The first three rounds of negotiation of the UK's withdrawal agreement between the UK government and the European Commission have now been completed. Representatives of the UK and the Commission are holding negotiation sessions for one week every four weeks, in principle, and the next round is expected to commence on 25 September 2017. In June we provided an explanation of the status of the negotiations and the EU's approach: Negotiations of the UK's withdrawal agreement and future relationship agreement with the EU. This note provides an update on the state of play and the key current issues.

The Commission is negotiating on the basis of the European Council's negotiating guidelines of 29 April 2017 and in particular, for the purpose of the withdrawal agreement negotiations, the Council's negotiating directives on 22 May 2017. The Council's guidelines provide for a two-stage negotiation process whereby negotiation of a future trade or relationship agreement will commence only when the Council considers that sufficient progress has been made on the prior negotiations for the withdrawal agreement. The Commission's lead negotiator, Michel Barnier, announced on 31 August, following the end of the third round of negotiations, that the Commission's negotiating team is still far from being able to recommend to the European Council that there has been sufficient progress to start discussions on the future relationship. It appears increasingly that the UK government is giving consideration to seeking agreement on a transitional arrangement between the scheduled exit date (29 March 2019) and the date on which a withdrawal agreement will be fully implemented.

The lead negotiators on each side presented differing overviews of the progress made, at the end of the third round of negotiations. The current state of play and the main issues of disagreement can none the less be summarised as follows:

Safeguarding the rights of EU citizens in the UK (and UK citizens in the EU): A detailed comparison table of the parties' positions has been published, and in some respects they appear not to be far apart: https://ec.europa.eu/commission/sites/beta-political/files/joint_table_citizens_rights_-_third_round.pdf. The key issue, however, is the question of whether citizens' rights should be directly enforceable in the UK (and in other national jurisdictions) or whether they would be conferred only by the acts or declarations of the relevant national authority implementing the terms of the withdrawal agreement. The EU position is that all citizens' rights in the withdrawal agreement should be directly effective and directly enforceable before domestic courts. The UK's position is that the relevant rights in the withdrawal agreement would not have direct effect in domestic law and that citizens would be granted the relevant rights under domestic legislation, and the courts would only have regard to the withdrawal agreement where the relevant legislation is not clear. Whilst the original EEC Treaty was, and currently the Treaty on the Functioning of the EU is, in large part directly effective, it would be unusual for an international agreement between nation states or supra-national bodies to have direct effect in national law.

The EU also intends that the EU citizens' rights would extend to family members who have not yet joined the relevant EU citizen in the UK. The UK's position, by contrast, is that family members accompanying or joining the EU citizen after the date of withdrawal would be treated in accordance with the post-exit immigration arrangements for EU citizens arriving in the UK after the withdrawal date.

Financial Settlement: Estimates of the UK's financial liability to the EU on withdrawal have varied significantly. This reflects the fact that almost every element of the settlement is subject to interpretation. The EU has issued a position paper on the subject but the UK has not done so and is reported not to intend to do so. However, the overall position is summarised in a House of Commons Library briefing paper, Brexit: the exit bill published on 12 September 2017. The EU expects the UK to contribute to the following financial commitments: future spending commitments under the EU budget; financial programmes to which commitments have been made under EU regulations; liabilities concerning pensions and employee benefits; certain contingent liabilities; and specific costs relating to the withdrawal process such as the cost of moving EU agencies from the UK.

The UK government apparently believes that its liabilities should not extend beyond the withdrawal date (as opposed for example to existing EU commitments that extend into a later period). The UK representatives have reportedly provided a line by line response to the EU's claims, though the Secretary of State for Exiting the EU, David Davis MP, has also acknowledged that the UK can meet moral as well as legal obligations, which are real and well specified. There are conflicting views and evidence about the UK's liability to the EU. In any event, the parties appear to have made little progress in this area and to have two very different legal positions.

The Border between Ireland and Northern Ireland: In this area, the parties appear to have made progress. Both parties are committed to avoiding a hard border between Ireland and Northern Ireland, and to maintaining the Good Friday Agreement also known as the Belfast Agreement and also the Common Travel Area as between Ireland and the UK. The Good Friday Agreement was concluded in 1998 between the UK and Irish governments and other Northern Irish political parties, and provided a framework for establishing political institutions and replacing a hard Irish land border by a soft border. It also provided a permanent right for people of Northern Ireland to hold both UK and Irish citizenships. Under the Common Travel Area (CTA), nationals of Ireland and the UK can travel freely within the CTA without passport controls, even though both the UK and Ireland maintain separate visa and immigration policies.

It is in any event an important issue for the current negotiations that, as from Brexit, the Irish-Northern Irish border will represent an EU customs border. It is difficult to see how a physical border with customs controls can be avoided, unless the EU is prepared to accept, at least in principle, the UK government's proposals on future customs arrangements, which are the subject of a separate UK position paper on a new customs regime as between the UK and the EU, and which contains some innovative proposals for dealing with customs matters. However, as trade and customs are part of the future UK-EU relationship, the EU team appears unwilling to enter this debate yet; once the EU considers that sufficient progress has been made in relation to the withdrawal agreement, this aspect of the withdrawal agreement is likely to be subject to the future relationship concerning customs.

Potential concerns have been raised regarding the Irish-Northern Irish border, that EU citizens might be able to migrate to the UK via Ireland after Brexit, by virtue of the CTA, as a result of being able to enter Ireland under their EU rights. The CTA is an inter-governmental (UK-Irish) agreement and it operates most effectively in relation to the land border because, in practice, a passport is usually needed at ports and airports (at least on departure) to demonstrate citizenship. It is possible that some revisions to the operation of the CTA will be needed with effect from Brexit to ensure that only Irish citizens can take advantage of it to enter the UK.

Ongoing Judicial and Administrative Procedures: The EU intends that the European Court of Justice ("ECJ") will continue to have jurisdiction over all cases involving the UK that are pending at the time of Brexit or that relate to facts that occurred before the withdrawal date, both as regards infringement proceedings (against the UK) after the withdrawal date and as regards preliminary references submitted by UK courts after the withdrawal date. By contrast, the UK government is concerned that the future jurisdiction of the ECJ should be limited to a specific set of cases (which are to be agreed) which are pending on the withdrawal date. The government is concerned that the ECJ should not be competent to rule on any matters concerning the UK after the withdrawal date, even where the facts occurred before the withdrawal date. The potential anomaly between the UK position and its assertion that it will ratify the UPC Agreement (which has the ECJ as its ultimate arbiter) is discussed in our briefing note on Intellectual Property Implications.

The EU intends that all ECJ judgments should have binding force in the UK after withdrawal under the same conditions as previously. The UK government, by contrast, proposes that the existing body of ECJ judgments as at the withdrawal date will be given the same binding or precedent status in UK courts as decisions of the UK Supreme Court, which can where appropriate depart from its previous judgments. Thus under the UK proposal, the Supreme Court would be able to depart from ECJ judgments that pre-dated Brexit.

As regards administrative proceedings, including European Commission investigations in, for example, competition law matters, the EU proposes that the European Commission should retain competence in relation to matters concerning the UK where the facts arose before Brexit. The UK's position is that the Commission should cease to have such competence as from the withdrawal date.

Enforcement and Dispute Resolution under the Withdrawal Agreement: The withdrawal agreement will need to include a dispute settlement system to resolve disputes between the UK and the EU arising under the agreement. The EU proposes to maintain the jurisdiction of the ECJ. By contrast, the UK government believes that in an international agreement, disputes should not be resolved by the courts of one party, but by an independent dispute resolution mechanism. It has issued a paper putting forward various alternative mechanisms that would not involve direct ECJ jurisdiction, and in particular has proposed joint committee, arbitration and reporting and monitoring models.

Various other subject areas are under discussion, on which the parties have presented position papers. For example, as regards goods placed on the market and in circulation at the time of Brexit, both parties appear to be concerned to ensure legal certainty to businesses and consumers across the EU and UK, so that such goods would be allowed free circulation across borders following Brexit under the same conditions as when they were placed on the market, in particular as regards product standards requirements. Further subjects under negotiation on which position papers have been produced, include police and judicial co-operation in criminal matters; judicial co-operation in civil and commercial matters; privileges, immunities, confidentially and access to documents; use of data and protection of information; and Euratom. Also the future life sciences regulatory position is of great importance to the healthcare industry in the UK and is considered in our briefing note on Life Sciences Implications.

The UK will cease to be part of the EU Common Customs Union as from Brexit. The EU maintains that the future trading relationship between the UK and the EU will only be discussed once sufficient progress has been made in the withdrawal agreement negotiations. However, the UK has produced a Future Partnership Paper on future customs arrangements. It has proposed two alternative approaches. The first approach involves streamlining customs arrangements between the UK and the EU using technology-based solutions to speed up customs procedures. The second approach involves establishing a new form of customs partnership between the UK and the EU, for example by establishing a regime which is aligned with the EU's current external customs border for goods that will be consumed within the EU market. Under this approach, all goods entering the EU via the UK would have paid the correct EU duties and the need for the UK and EU to introduce customs processes would be removed and goods moving between the UK and the EU would be treated as at present for customs purposes. The government's paper makes clear that these proposals are first steps towards fulfilling the objective that trade across the land border between Ireland and Northern Ireland be as seamless and frictionless as possible.

Conclusion:

Whilst the UK and the EU are aligned on certain areas of the withdrawal agreement negotiations, there are significant differences between them in other important areas. There is without doubt considerable uncertainty at present as to when and how accommodation will be reached on some of these areas of difference, and whether this can be achieved in time to allow for negotiation of a new trade relationship agreement, or alternatively to allow a transitional arrangement to be established, before the withdrawal date. There is meanwhile considerable uncertainty for businesses as to what the position will be after 29 March 2019.