Hopes of the EU and UK agreeing the terms of a relationship agreement have been improved in March 2018 through the adoption by the European Council on 23 March of Guidelines for the negotiation of a future UK/EU relationship agreement and through progress regarding the terms of the draft Withdrawal Agreement. Further, on 19 March the parties announced substantive agreement of the terms of the proposed transitional arrangements included in the draft Withdrawal Agreement.
Draft Withdrawal Agreement
In the revised draft Withdrawal Agreement (draft dated 19 March 2018), large sections are now marked as substantively agreed following the latest negotiating round. These include the transitional provisions, the provisions on citizens' rights and the financial settlement provisions.
The draft Withdrawal Agreement is notable not least for the proposed arrangements concerning the border between Ireland and Northern Ireland. A Protocol to the draft Agreement provides for Northern Ireland to continue to be part of the customs territory of the EU, and prohibits customs duties on imports and exports as between the EU and Northern Ireland. Northern Ireland would thus remain in a bilateral customs union with the EU. This is in effect the EU's proposed solution of drawing the border in the Irish Sea for purposes of trading in goods as between the EU and UK. These provisions are the EU's proposal and are not shown as being substantively agreed. The stated intention is that any such provisions, when agreed, will apply until such time as any other agreement might be reached by the UK and the EU concerning the Northern Ireland border involving continuation of a soft border and the 1998 Belfast Agreement.
This revised draft appears to confirm the rejection of the UK government's ambitious proposals set out in position papers in 2017 concerning customs arrangements between the EU and the UK and arrangements concerning the Northern Irish border, which were reiterated by the Prime Minister, Theresa May, in her Mansion House speech of 2 March. The first of these alternative proposals comprised a streamlined customs arrangement to achieve frictionless trade, using advanced IT solutions involving recognition of each party's "trusted traders" and pre-registration of consignments. The second proposal involved a "customs partnership" between the UK and the EU whereby the UK would mirror the EU's requirements for imports from third countries, applying the same tariffs and the same rules of origin as the EU for goods arriving in the UK and destined for the EU. This was particularly ambitious and would involve the development of sophisticated electronic tracking techniques tracing the movement of goods and enabling reimbursement where the goods are ultimately delivered to the territory with the lower tariff rate. Moreover, it is hard to see how either proposal would completely remove the need for some physical border infrastructure. UK government policy continues to be that the integrity of the UK's internal market must be preserved and that it is unacceptable to treat any part of the UK differently from the rest of the UK, as the Prime Minister reiterated in her Mansion House speech. However, the parties appear to be nowhere near reaching a meaningful agreement on the border issue.
In other respects, the draft Withdrawal Agreement reflects the European Council Directives of 29 January 2018 as well as the EU/UK Joint Report. Please see also our briefing note on the January Directives.
The provisions of the draft Withdrawal Agreement concerning dispute settlement provide for a Joint Committee to resolve any disputes arising between the parties concerning the Agreement. However, the draft Agreement provides that the Joint Committee may submit the dispute to the EU Court of Justice (the "CJEU"), and indeed must do so if the dispute has not been settled within three months. Given the UK government's determination to avoid the jurisdiction of the CJEU as a dispute settlement forum, it is possible that this aspect will also cause difficulties in finalising the Withdrawal Agreement.
It is also worth noting the provisions of the draft Withdrawal Agreement concerning intellectual property rights, in particular Community (EU-wide) trade marks, registered design rights and plant variety rights. It is provided that the holder of any such rights shall, without further examination, become the holder of a comparable registered and enforceable intellectual property right in the UK, under UK law. Similar provisions are made concerning unregistered Community designs and database rights.
The draft transitional arrangements are included within the draft Withdrawal Agreement, and provide for EU law to apply in the UK in the same way as in the EU27 following Brexit day up until 31 December 2020. Moreover this now includes the Euratom Treaty.
Following Brexit day, the UK will take no part in the decision-making of the EU institutions, bodies and agencies, even during the transitional period. However, the transitional provisions allow for the UK to be represented by invitation at meetings of EU committees, bodies or agencies where acts are discussed which would be specifically addressed to the UK (or to natural or legal persons residing in or established in the UK) or where the presence of the UK is considered to be in the EU's interests. The provisions also provide for the UK to be consulted during the transitional period in relation to draft EU acts which refer to specific authorities or procedures of the member states, with a view to ensuring proper implementation of that act in the UK during the transitional period.
Regarding new free trade agreements, the new text allows the UK to negotiate, sign and ratify international agreements during the transitional period, even within areas of exclusive EU competence, provided that those agreements do not enter into force and are not applied during the transitional period.
Until all aspects of the Withdrawal Agreement have been agreed, there is no agreement to a transitional period, even though the terms of the transitional arrangement have now been substantively agreed.
European Council Guidelines on the future relationship agreement
The Council's Guidelines contain brief but constructive provisions regarding the future relationship concerning trade in goods and trade in services. As regards goods, the Guidelines state that the future relationship agreement should cover all sectors, which should be subject to zero tariffs and no quantitative restrictions, and cover rules of origin. It also provides for provisions on "appropriate" customs co-operation, preserving the parties' regulatory and jurisdictional autonomy and the integrity of the EU Customs Union.
Regarding trade in services, the Guidelines provide for the aim of allowing market access to provide services under host state rules, including a right of establishment for service providers. The Guidelines provide for the agreement to include "ambitious provisions" on the movement of natural persons as well as a framework for the recognition of professional qualifications.
Provisions are to be included in the relationship agreement on access to public procurement markets and protection of intellectual property rights. Provisions are also envisaged in the Guidelines regarding the alignment of the UK rules with EU rules on competition law and state aid, together with mechanisms to ensure effective domestic implementation and dispute settlement.
It can be seen that there are still some significant differences between the parties' positions regarding the proposed Withdrawal Agreement. It is not possible to see at present how the parties' shared objective of a soft border between Northern Ireland and Ireland and the UK's determination to safeguard the UK internal market without separate treatment for Northern Ireland, can be resolved. Until the whole of the Withdrawal Agreement has been settled, including the provisions on Northern Ireland, businesses will not have any certainty that a transitional period to the end of 2020 will apply. The aim will be for the draft Withdrawal Agreement to be progressed sufficiently for the European Council to be able to announce a finalised version following the October 2018 Council meeting. Meanwhile, agreement on the terms of the transitional arrangement provisions is nonetheless seen as a big step forward for businesses affected by Brexit.
Looking forward, the early signs regarding a future relationship agreement, as set out in the Council Guidelines, are positive, although of course the development of a relationship agreement requires prior progress on the Withdrawal Agreement.
This article is part of our Brexit series