The Revised Draft UK/EU Withdrawal Agreement and Political Declaration (2019)

12-2019

The UK and EU negotiating teams settled a revised version of the draft UK/EU Withdrawal Agreement in October 2019, after the UK Parliament had rejected the previous version of the Withdrawal Agreement of November 2018. The revisions in the 2019 version mainly involve a new Northern Ireland Protocol, primarily to avoid a hard border between Northern Ireland and Ireland. Amendments were also made to enable certain provisions to take effect as from the UK's exit from the EU rather than on the expiry of the extended Article 50 notice period, which is now due to end on 31st January 2020. The Withdrawal Agreement, if/when approved, will need to be implemented into UK law by new UK legislation. If this legislation were to be passed in December 2019, the Article 50 notice period could be curtailed and the Withdrawal Agreement brought into force at the start of 2020. In addition to settling a new Withdrawal Agreement text, the UK and EU have also agreed a revised form of draft Political Declaration concerning the future UK/EU relationship following the expiry of the transitional period under the Withdrawal Agreement on 31st December 2020. This note will highlight the main features of the draft Withdrawal Agreement and the draft Political Declaration.

The UK/EU Withdrawal Agreement

General or "common" provisions: The provisions of the Withdrawal Agreement are to be given direct effect in the UK and to be enforceable by natural and legal persons in UK courts, in much the same way as the provisions of the EU treaties are currently directly enforceable in national courts of the member states.  For purposes of the Withdrawal Agreement, the UK is to be treated as an EU member state except as regards the appointment or election of members of the EU institutions and agencies, and except as regards participation in the decision-making and governance of EU bodies and agencies.

Transitional period: During the transitional period to the end of 2020, EU law is to continue to apply to and in the UK.  This includes the EU treaties, the EU customs union, EU legislation, EU agreements with third countries, and the EU Charter of Fundamental Rights.  EU law is to produce, during this transitional period, the same legal effects in and in respect of the UK as it produces within the EU27 and is to be applied in accordance with the same methods and general principles as in the EU.

Although the UK generally will not have a right to participate in the decision-making of EU bodies and agencies, it will exceptionally be permitted to attend meetings of the European Commission or of other EU bodies, offices or agencies where (a) the discussion concerns individual acts to be addressed during the transitional period to the UK or to UK residents, or (b) the presence of the UK is necessary and in the interest of the EU for the effective implementation of EU law during the transitional period.

The final version of the Withdrawal Agreement includes a provision for extension of the transitional period beyond 31st December 2020 by means of a single renewal period ending on a yet to be specified date. Such extension must be decided upon before 1st July 2020, and would be subject to agreement of the appropriate financial contributions by the UK to the EU budgets for the period 1st January 2021 to the end of the extended period.

Citizens' rights: EU citizens lawfully residing in the UK and UK nationals lawfully residing in the EU as at the end of the transitional period will be permitted to stay, and once they have been resident for five years will be entitled to a permanent right of residence.  However, EU citizens and their family members in the UK will be required to apply for "settled status" through the new EU settlement scheme.  As regards professional qualifications, EU professionals resident or working in the UK, and UK professionals resident or working in the EU, will continue to have their professional qualifications recognised.  However, for this purpose a recognition decision must have been obtained before the end of the transitional period.

Separation provisions: The Withdrawal Agreement contains numerous provisions to ensure that arrangements relating to the UK's withdrawal proceed in an orderly way at the end of the transitional period, for example the continued conduct of cases pending before the European Court of Justice, the continuation of ongoing procurement processes, and arrangements regarding the UK's withdrawal from the Euratom Treaty.  Also for goods that are midway through a customs process, ongoing customs procedures will continue to apply.  Goods that were placed on the market before the end of the transitional period will continue to be able to circulate freely as between the UK and the EU.

In relation to Community-wide intellectual property rights, the UK is required to implement equivalent national-level protection for Community trademarks, Community design rights (registered and unregistered) and database rights, upon the cessation of those Community rights in relation to the UK (as from the end of the transitional period).  Similarly, geographical indications of origin will continue to apply in the UK as at present.

Financial provisions: The UK is required to continue to contribute to the EU budgets for the years 2019 and 2020.  The UK also accepts liability for the following: the UK's share of the EU's budgetary commitments and budgets of EU decentralised agencies as at the end of the transitional period; the UK's share of financing of EU liabilities incurred prior to 31st December 2020, including pension rights and other employment-related benefits accrued before that date; and the UK's share of the EU's contingent financial liabilities that were decided upon before entry into force of the Withdrawal Agreement.  The UK government has recently estimated the total financial settlement to be in a range of £35-39 billion.

The Northern Ireland Protocol: The need for a solution to the Northern Ireland border issue has been the most challenging aspect of the negotiation of the Withdrawal Agreement. All parties have been committed to maintaining a soft border between Northern Ireland and the Republic of Ireland in accordance with the 1998 Good Friday Agreement (also known as the Belfast Agreement). However, the border is also a frontier of the EU Single Market and the parties needed to safeguard the integrity of both the Single Market and also the UK internal market comprising Great Britain and Northern Ireland. The original (2018) Northern Ireland Protocol involved a so called back-stop arrangement whereby, absent any specific agreement on a new UK/EU relationship agreement, as from the end of the transitional period Northern Ireland would remain indefinitely in the EU Customs Union and the UK would remain indefinitely in a single customs territory as between the EU and the whole of the UK. The UK was to be required to achieve regulatory alignment with EU law in a number of areas, in particular competition law and State aid rules, environmental protection and labour standards, and Northern Ireland was to be required to comply with EU Single Market rules regarding the technical regulation of goods. This "back-stop" arrangement has been removed entirely from the new (2019) version of the Protocol.

The 2019 Protocol requires Northern Ireland to be aligned with EU customs and Single Market rules, especially relating to goods, in order to avoid a hard border between Northern Ireland and Ireland. The EU Customs Code, EU Common Customs Tariff and a very wide range of specified EU law Single Market measures will apply to the UK in respect of Northern Ireland. At the same time Northern Ireland is to remain part of the UK customs territory. Customs duties on trade between Northern Ireland and the EU (in practice, this mainly means Ireland) are prohibited. The UK will be required to apply EU customs duties to goods entering Northern Ireland from Great Britain, unless the goods are not at risk of being moved into the EU (the Single Market, in practice, into Ireland). Such customs duties levied by the UK are to be retained by the UK and not remitted to the EU. Regarding the critical question of whether goods are to be considered at risk of onward movement to the EU, they will be treated as being at risk, unless they are not subject to further processing and meet specified criteria. However, these criteria have not been established in the Protocol but have been referred to a UK-EU Joint Committee to be established under the Withdrawal Agreement, to be settled by the end of the transitional period.

As Northern Ireland remains part of the UK customs territory, Northern Ireland can be included in the territorial scope of any free trade agreements to be concluded by the UK, provided that such agreements do not prejudice the application of the Protocol. Northern Ireland can also be included within the territorial scope of the UK's goods schedule for WTO purposes. However, the Protocol acknowledges that some compliance checks, regarding EU standards, will be needed in respect of goods entering Northern Ireland from Great Britain.

EU law on VAT will apply to the UK in respect of Northern Ireland and the UK's HMRC will be responsible for collecting VAT and for implementing the relevant EU law. However, VAT revenue collected in this way by the UK is to be retained by the UK and not remitted to the EU. The implementation of these VAT provisions has also been referred to the UK-EU Joint Committee, which may adopt measures for their proper application.

EU law on State aid will apply in the areas covered by the Protocol. There will be an exemption in respect of UK support to the Northern Ireland agricultural sector, but the maximum level (and a minimum percentage that must comply with certain requirements of the WTO Agreement on Agriculture) for such support are also referred to the Joint Committee.

The Protocol requires the UK to ensure that there will be no reduction in rights under the Good Friday Agreement 1998. The UK must also ensure that the Common Travel Area continues to operate as between Ireland and Northern Ireland for the movement of persons. This includes an obligation on the UK to allow free movement for EU citizens (and their family members), irrespective of nationality, to, from and within Ireland. This raises a political question of whether the UK government will seek to implement immigration controls as between Northern Ireland and Great Britain, because free movement for EU citizens into Britain via Northern Ireland will otherwise continue as a result of the express Common Travel Area requirements in the Protocol.

The UK authorities will be responsible for implementing the relevant provisions of EU law under the Protocol, and, in practice, to avoid a hard border, any measures normally required in respect of goods entering the EU will have to be implemented on the borders between Great Britain and Northern Ireland, resulting for trade purposes in a "border in the Irish Sea". The UK authorities must carry out control measures in individual cases when requested by EU representatives (for duly stated reasons). The practical working arrangements relating to the exercise of the rights of EU representatives in this regard are to be determined by the Joint Committee.

As regards enforcement, the Protocol provides that the EU institutions and agencies will be able to exercise their EU law powers in relation to the UK and UK natural and legal persons. Such acts of EU institutions or agencies under the Protocol will produce the same legal effects in, or in respect of, the UK as those which they produce within the EU member states. The EU Court of Justice (CJEU) will have jurisdiction regarding disputes under the Protocol.

The continuation in force of the main trade-related (and State aid) provisions of the Protocol beyond the initial four years and after subsequent four year periods, is subject to democratic consent in Northern Ireland, of the Northern Ireland Assembly. For subsequent periods, where the Northern Ireland Assembly's decision has cross-community support (i.e. specified levels of unionist and nationalist support within the Assembly), the subsequent period will be eight years instead of four years.

The 2019 Protocol may prove to be more acceptable (or less unacceptable) to the UK Parliament than the 2018 version. However, significant details are left unresolved by the new Protocol, especially the question of the criteria for determining whether or not goods transiting from Great Britain to Northern Ireland are at risk of further movement in to the EU (mainly, Ireland), and the working arrangements concerning controls to be carried out by UK authorities under EU law in respect of products entering Northern Ireland. It may be said that the most critical details under the Protocol are not resolved within it, but are referred to the Joint Committee to be resolved during the transitional period. Also, the enforcement and dispute resolution provisions make clear that EU law and CJEU jurisdiction apply to the subject matter of the Protocol.

The UK/EU Political Declaration

At the same time as agreeing the new version of the draft Withdrawal Agreement, the UK and the EU Council also agreed a revised draft Political Declaration. The Political Declaration will take effect when the UK exits the EU but will not be legally binding. It will set out the framework for negotiations of the future UK-EU relationship, which are intended to proceed during the transitional period.

The Political Declaration is divided into five Parts: the Initial Provisions, the economic partnership, the security partnership, institutional and horizontal arrangements, and the “Forward process”. The “Forward process” sets out the mutual intention to commence negotiations as soon as possible after the UK leaves the EU with a view to agreements on the future UK-EU relationship coming into force by the end of the transitional period. It may be noted that the opening part of the Political Declaration contains a commitment that the European Commission will commence the process for assessing the adequacy of the UK’s data protection standards by reference to the EU’s framework, as soon as possible after the UK’s exit, with a view to adopting a decision on whether the UK’s standards are adequate by the end of 2020. This would facilitate transfers of personal data from the EU to the UK, and the UK also commits to enabling equivalent transfers of personal data from the UK to the EU in the same time frame, if the applicable conditions are met.

The Part on the economic partnership makes clear that the EU/UK relationship agreement is to be a free trade agreement, whereas the previous draft Political Declaration left open the type of agreement that would be concluded, which might have been an association agreement, a potentially deeper or closer form of relationship, that now appears to be excluded. The key terms of the proposed free trade agreement include (1) no tariffs, charges or quantitative restrictions on trade, (2) agreed rules of origin, (3) mutual recognition of trusted traders’ programmes and administrative co-operation in customs and VAT matters, (4) agreements on technical standards requirements going beyond WTO requirements, and (5) possible co-operation of UK authorities with the EU agencies such as the European Medicines Agency, European Aviation Safety Agency and the European Chemicals Agency.

As regards services, previous free trade agreements have not generally delivered substantial services and market opening in the EU. However, the draft Political Declaration includes provisions for a level of liberalisation of services going "well beyond" the parties’ WTO commitments, with substantial sector coverage and specific commitments in the financial services area to preserve financial stability, market integrity and fair competition, while respecting each party’s regulatory autonomy (especially with regards to prudential issues). Each party is to look to apply its financial services equivalence framework in relation to the other.

In the digital sphere, the draft Political Declaration contains commitments to facilitating electronic commerce and addressing barriers to trade by electronic means. Sectoral commitments are made in the telecommunications area to secure fair and equal rights of access to public telecommunications networks and services for each party’s services suppliers. In relation to intellectual property, statements are included that the parties should provide for levels of protection and enforcement of intellectual property rights going beyond WTO standards (under the TRIPS agreement).

In relation to public procurement, the draft Political Declaration acknowledges the UK’s intention to accede to the WTO Government Procurement Agreement (GPA). It states that the parties should provide for public procurement markets to be open beyond what is required by the GPA commitments, in areas of mutual interest, subject to domestic rules protecting essential security interests. Other provisions refer, for air transport, to an intended comprehensive air transport agreement providing for market access, aviation safety and air traffic management; and for road transport, a commitment to market access underpinned by consumer protection requirements and social standards. For the energy sector, commitments are set out for a framework to facilitate technical co-operation between electricity and gas network operators, security of supply and efficient trade over interconnectors.

The draft Political Declaration contains various commitments concerning open and fair competition, in particular non-regression requirements by reference to the position at the end of the transitional period, in the areas of competition, State aid, employment standards, environment, climate change and tax. These provisions are designed to avoid the UK achieving a competitive advantage through the relaxation of public law and regulatory requirements.

This article is part of our Brexit series.