union will notify the other parties to these agreements that during the transition period, the United Kingdom is to be treated as a Member State for the purposes of these agreements.This is a compromise; the UK had sought an amendment to state that “Any reference to Member States, the European Union, or Euratom in such a bilateral international agreement shall be understood as including the United Kingdom.This followed from a technical note by the UK side.

Comments: The UK will still be bound to the EU as regards treaties with non-EU states. Logically this applies vice versa and it would have been preferable to spell that out directly. It should follow that individuals can still invoke the direct effect of such treaties (where it exists) in the UK during the transition period (for instance, Turkish citizens with rights under the EU/Turkey association agreement framework).

However, the UK is not bound to non-EU countries to apply such treaties; neither can non-EU countries directly invoke such treaties against the UK.  Since this could in particular affect UK exports, it makes sense for the UK to focus on replicating such treaties: see para 4 below.

The UK’s proposed alternative approach would have circumvented this, but its proposed version of the withdrawal agreement would arguably have bound non-EU countries who are not party to the withdrawal agreement, which is arguably untenable as a matter of international law. This seemed to contradict the UK government’s own technical note which accepted that non-EU countries would have to agree by a simplified process that the UK would still be regarded as part of the EU during the transitional period.

In the agreed compromise version, the assumption seems to be to hope that a unilateral notification by the EU regarding its customs territory (and other issues) will suffice for non-EU countries, legally and politically. Time will tell if this assumption is correct. In any event, the compromise regarding para 4 will make it somewhat easier for the UK to address the problem if it is not, although note that new treaties pursuant to para 4 could not come into force before the end of the transition period. So there is some risk of a legal gap during that period.

2. During the transition period, representatives of the United Kingdom shall not participate in the work of any bodies set up by international agreements concluded by the Union, or by Member States acting on its behalf, or by the Union and its Member States acting jointly, unless:

(a)  the United Kingdom participates in its own right; or 

(b) the Union exceptionally invites the United Kingdom to attend meetings or parts of meetings of such bodies, as part of its delegation, where the Union considers that the presence of the United Kingdom is necessary and in the interest of the Union, in particular for the effective implementation of those agreements during the transition period. Such presence shall only be possible where Member States participation is allowed under the applicable agreements.

Background: This paragraph transposes para 17 of the Council negotiation directives. The initial draft had no exceptions; the first exception was added in the 28 February draft, and the second exception in the March 15 draft. The words “on a case-by-case basis” were then dropped in the March 19 version. This reflects the UK position, which pushed for amendments to give participation rights to the UK in accordance with proposed amendments to the previous Article; indeed this exception is very similar to the agreed Article 123(5)(b).

Comments: The compromise here is a modest but significant concession to the UK.

3. In accordance with the principle of sincere cooperation, the United Kingdom shall refrain, during the transition period, from any action or initiative which is likely to be prejudicial to the Union's interests, in particular in the framework of any international organisation, agency, conference or forum of which the United Kingdom is a party in its own right. 

Background: This paragraph is not reflected in the Council negotiation directives. The UK sought to delete it, but it remained.

Comments: This para explicitly sets out the obligation that would anyway arguably still apply implicitly, since other EU Treaty provisions on sincere cooperation would still be applicable to the UK. The UK’s proposed deletion therefore made sense.

The particular relevance of the “sincere cooperation” principle in EU external relations law is that it limits Member States from negotiating treaties; but that issue is explicitly addressed by para 4. Note that the UK would presumably have more freedom to act once any early post-Brexit treaty on EU/UK security and defence cooperation or policing and criminal law came into force (see Article 122(2) above).

4. Notwithstanding paragraph 3, during the transition period, the United Kingdom may negotiate, sign and ratify international agreements entered into in its own capacity in the areas of exclusive competence of the Union, provided those agreements do not enter into force or apply during the transition period, unless so authorised by the Union.

Background: This para transposes the wording of the final sentence of para 16 of the Council’s negotiation directives, with the important change that it only applies to “exclusive” competence of the EU. This change narrows the limits on the UK’s external action.

The UK sought to add an exception for treaties “in order to give effect to the continuing application of the agreements referred to in paragraph 1”. This was not accepted, but the original EU wording (“the United Kingdom may not become bound by”) was altered in the March 19 version to read that “the United Kingdom may negotiate, sign and ratify international agreements…provided those agreements do not enter into force or apply during the transition period”.

Comments: It might be argued that the compromise text which the UK agreed is only a superficial change, but the “sincere cooperation” principle referred to in para 3 does limit Member states’ power to negotiate or sign treaties, according to ECJ case law. So an express exclusion from those limits is significant.

Note that the exact extent of exclusivity of EU external competence is often disputed and even litigated.

There is no mention of the process of approval of the UK becoming bound by treaties. Note that one of the statements attached to the Council negotiation Directives says that the Council will approve the UK becoming bound by such treaties, in accordance with the usual Treaty rules. 

The UK’s proposal that it would not need authorisation to agree be bound by treaties which simply continue pre-Brexit rights and obligations in force made sense, although from the EU27 perspective, there might be a valid concern that without some sort of consultation process such a clause could be used to do more than copy the UK’s previous rights and obligations.

5. Without prejudice to Article 122(2), whenever there is a need for coordination, the United Kingdom may be consulted, on a case-by-case basis.

Background: This para is not reflected in the Council’s negotiation directives. The original proposal read: “…whenever there is a requirement for coordination, including on sanctions policy, or representation in international organisations or conferences, the United Kingdom may be consulted by the Commission or the High Representative of the Union for Foreign Affairs and Security Policy, as the case may be, on a case-by-case basis.” The more general version first appeared in the 28 February text, and remained the same afterward.  

The UK position on the original version suggested: to make consultation mandatory; to “recognise the need” for it rather than applying “whenever there is a requirement”; to drop “on a case by case basis” and to provide for further modalities to be agreed. The second of these four proposals was accepted by the EU27, as part of the broader amendment of the text.

Comments: This paragraph takes account of the UK’s significant foreign policy rule, in particular regarding sanctions, although there is ultimately no specific reference to them. In the earlier versions of the text, there was a risk that, due to the loss of its veto over EU foreign policy during the transition period, the UK could be legally bound to use (or not to use) its Security Council veto during the transition period, so these consultations would be particularly important. However, the addition of para 6 (see below) makes this less of an issue. 

As with para 3, in the foreign policy context the UK would presumably have more freedom to act once any early post-Brexit treaty on EU/UK security and defence cooperation came into force (see Article 122(2) above). Given the central importance of foreign and defence policy the UK’s proposal for mandatory consultation made sense.

6. Following a decision of the Council falling under Chapter 2 of Title V TEU, the United Kingdom may make a formal declaration to the High Representative of the Union for Foreign Affairs and Security Policy, indicating that, for vital and stated reasons of national policy, in those exceptional cases it will not apply the decision. In a spirit of mutual solidarity, the United Kingdom shall refrain from any action likely to conflict with or impede Union action based on that decision and the Member States shall respect its position.

Background: this text was not in the original proposals. It does not reflect the Council negotiation position. The UK did not make a specific formal proposal on this. The text was added in the March 15 version. I had raised the issue of the UK being required to follow EU foreign policy measures in my earlier annotations.

Comment: This is a significant possibility for the UK not to be bound by an EU measure during the transition period. The wording is adapted from two different rules on foreign policy decision-making in Article 31 TEU, although note that the consequence of a UK government declaration here would not be exactly the same as the provisions in the EU Treaty. This would not be a veto as such – since the EU could still adopt the planned act. Rather it would be what the EU calls a “constructive abstention” – the UK would not be bound by what the EU does, but would have to avoid frustrating it.

Note that since Union law applies to the UK during the transition period, this must include Article 275 TFEU, which limits Court of Justice jurisdiction over EU foreign policy measures to cases about sanctions and disputes over EU competence.

The future relationship treaty foreseen in Article 122(2) may make this provision redundant.  

7. During the transition period, the United Kingdom shall not provide commanders of civilian operations, heads of mission, operation commanders or force commanders for missions or operations conducted under Articles 42, 43 and 44 TEU, nor shall it provide the operational headquarters for such missions or operations or serve as framework nation for Union battlegroups. During the transition period, the United Kingdom shall not provide the head of any operational actions under Article 28 TEU.

Background: This para is not reflected in the Council’s negotiation directives. The words “or serve as framework nation for Union battlegroups” were added in the 28 February version. The UK placed this text in in square brackets for discussion, but ultimately agreed to it.

Comments: The future relationship treaty foreseen in Article 122(2) may make this provision redundant. While this para is consistent with the overall thrust of removing the UK from roles in EU bodies, it is liable to make it harder to run an effective EU defence policy, given the extent of the contribution by the UK military. 

It’s notable that the guidelines on the EU/UK future relationship don’t copy this limitation, and it’s surely possible to imagine the idea of an ‘EU-UK’ battlegroup, and similar approaches to defence cooperation in a future treaty, to reflect the extent of the possible UK contribution in this field. Only the Putins of the world would benefit from a rigid approach in this area.  


Article 125

Specific arrangements relating to fishing opportunities

1. As regards the fixing of fishing opportunities within the meaning of Article 43(3) TFEU for any period falling within the transition period, the United Kingdom shall be consulted in respect of the fishing opportunities related to the United Kingdom, including in the context of the preparation of relevant international consultations and negotiations. 

2. For the purpose of paragraph 1, the Union shall offer the opportunity to the United Kingdom to provide comments on the Commission Annual Communication on fishing opportunities, the scientific advice from the relevant scientific bodies and the Commission proposals for fishing opportunities for any period falling within the transition period.

3. Notwithstanding Article 124(2)(b), with a view to allowing the United Kingdom to prepare its future membership in relevant international fora, the Union may exceptionally invite the United Kingdom to attend, as part of the Union delegation, international consultations and negotiations referred to in paragraph 1 of this Article, to the extent allowed for Member States and permitted by the specific forum.

4. Without prejudice to Article 122(1), the relative stability keys for the allocation of fishing opportunities referred to in paragraph 1 of this Article shall be maintained.

Background: Para 1 is the original proposal, with the addition of a reference to the Commission and international talks, which were added in the February 28 draft. The reference to international negotiations was added to para 1 in the March 15 draft. The other three paras were also added in the March 15 draft. The initial Commission draft reflected para 21 of the Council negotiation Directives, which states that “Specific consultations should also be foreseen with regard to the fixing of fishing opportunities (total allowable catches) during the transition period, in full respect of the Union acquis.”.

The UK position was to “agree the fishing opportunities prior to the decision-making process” and for the UK to “participate alongside the EU and other coastal states in international fisheries negotiations”, with the “modalities” to be “agreed between the Parties.”

Comments: Fisheries has been the most controversial issue in the initial UK reaction to the transition deal, although it should also be noted that the deal equally preserves full market access for UK fisheries’ main export market during that period. The catch allocation/market access trade off is going to be central to the future relationship talks with the EU, given the EU’s intention to link these two issues in its guidelines on the future relationship.

If the transition period ends as proposed at the end of 2020, this provision would only be relevant for one year. It could continue for longer if in some way the transition period is extended (assuming that it still applied to fisheries).

Paras 2 and 3 elaborate further upon the consultations and international negotiations points referred to in para 1, but para 4 is separate: it freezes the catch allocations existing on Brexit day. As such it is a compromise (suggested in my earlier annotations) which prevents a possible “grab” of the UK fisheries catch by EU countries during the transition period, given that the UK objective of exempting that issue from the transition period rules was not going to be accepted. 

Article 126

Supervision and enforcement

During the transition period, the institutions, bodies, offices and agencies of the Union shall have the powers conferred upon them by Union law in relation to the United Kingdom and natural and legal persons residing or established in the United Kingdom. In particular, the Court of Justice of the European Union shall have jurisdiction as provided for in the Treaties.

The first paragraph shall also apply during the transition period as regards the interpretation and application of this Agreement. 

Background: As noted already, “Union law” is defined in Article 2 of the agreement. This reflects the first sentence of para 18 of the Council negotiation Directives. The UK accepted the text. The second sub-paragraph, concerning the withdrawal agreement as distinct from EU law generally, was added in the March 15 draft.

The original Commission proposal on the transition period also included an Article on European Schools, but that has been moved (with amendments) to Article 120, where it forms part of the “Separation Provisions” rules in the withdrawal agreement. The Commission’s original proposal also contained a controversial footnote on dispute settlement during the transitional period; this was ultimately included (in amended form) as Article 165 of the agreement, which is not yet agreed. I commented on that proposal here.

The UK pushed also for a “good faith” clause in relation to the transition period. It was agreed as Article 4a, in Part One concerning common provisions. It applies to the entire agreement, not just the transition period part; but it does not set out any specific substantive rules.

Thursday, 22 March 2018

Data protection and smart meters: the GDPR and the ‘winter package’ of EU clean energy law

Alessandra Fratini and Giulia Pizza, FratiniVergano, European Lawyers - a Brussels-based law firm specialising in European and international law

On 30 November 2016, the Commission launched the Clean Energy for All Europeanslegislative package, aimed at modernizing the European electricity market and facilitating the transition to more decentralized, clean energy solutions. “Decentralization” is seen as a driver for innovation and the key factor for rebalancing energy actions in favour of a demand-driven policy, where consumers are equipped with the right tools to actively participate in this paradigm shift. Smart metering systems are one of the “right tools” for consumer empowerment, as they allow users to make decisions about their energy consumption by reacting to real-time tariffs.
The proper functioning of smart meters requires that a significant amount of sensing data be collected and processed by eligible parties and made available to entitled stakeholders. That generates data protection challenges and creates new risks for the data subjects with a potential impact in areas (e.g. price discrimination, profiling, household security) previously absent in the energy sector. While the General Data Protection Regulation (GDPR) provides the general legal framework for ensuring privacy and data protection of final consumers in the context of the smart meters’ roll-out, the Commission’s proposal for a recast of the Electricity Directive (which is part of the “Clean Energy for All Europeans” package and specifically regulates smart meters’ deployment) includes detailed provisions to ensure that data protection issues are properly tackled. It is understood that, once adopted, the latter would act as lex specialis with reference to the generally applicable GDPR provisions.
After an overview of the evolution of smart meters in EU law, this article reviews the challenges that smart metering systems pose to the protection of personal data and how these can be addressed under the GDPR provisions, read in conjunction with the specific requirements on data protection foreseen in the recast Electricity Directive.
Smart Metering Systems in EU law
Smart meters are electronic devices that record real-time production and consumption of electricity and communicate that information to the utility operator for monitoring and billing. Smart meters allow consumers to adapt their consumption – in time and volume - to real-time energy prices, thereby helping them to manage their usage more effectively and, conceivably, save money.
The deployment of smart meters is expected to improve customer service, with more accurate billing, easier and quicker switching between payment methods. It will also increase the opportunities for consumers who produce their own energy to respond to prices and sell excess to the grid.
The idea of equipping consumers with intelligent systems allowing them to manage their energy consumption was developed in the 2006 Energy Service Directive (ESD) and later taken up in the (still in force) 2009 Third Energy Package, which marked a turning point in the energy market integration process within the EU. With the third package, in fact, the focus shifted to the development of an effective retail market, with specific measures being designed to grant energy consumers a number of rights, such as the right to switch energy providers and receive clear energy bills. It is exactly from the perspective of consumer empowerment that the 2009 Electricity Directive strongly promotes the use of intelligent metering systems for the long-term benefit of consumers.
In line with the same spirit, the 2012 Energy Efficiency Directive (EED) includes a comprehensive set of measures on metering and billing with a view to extending the scope and further clarifying the provisions foreseen in the Third Package and in the ESD. In addition, for the first time, the EED touches upon data privacy and security in the installation of smart meters and foresees, among the obligations imposed on Member States, compliance with relevant Union data protection and privacy legislation.
Finally, the 2016 Clean Energy Package, also known as the “Winter Package”, further fits into this picture. The Commission acknowledged that it was time to update the existing framework to make it compatible with the higher levels of flexibility and decentralisation of today’s energy sector, and to create the enabling environment to facilitate the “paradigm shift” to a more competitive and consumer-centred market structure.
In particular, the proposal for a recast of the Electricity Directive introduces new rights to empower and better protect end users, such as the right to clearer billing information and certified comparisons tools, the entitlement to a dynamic price contract, the possibility to engage in demand-response and in self-generation of electricity. Smart meters are the essential tools to allow for an effective exercise of these rights. In this context, the recast Directive provides specific definitions for smart metering systems and interoperability and devotes a specific section (Articles 19-24) to smart meters’ functionalities, deployment, and data management issues.
Article 20 of the proposal sets out seven principles to be applied when rolling out smart meters. Out of those seven principles, four relate to the protection of personal data, including consumers-data subjects’ rights. In particular, points b) and c) state that security of data communication and data protection of final consumers shall be ensured in compliance with relevant Union security and data protection legislation. On data subjects’ rights, point e) stipulates that energy consumers are entitled to access metering data on their electricity input and off-take in an easily understandable format, while point f) requires Member States to ensure that consumers are duly informed at the time of installation of smart meters of the collection and processing of their personal data. 
Besides the abovementioned principles, a more specific set of provisions (Articles 23 -24 and Annex III) focuses on energy data access and management and reiterates the need to ensure the highest level of cyber-security and data protection by applying the best available techniques in the field.
Key data protection issues in smart metering systems under the GDPR and the Winter Package
A smart meter is supported by a communications network that collects and processes an increasingly high quantity of personal data and makes it available to entitled stakeholders and systems. These data are collected everywhere in the smart electricity system, including consumers’ homes and, possibly, electric vehicles. In this respect, final consumers’ trust and confidence are crucial: without proper guarantees on data protection, consumers are likely to be reluctant to take risks and might possibly dismiss innovation in favour of conventional meters.
Being the development of standards for data protection and security key to realising the full potential of smart metering in the EU, an express reference to the recently adopted GDPR is included in the section on smart meters (Article 23) of the recast Electricity Directive. Investments in smart metering technology also depend on consumer’s trust in the utilities and network operators. The draft Directive aims at stimulating consumer involvement with attractive incentives, while at the same time creating an indissoluble bond between smart meters’ technical implementation and compliance with EU data privacy and security standards.
The specificities of smart meters raise some key specific issues in relation to the application of the GDPR and the (future) recast Electricity Directive, such as the qualification of “energy data”, the allocation of responsibilities in energy data management and the rights of the data subjects.
 Qualification of “Energy data”
Smart metering systems process huge amounts of data as part of their routine technical operations. The first issue that arises is thus whether all of those data shall be regarded as personal data.
Nulla questio for registration data provided by the data subject when entering a contract for the roll-out of a smart meter, i.e. name, address and information on consumer’s billing data and payment methods, which are unquestionably “personal data”. The conclusion is less undisputable when it comes to consumer’s “energy data”, which are identified by the recast Electricity Directive as metering and consumption data, and data required for consumer switching. While these data, at first sight, might be considered as technical data and, as such, deemed to fall outside the scope of the GDPR, they are actually – and inextricably - linked with the natural person who is responsible for the metering account via a unique identifier, such as a meter identification number. These data are therefore to be regarded as personal data because they are associated with an identified or identifiable user and disclose information on his/her energy usage, thereby providing insights on the daily life of the data subject. When the data subject is a “prosumer”, i.e. a small or medium-sized agent which both consumes and produces electricity, the “energy data” refer to the amount of energy and power injected into the grid, which in turn provide information on the amount of available energy resources of the data subject.
The above reading of “energy data” as personal data would be in accordance with the GDPR, whose definition of personal data includes information revealing the economic situation of the data subject. That is all the more true, if one considers that energy data may be more or less detailed based on the consumer’s needs, as they can be designed and tailored accordingly. “Energy data” represent therefore an increasingly valuable asset not only for final consumers, who can adjust their behaviour to variable tariffs to reduce their energy expenditure, but also and especially for policy makers who have a precious instrument (consumers’ real-time feedback) at their disposal to effectively target, monitor and evaluate measures and actions in the field.
However, data gathered from smart meters can also be used for other purposes. Energy data allow for a better understanding of customer segmentation, customer behaviour and how pricing influences usage. As such, those data might be used for specific profiling exercises, e.g. to gather sensitive information on the end-user’s energy-based footprint in his/her private environment, his/her behavioural habits and preferences by analysing the information collected through the meters. Smart meters will likely have an impact on the competitive pressure within energy supply markets, as the provision of accurate and reliable data flows by the smart metering infrastructure will enable easier and quicker switching between suppliers. Accessing consumers’ data on energy preferences will therefore constitute a significant advantage for energy utilities. That is why adequate levels of protection shall be ensured during both the transmission and the processing phase, to avoid unauthorised consumer profiling based on the detailed meter readings and other possible “further” uses of those data.
In addition, the potential risks associated with the collection of detailed consumption data are likely to increase in the context of the so called “internet of things”, where energy data can be combined with data from other sources, such as geo-location data, data available through tracking and profiling on the internet, video surveillance systems and radio frequency identification (RFID) systems. The critical issue is in fact that smart meters could constitute the entrance gate to get a privileged access to the digital domain of a household.
Data management and allocation of responsibilities
As clearly established by Article 23 of the recast Electricity Directive on data exchange and management in the context of smart meters’ roll-out, any issues relating to energy data handling are to be tackled at national level. It follows that Member States, or the competent authorities, “shall organise the management of data in order to ensure efficient data access and exchange” including specifying the eligible parties which may have access to data of the final customer, provided that explicit consent is given in accordance with GDPR provisions. Eligible parties shall include at least customers, suppliers, Transmission system operators (TSOs) and Distribution system operators (DSOs), aggregators, energy service companies, and other parties which provide energy or other services to customers. This list is understood to be purely indicative and non-exhaustive, considering the highly dynamic environment of the energy sector.
The GDPR identifies characteristics and responsibilities of data controllers, processors and third parties authorised by controllers and processors to collect and process personal data. The controller is the sole responsible, alone or jointly with others, for determining the purposes and means of the processing of personal data while the processor performs the processing of personal data on behalf of the controller. The third party processes personal data under the direct authority of the controller or processor and solely if authorised to do so by those. Finally, recipient is the party to which the personal data are disclosed, whether a third party or not.
As the implementation of smart meters involves a number of actors in the processing of personal data, it is crucial to identify who, in that context, should be regarded as data controller, processor or simply an authorised third party. The allocation of roles and responsibilities might not be straightforward, since the arrangements for smart metering deployment - and consequently the data management model - are a matter to be addressed at Member States’ level and no clear guidance exists at EU level. Given the number and complexity of relationships, it is likely that there will be difficulties in applying the relevant definitions.
Nevertheless, based on the GDPR, the following set of roles and responsibilities can be identified. The controller could be defined as the “metered data responsible”, who handles metered, contractual and network data. Its responsibilities are collecting, validating, analysing and archiving historical data as well as ensuring that customers have at their disposal their consumption data and giving, by explicit agreement and free of charge, any registered supply undertaking access to its metering data. The role of the processor can be associated with that of the “metered data collector” or of the “metered data aggregator”, who are respectively responsible for meter reading and quality control of the reading and for the establishment and qualification of metered data from the metered data responsible or controller. The recast Electricity Directive proposes that the parties which are managing data be authorised and certified by the national competent authorities in order to ensure compliance with the data protection requirements. This is in line with the GDPR, which encourages Member States to establish certification mechanisms and codes of conduct to demonstrate the existence of appropriate safeguards provided by controllers or processor.
In most Member States, the DSO is the metering operator and, as such, it is the data controller in the first phase of the metering data process. The DSO´s process ends with creating a bill for network usage; in a second step, the metering data are passed on to the electricity supplier, who is responsible for billing and serving consumers, thus acting as the data controller in this final phase of the processing operation. As a matter of fact, DSOs are already involved in the processing of personal data because they have detailed information on the status of network components, generators connected to the network and energy flows throughout the network. In some cases, the DSO outsources parts of its metering business to a metering operator (MO), an entity which offers services to install, maintain and operate metering equipment related to supply. This role might be further split into two entities, one responsible for managing the meter and another responsible for managing the metering data. In this case, the MO performs the role of the processor based on a contractual arrangement with the DSO. However, in the majority of Member States the metering sector is considered part of the distribution business, with the DSO being both the owner and the responsible party for smart meters’ roll-out and granting accessing to metering data.
Notwithstanding the leading role of DSOs in smart meters’ data management, some Member States have opted for a separate entity (central communication hub), which shall provide third parties access to metering data, decoupling the processing of data from the physical meter. In such a system, consumers’ data are stored on the smart meter installed at their premises and the central hub entity is responsible for routing (but does not store) data, gathering those from the equipment in the consumer’s premises and delivering the same to energy suppliers, DSOs and other third parties. Such a transmission can occur, pursuant to the GDPR, further to consent appropriately expressed by the data subject.
A similar allocation could apply in those Member States, who have instead adopted a communication structure based on a middleware (the “data concentrator”, or “data aggregator”), located at medium voltage/low voltage substations, which works as a communication gateway between the data management system and the smart meters. The data concentrator collects information and data, often from multiple meters, in a particular geographical area before communicating the data to a central database for billing, troubleshooting and analysing. Concentrators are heavily used in densely-populated areas.
Rights of the Data Subject
The GDPR includes a wide range of rights for data subjects, some brand new, some existing already under the Data Protection Directive but enhanced by the reform.
Amongst the existing rights, the right to be informed when personal data are being collected and processed, the right of access as well as the right to object to certain processing activities (including profiling) and to automated individual decision-making are relevant in the smart metering systems’ context. Amongst the new rights, the right to data portability is also likely to be of relevance when smart meters are fully operational.
Article 20 (1) f) of the recast Electricity Directive reflects Article 14 of the GDPR listing the information to be provided by the data controller where personal data are collected from the data subject. In particular, appropriate information on the energy consumption and on the collection and processing of personal data shall be given at the time of installation of the smart meter. As regards the minimum details of the information notice, the provision explicitly refers to applicable Union data protection legislation.
Article 20 (1) e) of the Directive establishes the right for the customer to access his/her metering data on electricity input and off-take, while Article 23 (4) specifies that such access should be free of charge for final customers. Article 20 describes the minimum principles to be observed when smart metering systems are designed and implemented. Data protection measures enabling provision of information and availability of metering data constitute therefore a set of minimum functionalities to be integrated in all smart metering systems. That is a clear reference to the “data protection by design” principle under the GDPR.
However, the right of access to consumer’s data shall be also guaranteed to all eligible third parties under the Directive, in a non-discriminatory manner and simultaneously, so as to ensure that the system works properly. Eligible parties’ access finds its legal basis in Article 23 (2), which stipulates that, independently of the data management model chosen by the Member State, the party or parties responsible for data management shall provide any eligible party access to the data of the final customer, subject to the latter’s explicit consent. Access to consumers’ data by eligible parties may not be free of charge according to paragraph 4. Nevertheless, the Directive places an obligation on Member States to set the relevant access costs in order to ensure that regulated entities that provide data services do not profit from that activity.
Finally, Article 20 (1) GDPR defines the right of data portability as “the right to receive the personal data, which the data subject has provided to a controller, in a structured, commonly used and machine-readable format and to transmit those data to another controller without hindrance from the controller to which the data have been provided”. Accordingly, data portability is the right of the data subject to receive a subset of the personal data processed by a data controller concerning him/her, and to store those data for further personal use. In addition, that right allows data subjects to transmit personal data from one data controller to another “without hindrance”. As regards the type of personal data concerned, the first condition for the exercise of this right is that the data pertain to the data subject, while the second condition is that the data have been provided by the data subject to the data controller.
The Article 29 Data Protection Working Party (WP29) has clarified in its Guidelines that data that fall within the definition of data “provided by” the data subject are not only the “data actively and knowingly provided by the data subject” but include also those personal data that are observed from the activities of users such as raw data processed by smart meters. In the smart meters’ context, the data subject is therefore entitled to exercise his/her right to data portability only with respect to his/her usage data regularly generated by the metering system and simply collected by the data controller, without being processed or manipulated by the latter. As a result, data that are created by the data controller using the data observed or directly provided as input, such as a user profile designed by analysis of the raw smart metering data collected, do not appear to fall within the definition of data “provided by” the data subject.
The GDPR places some requirements on data controllers for the format to be used in data transfers to other data controllers when the data subject exercises his/her right of portability. More specifically, personal data must be provided “in a structured, commonly used and machine-readable format”. The terms “structured”, “commonly used” and “machine-readable” are a set of minimal requirements that should facilitate the interoperability of the data format provided by the data controller. Given the wide range of data types that might be processed and the specificities of each sector, the GDPR does not provide specific recommendations as to the data format, thus leaving it to each industry to develop the common set of interoperable standards and patterns to deliver the minimum requirements of the right to data portability.
Welcoming the industry-focus approach, the recast Electricity Directive outlines the minimum features the format for metering data transmission should have. Article 20 (1) e) stipulates that “metering data on electricity input and off-take shall be made available via a local standardised interface and/or remote access in an easily understandable format, allowing customers to compare deals on a like-for-like basis”. Here the primary aim of data portability seems to be price comparability, to facilitate service switching and enhance competition between services. This provision closely mirrors Article 24 of that Directive, which requires Member States to develop a common data format and a transparent procedure for eligible parties to have access to the consumers’ data. Here too, competition is the driver since the data format is conceived to ensure that energy utilities active on the retail market get simultaneous and non-discriminatory access to final costumers’ data. However, the Directive does not establish a minimum set of specifications for eligible parties’ access data format. That shall be defined by the Member States and then by the Commission, who is explicitly called on to determine a common European Data format that will replace the ones adopted at national level.
DPIA in Smart Meters’ roll-out
The Data Protection Impact Assessment (DPIA) is a tool designed to describe the envisaged processing operations carried out by an organisation during its activities in order to evaluate the origin, nature, particularity and severity of risks of these operations to the rights and freedoms of the data subjects. The outcome of the assessment helps to determine the appropriate measures to be taken to mitigate the risks and demonstrate that the processing of personal data complies with data protection requirements.
In its first Recommendation on the roll-out of smart metering systems issued in 2012, the Commission called on Member States to adopt and apply a template for DPIA that should be developed by the Commission and submitted to the WP29 for its opinion. In 2013, the Commission submitted to the WP29 the first version of the DPIA template prepared by a dedicated expert group under the Smart Grid Task Force. In its opinion, the WP29 welcomed the objectives identified by the template but expressed concerns on various parts and invited the Commission to revise it. A new version of the template was subsequently submitted to the WP29. The WP29’s final opinion issued in December 2013 recognized the improvements with respect to the previous version and recommended to organise a test case with some real cases. After having taken into account these final comments of the WP29, the Commission issued a Recommendation to promote the adoption of the template.
While having been issued before the formal adoption of the GDPR, both the Commission Recommendation and the Opinion of the WP29 are fully in line with it. However, no obligation to ensure that a DPIA is carried out is imposed on the Member States, given that the Data Protection Directive established the discretional nature of performing a smart meter’s DPIA. On the contrary, the GDPR renders the DPIA mandatory under certain conditions and calls on competent supervisory authorities to impose fines in case of failure to carry out a DPIA when required. According to the GDPR, a DPIA is only required when the processing is “likely to result in a high risk to the rights and freedoms of natural persons”. In order to ensure a consistent interpretation of the circumstances in which a DPIA is mandatory, the WP29 Guidelines, adopted in April 2017 and further revised in October 2017, clarify this notion and provide criteria for the development of a common EU list of processing operations for which a DPIA is obligatory.
The more criteria the processing meet, the more likely it is to present a high risk to data subjects and therefore to require a DPIA. Of the nine criteria identified by the 2017 Guidelines in this respect, at least three seem applicable to the operation of smart meters. In particular, the evaluation or scoring criterion, including profiling and predicting, is fully applicable to smart meters insofar metering data help utility companies building behavioural or marketing profiles based on consumers’ energy usage. Data processed on a large-scale criterion is also likely to be relevant in the smart meters’ context. Smart meters register consumption data at short, regular intervals and ensure their timely transmission to the data controllers or concentrators which, in turn, organise the huge volume of data received from users in a specific geographical area in aggregated forms for the efficient maintenance of the grid and for allowing energy utilities to adjust their energy production accordingly. Finally, the innovative use/application of new technological or organisational solutions criterion is undoubtedly of relevance in the deployment of smart metering systems, to the extent that this can involve novel forms of data collection and usage that have unknown, significant impacts on individuals’ daily lives, depending on the data management model adopted at national level.   
In addition, still in the context of the new technology product criterion, another privacy concern that might trigger the need to carry out a DPIA may be the case of a piece of hardware or software, where this is likely to be used by different data controllers to carry out various processing operations. The data controller remains certainly obliged to carry out its own DPIA with regard to the specific implementation of the new product, but this can be informed by a DPIA prepared by the product provider. In smart meters, the above applies to the relationship between manufacturers of smart meters and DSOs or utility companies. Each product provider or processor should share useful information with neither compromising secrets nor leading to security risks by disclosing vulnerabilities.
Once the assessment of the criteria has been completed and the existence of an obligation to carry out a DPIA has been ascertained, the process can be initiated, possibly according to the procedure identified in the DPIA template developed by the Smart Grid Task Force. The generic iterative process consists of several procedural steps going from the identification of necessary resources and constitution of the DPIA team, to the description of the smart grid/metering systems and the identification and assessment of relevant and residual risks to be concluded with the drafting of the DPIA report and the development of measures for reviewing and maintenance.
Smart metering systems are becoming one of the primary tools to promote participatory processes and decentralization which are at the heart of the energy transition and the development of new energy services. A massive deployment of smart meters is expected in the near future, after the Third Energy Package made the roll-out compulsory, should the economic assessment be positive, and the Winter Package put it at the centre of its reform as a key instrument to empower energy consumers. The potential privacy risks posed by their implementation need to be tackled with highest priority. It is in fact essential that consumers have access to trusted mechanisms to manage their energy data and create value with it, while being in complete control of their private environment and behavioural habits.
For years, there was no specific binding legislation devoted to data protection in smart metering systems, while a number of soft-law instruments were adopted to balance energy policy goals with data protection concerns. In recent years, the EU legislator has started paying special attention to personal data protection in smart meters’ deployment, and some important progress has been made as a result, starting with the development of the DPIA template.
Today, the development of standards and safeguards for data protection and security in smart meters’ roll-out is a major objective in the EU. Against the background of the recently adopted GDPR, a specific data protection and security framework for smart meters has been proposed in the recast Electricity Directive. The aim is to embed relevant GDPR provisions in the new text and tailor those to the needs and specificities of smart meters’ implementation and functioning. It follows that a new, comprehensive legal framework to ensure high level of personal data protection in smart metering systems is being shaped, which is expected to lead to greater trust and confidence of energy consumers and, in turn, to their increased participation in the decentralisation process.

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