Hopes of the EU and UK reaching a relationship agreement have been improved in March 2018 by means of progress in relation to the Withdrawal Agreement and the publication by the European Council of draft guidelines for the negotiation of a future UK/EU relationship agreement. Further, the draft Withdrawal Agreement includes the terms of the proposed transitional arrangements. It is to be hoped that agreement can be reached on the transition terms and that the Council Guidelines can be adopted at the council meeting scheduled for 22 and 23 March.
Draft Withdrawal Agreement
The draft Withdrawal Agreement (draft dated 28 February 2018) is notable not least for the proposed arrangements concerning the border between Ireland and Northern Ireland. In December 2017, the EU/UK Joint Report stated a default position in respect of the Ireland/Northern Ireland border that "in the absence of agreed solutions" in the context of the overall EU-UK relationship, the UK would maintain "full alignment" with the rules of the EU single market and the Customs Union for purposes of supporting North-South cooperation, the all-island economy and protecting the 1998 Belfast Agreement. In addition, the Joint Report stated that, in the absence of agreed solutions, the UK would ensure that no new regulatory barriers develop between Northern Ireland and the rest of the UK. Please see our briefing note on the commencement of the second phase of the Article 50 negotiations, the European Council Guidelines of 15 December 2017 and the Joint Report.
A Protocol to the draft Withdrawal 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 proposed solution of drawing the border in the Irish Sea for purposes of trading in goods as between the EU and UK. This implies a rejection of the 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.
The EU appears not to be willing to negotiate solutions on these lines, and indeed it is hard to see how either proposal would completely remove the need for some physical border infrastructure. Moreover the second proposal, concerning a "customs partnership", is 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. 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, if the proposed Protocol on the Northern Ireland border is not accepted, 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 the UK to continue to be treated as if it were an EU Member State, for the purposes of the EU Treaties and EU law, until 31 December 2020. The EU draft of the transition terms was published on 7 February 2018 and the UK published a policy paper and draft revised text on 21 February 2018.
The EU proposals envisage the UK complying with the obligations of an EU Member State but without having any representation in the EU institutions and agencies, during the transitional period. By contrast, the UK paper proposes amendments giving the UK rights to participate in EU meetings similarly to EU Member States, obliging the EU to submit copies of proposed new EU legislation to the UK, establishing a joint committee that would decide whether new measures are within the scope of the transitional terms and any adaptations that may be necessary, and requiring the EU to consult with the UK on sanctions policy and common fisheries policy matters. The UK further seeks an extension of the duration of the transitional terms beyond 2020 to the extent necessary to prepare and implement the systems supporting the new UK/EU relationship.
The UK government also wants the transitional terms to state that the EU's third country agreements will apply to the UK, whereas the EU position is that the benefit of those agreements cannot be given in such an UK/EU agreement, but would require the support of the relevant third countries. Finally, the UK does not clearly accept the principle of continuation of direct effect and supremacy of EU law during the transitional period, and states that it wishes to discuss the means by which EU law will apply to the UK during this period.
There are therefore some fairly fundamental issues that need to be resolved before the parties can announce any agreement on the terms of a transitional arrangement.
European Council draft guidelines on the future relationship agreement
The Council's draft guidelines contain brief but constructive provisions regarding the future relationship concerning trade in goods and trade in services. As regards goods, the draft 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 draft 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 draft 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 draft 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 significant differences between the parties' positions regarding the proposed Withdrawal Agreement and in particular the transitional arrangement terms. 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. It remains to be seen whether the EU might be willing to discuss these issues. By contrast, the early signs regarding a future relationship agreement, as set out in the draft Council guidelines, are positive, although of course the development of a relationship agreement requires prior progress on the Withdrawal Agreement.