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STEPHEN BOOTH, DAVID C. SHIELS, DOMINIC WALSH, AARTI SHANKAR

An explainer

12/2018

The Proposed UK-

EU Brexit Deal

Stephen BoothDirector of Policy and Research

Open Europe is a non-partisan and independent policy

think tank. Our mission is to conduct rigorous analysis

and produce recommendations on which to base the

UK’s new relationship with the EU and its trading

relationships with the rest of the world. We aim to

ensure that Government policy and public debate is

rational and well informed.

In the wake of the UK’s vote to leave the EU, our

programme of research and consultation will focus

particularly on:

• The UK’s new relationship with the EU, including

trade, security and political cooperation.

• The most important opportunities for new trading

relationships with nations outside the EU.

• Productive international cooperation across areas

such as immigration, research and development,

cross-borderinvestmentandinancialservices.

Our starting point is the promotion of democratically

grounded economic, trade and investment policies

which foster growth, employment and freedom under

the rule of law. Guided by these free market and liberal

principles, we are committed to an open Europe and an

open Britain.

Ofices

Authors

Open Europe

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@OpenEurope

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Edited by Henry Newman, Open Europe

Director

Copyright © Open Europe 2018

Aarti ShankarSenior Policy Analyst

Dominic WalshPolicy Analyst

David C. ShielsPolicy Analyst

Executive Summary 2

What are the implications of the UK-EU Deal? 3

The backstop 3

The Political Declaration on the future UK-EU relationship 5

Introduction 7

The Withdrawal Agreement 8

The Transition 8

Would the extended transition differ from the original one? 9

How likely is an extension to the transition period? 10

The backstop 10

Common Travel Area 11

Customs and regulatory issues 11

Dispute Settlement mechanism 13

New Rules 14

Level Playing Field commitments 14

Implications for UK trade policy 16

Review mechanism 17

The Political Declaration 18

Movement of goods 19

Services 20

Free movement of people 20

Level Playing Field 20

Fishing 21

Governance 21

Executive Summary The UK and EU have reached agreement on the terms of Brexit. This Deal will be put to the House of Commons for a vote on the 11th December. According to some counts over 90 Conservative MPs have so far publicly opposed the Deal. Some of these may be bought off, but the momentum in Parliament is not yet with the Government. Even Labour Brexiteers plan to vote against it. However, there is some evidence that the deal is growing in popularity with the public. 1

If the vote is lost the UK will presumably attempt to tweak the Deal. There are two broad options – either seek to soften it or make it harder. Softening the Deal could include setting out explicit options to create a permanent Customs Union (Labour’s policy) or otherwise to retain membership of the Single Market and a Customs Union (as suggested by Nick Boles MP). Open Europe has proposed improving the backstop, including by creating a ‘Stormont’ Lock. Calls simply to ditch the backstop will surely be rejected by the EU at this stage. There is clearly no path to a negotiated agreement without some form of a backstop. Both a Canada (or indeed “Super Canada”) deal and a “Norway plus” relationship would require a backstop. Ultimately, the UK faces two broad Brexit choices: ● Either accept the Deal (in its current form or with minor tweaks) ● Or reject the Deal – leading to No Deal and no transition

Neither a General Election nor a Referendum would fundamentally alter these choices. We explore the implications of the Deal in more detail below, focusing on the backstop which is the most problematic element. It is difficult in constitutional terms for Northern Ireland, and would not allow the UK a fully independent trade policy until a future relationship is agreed. It also creates a baseline for a future UK relationship with the EU. On the other hand, some degree of special arrangements are arguably inevitable for Northern Ireland. Brexit will lead to divergence between the UK and EU. Northern Ireland could either remain in alignment with Ireland, so moving away from the rest of the UK (and upsetting Unionists), or move away from Ireland and stay with Great Britain (upsetting Nationalists). Some form of hybrid arrangements for Northern Ireland were always likely to be an appropriate answer, but the backstop tilts those arrangements towards the EU. Equally, although Open Europe backs leaving the Customs Union and does not think it is politically sustainable in the medium term for the UK to not have control over trade policy as a non-EU member, we have also argued that we will need more time to

1 Survation , ‘No one love Theresa May’s deal, but what the public want vs. what might be acceptable are not the same’, 28 November 2018: https://www.survation.com/are-the-public-warmer-on-the-prime-ministers-brexit-deal-than-mps/

2 | The Proposed UK-EU Brexit deal: An explainer

https://www.survation.com/are-the-public-warmer-on-the-prime-ministers-brexit-deal-than-mps/

prepare to do so. Open Europe did not believe the new customs systems required would be ready by the scheduled end of the standstill transition and therefore suggested that a period in a customs union beyond that was inevitable. The backstop provides for that, but without a clear workable exit mechanism. The backstop, in certain respects takes us back to a position before the 1986 Single European Act which created the Single Market, extending the then EEC’s political powers with greater Qualified Majority Voting. We would be returning to something more akin to a customs union with a common market in goods, and the tap of future regulations turned off. Over time regulations would diverge in many areas, but goods trade could continue without tariffs or quotas. The backstop lacks a clear exit mechanism but, as the experience of exiting the EU via the deficient Article 50 is showing, even exit mechanisms can be problematic. The biggest challenge remains how the future relationship can be reconciled with ending the backstop. This question has not been resolved and is punted into the future negotiations. What are the implications of the UK-EU Deal? ● The Deal comprises a (legally-binding) Withdrawal Agreement (WA) and a

Political Declaration (PD) on the future UK-EU relationship. ● The WA is more significant, providing for various things including a transition

period, a protocol establishing the backstop, protections for UK citizens in the EU and EU citizens in the UK, and settlement of the UK’s budget contributions.

● The PD sets out the direction of travel for future negotiations. Although not binding legally, it has moral authority and political weight.

● If the WA is ratified, a standstill transition will run to 31 December 2020. This transition provides for continued UK membership of the EU’s Single Market and Customs Union. The UK will no longer be represented in EU institutions but the ECJ would have direct jurisdiction during this period.

● If the WA is not ratified, then it is No Deal and no transition. ● At the end of the transition, on 1 January 2021, three scenarios are possible:

1) A new UK-EU future relationship comes into force – this is highly unlikely since the deal isn’t expected to be negotiated by this point.

2) The UK and EU can jointly decide (before 1 July 2020) to extend the standstill transition for a single extension of up to two years (as a maximum until 31 December 2022).

3) The backstop enters into force – either on 1 January 2021 or after a transition extension – until replaced, in whole or part, by a future relationship.

The backstop ● The backstop avoids a hardening of the Irish border by establishing a UK-EU

customs union, avoiding customs checks or tariffs between the EU, NI and GB. ● The EU had previously insisted on just NI remaining in the EU’s customs union,

so creating an East-West customs border. A UK-wide customs union is a ‘win’.


● However, the backstop is problematic with respect to NI: o NI must maintain and enforce certain single market and customs union

regulations. These include EU regulations on industrial goods; agriculture, fisheries and the environment; energy efficiency; intellectual property; Single Electricity Market; VAT; and excise duties.

o This potentially creates East-West regulatory barriers to trade since GB would not be required to enforce these regulations (and could de-regulate immediately). The UK could ensure NI goods can be imported to GB without barriers, but GB goods exported to NI are likely to face regulatory checks – although these will primarily be in market checks and will be conducted by UK authorities. [Note some GB-NI animal trade is already subject to SPS checks.]

o Future EU rules in areas covered by the backstop would be considered by a Joint Committee where the UK could block the application of new rules to NI. However, NI must align with amendments to existing rules covered under the backstop. Future rules in other areas would not apply to the rest of the UK (with the exception of rules on state aid and competition).

o The backstop can only easily be terminated by joint UK-EU agreement. ● For GB and the UK as a whole, the backstop is a much looser relationship than

the Single Market: o The UK would be out of the Single Market for services. Free movement of

people would end. The UK would be out of agricultural and fisheries policies. There would be no requirement to make budgetary contributions and the UK could keep all customs revenue raised on imports from outside the EU.

o On so-called ‘level playing field’ issues, the UK would no longer be subject to any future EU social, employment or environmental laws. It would maintain existing EU standards in these areas, although there is acknowledgment that shared principles can be achieved in different ways. However, the UK would align with future EU rules on state aid and competition.

o Level playing field issues are not subject to arbitration, so disagreements would be resolved politically not judicially.

o The ECJ will have indirect jurisdiction in the UK, where the UK aligns with EU regulation. ECJ will have direct jurisdiction in NI in certain areas where NI is required to enforce EU law – goods regulation and some level playing field issues, but not services.

o The customs union would not allow the UK to differ from EU trade/tariff policy on goods but it could strike independent deals on services, investor protections and so on, and would have some ability to resist new EU trade deals.

o The backstop only applies to customs/goods and so new regimes will be needed for aviation, financial services, data, security and foreign policy coordination.

● The backstop is hard to swallow and will inevitably become a baseline for the future relationship – this does not mean however that it cannot be improved upon. The UK loses some leverage due to the lack of a unilateral exit.

● However, unlike the negotiations of the WA itself under Article 50, it is not a case of ‘nothing is agreed until everything is agreed’. By forcing resolution on other aspects of the post-Brexit relationship in non-goods sectors, the ‘cliff


edge’ is reduced. By the time we are in the backstop most of the UK economy will be out the EU. This gives the UK more leverage than now.

● While the backstop is theoretically indefinite, it is an unhappy compromise that is unlikely to be sustainable for more than 5-10 years. The EU view it as too soft on level playing field issues given the extent of UK market access for goods.

The Political Declaration on the future UK-EU relationship ● The PD sets out a choice of options for the future, ranging from a “Canada-plus”

comprehensive Free Trade Agreement, to what might be termed a “Chequers-minus” deal depending on the degree of UK alignment with EU rules. It envisions a more distant relationship for services and would end free movement of people.

● The PD is necessarily a fudge, where future negotiations could shape a wide range of outcomes. It suggests the future would “build and improve on” the customs union in the backstop while also enabling an independent UK trade policy.

● It doesn’t set a path to a Chequers-style economic agreement and doesn’t hold out the prospect of “frictionless” trade. This is a concession from HMG, but it sets more realistic expectations of what Brexit must mean. Frictionless was not an achievable goal if the UK is to exit the EU’s single market and obtain an independent trade policy.


What is the difference between the proposed transition and the backstop? Transition Backstop Time-limit Yes – until 31 December 2020 (or if

extended to 31 December 2022). If new relationship is not ready by the end, the backstop comes into force.

No. The backstop is “intended” to be temporary, but applies “unless and until” it is superseded. Either party can apply to end the backstop, but this does not allow the UK to leave unilaterally.

Regulatory alignment on goods

Yes Northern Ireland must align with existing rules and amendments to them. Great Britain can diverge or voluntarily align to minimise NI-GB regulatory barriers.

Regulatory alignment on services

Yes No

Free movement of people

Yes No

Level playing field UK must adopt all new EU rules on level playing field issues

UK can diverge from EU social, employment, and environmental rules, but must maintain certain principles as a floor. UK aligns with future EU rules on state aid and competition.

Customs Union Yes Yes Independent trade policy

No. The UK can negotiate but not implement trade agreements.

Limited. The UK would align with the EU on external tariffs and rules of origin. UK would mirror EU trade deals for goods but could strike independent or deeper deals covering services and investment.

Dispute settlement & ECJ jurisdiction

Direct ECJ jurisdiction. EU institutions and bodies continue to have authority to supervise and enforce UK compliance with EU laws.

No direct ECJ jurisdiction in Great Britain. The ECJ has direct jurisdiction in NI for some specific areas where NI implements EU law under the backstop. A UK-EU Joint Committee polices the wider functioning of the backstop. Disputes in some areas can be referred to arbitration. Only the ECJ can interpret matters of EU law.

Financial contributions

Yes. No mandatory contribution to the EU budget. Voluntary contributions for participating in programmes.

Common Fisheries Policy

Yes. No.

Common Agricultural Policy

Yes – until December 2020, but not if extended.

No.

Northern Ireland treated the same as Great Britain?

Yes. No. Northern Ireland alone would remain aligned with EU goods regulation and the EU’s Customs Code.

UK Parliamentary supremacy

Parliament would have no scope to refuse new EU rules.

Parliament can refuse to align with new EU rules (with the exception of updates or amendments to certain existing regulations for NI, and state aid/competition rules).


1. Introduction The Deal reached between the UK and the EU on the terms of Brexit consists of two parts. The Withdrawal Agreement is the most significant aspect of the Deal. It is legally binding and provides for the standstill transition period, the backstop arrangements, protections for citizens and the financial settlement. The Political Declaration sets out the direction of travel for future negotiations. Although not binding legally it has moral authority and political weight. If the Withdrawal Agreement is not ratified, then the default position is that there is No Deal and therefore no transition period. The UK would exit the EU 29 March 2019 with no successor arrangements yet agreed between the UK and the EU. If the Withdrawal Agreement is approved by Parliament and ratified, the UK formally will exit the EU at 11pm on 29 March 2019 and enter a standstill transition that runs up to 31 December 2020. This transition provides for continued UK membership of the EU’s Single Market and Customs Union. The UK will no longer be represented in EU institutions but the ECJ would have direct jurisdiction during this period. At the end of the transition, on 1 January 2021, three scenarios are possible:

1. A comprehensive new UK-EU future relationship comes into force – this is highly unlikely since the deal isn’t expected to be negotiated by this point.

2. The UK and EU can jointly decide (before 1 July 2020) to extend the standstill transition for a single period of up to two years (up to 31 December 2022).

3. The backstop set out under the Withdrawal Agreement enters into force – either on 1 January 2021 or after a transition extension – until replaced, in whole or part, by a future relationship.

The standstill transition, which must end at the latest by 31 December 2022, and the backstop, which will come into force in the absence of a future relationship to replace it, are distinct and would represent vastly different UK-EU relationships. Essentially, the standstill transition entails greater UK obligations and deeper integration with the EU’s single market. The backstop, while problematic in respect of Northern Ireland and its open-ended nature, provides a far looser UK-EU relationship than the status quo or the transition. We discuss the key features of the Withdrawal Agreement and Political Declaration in greater detail below.


2. The Withdrawal Agreement Aside from the standstill transition period and the backstop, which is technically a “Protocol on Ireland/Northern Ireland”, the Withdrawal Agreement contains provisions in the following areas: ● Citizens’ rights, which safeguards the rights of EU citizens resident in the UK

and the rights of UK citizens resident in another EU member state. ● Separation issues , which includes establishing winding down arrangements for

outstanding administrative issues and the treatment of goods placed on the market before Brexit.

● The financial settlement, the bulk of which comprises the UK’s participation in the EU budget during the transition period in 2019-20 and any outstanding UK commitments/receipts in 2020. The settlement also covers the UK’s share of liabilities at the end of 2020, such as the cost of EU officials’ pensions. The Government estimates the net cost of the settlement to be £35-39 billion.

● Governance arrangements ● Agreement over the UK’s sovereign base areas in Cyprus ● A protocol on Gibraltar

We explore the standstill transition and the backstop and how the proposed governance arrangements apply under each of them in further detail in this report.

a. The Transition

The Withdrawal Agreement includes an agreement on a ‘standstill’ 21 month transition period, due to end on 31 December 2020. The conditions of the transition period, outlined in Articles 126-132 of the Agreement, are largely unchanged from the draft text which was published in March: ● The UK will no longer be an EU member state, and will therefore not have

voting rights or political representation in the EU institutions. 2

● However, the vast majority of EU law will continue to apply to the UK during the transition, as necessary to ensure full single market and customs union membership. These laws would apply in the same way in the UK as they would

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in any member states. If during the transition the EU amends these, or introduces relevant new laws, the UK agrees to align with the adapted legislation.

● EU institution and agencies will continue to supervise and enforce UK compliance with EU laws under the transition. The European Court of Justice

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will continue to have direct jurisdiction in the UK in these areas where the UK applies EU law during the transition. UK participation in EU regulatory agencies and bodies will occur on a case-by-case basis.

● The UK’s existing exemptions from EU laws as a member state (e.g. from the border-free Schengen zone) will be preserved. Article 127(2) also provides for

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2 HM Government, ‘Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community,’ 25 November 2018, Article 128 3 Ibid., Article 127 4 Ibid., Article 131 5 Ibid., Article 127


the possibility that the future relationship in the areas of foreign policy, defence and security co-operation may be agreed and come into effect before the end of transition, which would mean the relevant areas of existing EU law would no longer apply to the UK.

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● The financial settlement that the UK agrees to pay as part of the Withdrawal Agreement covers UK contributions to the EU budget for the period of the transition.

Unlike previous drafts, the Withdrawal Agreement includes a clause which allows for a potential extension of the transition period: (Articles 3 and 132): ● Article 3: The United Kingdom… may at any time before 1 July 2020 request the

extension of the transition period referred to in Article 126 of the Withdrawal Agreement.

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● Article 132: The Joint Committee may, before 1 July 2020, adopt a single decision extending the transition period for up to one or two years.

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Taken together, these two articles make clear that while extending the transition would be at the UK’s request, it cannot be done unilaterally – instead, it has to be agreed by the Joint Committee, which will comprise representatives of both the EU and the UK. The extension is limited to “one or two years,” as per a recent update to the text from 22 November. The language of “up to one or two years” is vague, but would suggest a maximum extension date of 31 December 2022. The Joint Committee can extend the transition for any length of time within this two-year constraint. There would be no

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legal requirement on either side to make full use of a two-year extension, and political considerations may encourage an earlier conclusion of transition arrangements. It is important to note that the extension can only be used once – Article 132 refers to “a single decision.” This rules out the possibility of a ‘rolling’ extension, or of the UK staying indefinitely in the transition phase. Equally, this requires the government to ensure it has enough time to conclude negotiations on the future relationship, or else enter the backstop. Would the extended transition differ from the original one? The transition extension would not be identical to the original transition period. In particular, while the UK would continue to make a contribution to the EU budget, it would now be considered a third country, not an EU member state, for the purposes of these contributions. The level of the UK’s contribution for the extension period

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would therefore be decided via the Joint Committee, rather than the Multiannual Financial Framework, as previously. The Common Agricultural Policy (CAP) would no longer apply to the UK, although the UK would not be able to provide greater state support for agriculture than that incurred under its membership of CAP in 2019. The

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6 Ibid., Article 127 7 Ibid., Article 3 8 Ibid., Article 132 9 Ibid. 10 Ibid. 11 Ibid.


Withdrawal Agreement also provides for the possibility that the transition could end early for foreign policy, security and defence, if the future relationship is ready in those areas. An extension of the transition period would also require the Joint Committee to “adapt” dates or periods referred to in several other articles of the Withdrawal Agreement to “reflect” the extension to the transition, as the existing dates are predicated on the transition ending on 31 December 2020. Most of the provisions

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referred to in the relevant articles are administrative issues relating to separation provisions, and often refer to dates after the current transition end date of 31 December 2020.

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It is less clear whether the UK could leave other aspects of the transition period early in the event of an extension. There is no provision in Article 132 for fishing to be ‘carved out’ of an extended transition period. There is a commitment in the Political Declaration that the parties will “use their best endeavours” to reach an agreement on fisheries by July 2020 (the deadline for a decision to extend the transition period), but this refers to an agreement being in place “for the first year after the transition period” – which could easily mean 2022 or 2023, not 2021.

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It is also unclear whether an extended transition period would apply to financial services. Again, there is no mention of a sectoral ‘carve out’ in the legally binding Withdrawal Agreement, but the Political Declaration commits both parties to “conclude” their assessments of equivalence for financial services “before the end of June 2020.”

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How likely is an extension to the transition period? It is unlikely that the UK and EU will be in a position to conclude an agreement on their future relationship by December 2020, so the Joint Committee will have to choose before 1 July 2020 whether to extend the transition or enter the backstop. If the UK government wishes to avoid the backstop, the use of the extension clause is highly likely. This is especially the case given the timing of the May 2019 European Parliament elections, and the subsequent appointment of a new EU Commission; which mean substantive negotiations may only begin in October 2019.

b. The backstop

While the EU first presented the backstop as a Northern Ireland-only solution to ensure no hard land border in Ireland, the final version is a UK-wide arrangement, with additional elements specific to Northern Ireland.

12 Ibid. 13 Ibid., Articles 51, 62, 63, 84, 96, 125, 141, 156, 157 and Annexes IV and V. For example, Articles 62 and 63 refer to a post-transition deadline of 31 March 2021 for the EU to inform the UK of the costs incurred by its continued use of EU information systems. In an extension, this would be adjusted to reflect the revised transition end date. For instance, an extended transition end date of 31 December 2022 would presumably mean Articles 62 and 63 were adjusted to refer to 13 March 2023. 14 HM Government, ‘ Political Declaration setting out the framework for the future relationship between the European Union and the United Kingdom,’ 25 November 2018, Paragraph 76 15 Ibid., Paragraph 38


The backstop therefore sets out a basic template for a UK-EU relationship that places Northern Ireland in something of a hybrid position. It is likely to act as a baseline for negotiations on the future relationship. However, the backstop also requires further negotiation and detail before it can be fully operational and raises questions about the relationship between Westminster and Northern Ireland. This section examines what commitments are made under the backstop. Common Travel Area Article 5 of the Protocol on Ireland / Northern Ireland confirms that the Common Travel Area (CTA) will continue, without affecting Ireland’s obligations under EU freedom of movement laws. This entitles British and Irish citizens to live and work in 16

both countries and confers a range of other rights and benefits. It also includes the Isle of Man and Channel Islands. It is an important recognition of the deep ties between the two countries, and the importance of the bilateral relationship. Both the UK and Irish Governments have repeatedly reaffirmed their commitment to the CTA, while the Irish Government has made clear that it believes that the CTA is secure “no matter what happens in the Brexit negotiations,” even if there is No Deal.

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Customs and regulatory issues Customs The EU initially proposed that Northern Ireland alone remain in its customs territory. This was rejected by the UK, as it would create a customs and tariff border between Great Britain and Northern Ireland. The Withdrawal Agreement instead includes provisions for a “single customs territory” covering the whole of the UK and the EU. This exempts all UK-EU trade in goods from 18

customs duties or burdensome ‘Rules of Origin’ requirements (except fisheries). Securing a UK-wide customs union is a negotiating ‘win’ for the government, which allows it credibly to state that the backstop would not impose an internal customs border within the UK. Northern Ireland alone would still remain subject to some specific customs arrangements. Effectively, while the whole of the UK remains under the umbrella of a joint UK-EU customs area, Northern Ireland would be in the EU’s Customs Union,

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and Great Britain would be in “a” customs union with the EU.

16 HM Government, ‘Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community: Protocol on Ireland / Northern Ireland’, 25 November 2018, Article 5 17 HE Adrian O’Neill , ‘The Ambassador’s Open Letter on Common Travel Area’, 27 November 2018, http://www.theirishworld.com/irish-ambassador-adrian-oneill-addresses-common-travel-area/ 18 HM Government, ‘Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community: Protocol on Ireland / Northern Ireland’, 25 November 2018, Article 6 19 See Article 15(1) of the Protocol, which states that Northern Ireland should be read as being part of the EU’s customs territory. This does not place Northern Ireland in a separate customs territory to the rest of the UK, given the creation of a “single customs territory”.


http://www.theirishworld.com/irish-ambassador-adrian-oneill-addresses-common-travel-area/

The difference between Northern Ireland and Great Britain’s customs arrangements would not necessarily be substantive. Effectively, the UK agrees that the EU’s customs code and trade commitments (in goods) would apply directly in Northern Ireland. But

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Great Britain would align with EU customs and trade rules (in goods) in order to uphold the “single customs territory.” It is only if the UK fails to comply with its obligations on customs and tariffs that any possibility of an internal tariff border between Great Britain and Northern Ireland could arise, although UK officials are confident that this could be resisted. Article 6 of

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Annex 2 allows the EU to impose tariffs or other restrictions on the movement of goods into or out of its customs territory (which includes Northern Ireland ) “in cases 22

of non-compliance by the United Kingdom…where it considers this necessary to protect the integrity of the single market.” The UK can of course prevent such remedial action if it upholds the commitments it has made. Regulations Great Britain and Northern Ireland would be subject to differing regulatory obligations under the backstop. Northern Ireland alone will apply EU regulations in the range of areas that affect trade in goods in order to maintain an open, frictionless land border with Ireland. This includes the following: ● Technical regulations for goods ● VAT and excise rules ● Agriculture and environmental regulations ● Single Electricity Market regulations ● State aid rules

Given that Great Britain would not formally apply these regulations, this raises the prospect of regulatory checks, controls and requirements on goods moving from Great Britain to Northern Ireland under the backstop. The UK and the EU agree to reduce these checks under the Protocol. Article 7(2) states that both sides will use “best endeavours” to facilitate goods moving between Great Britain and Northern Ireland. It also notes that the UK-EU Joint Committee would “adopt appropriate recommendations with a view to avoiding, to the extent possible, controls at the ports and airports of Northern Ireland.” If the UK chose to remain fully aligned with the EU’s regulatory environment, Article 7(2) provides a good faith commitment from the EU to ensure checks and controls between Great Britain and Northern Ireland are minimised. The EU has already stated that only checks on plant and animal products (Sanitary and Phytosanitary [SPS] checks) need take place at the border, and these can be done by UK officials. In other areas that might require checks – such as product compliance, VAT and excise controls and documentary requirements – the EU and UK would strive for minimal, light-touch

20 Ibid ., Article 6(2) 21 For instance, if the UK does not apply the same tariffs, Rules of Origin requirements or trade policy (in relevant areas – i.e. goods) as the EU. 22 Ibid., Article 15(1)


arrangements, conducted electronically or in-market. The full details on the exact arrangements relating to the movement of goods are not set out in the Protocol. Equally, under Article 8, the UK commits that Northern Irish goods would face no barriers to entering Great Britain: all Northern Ireland-certified products would be valid for sale in Great Britain, and UK regulatory authorities could continue to certify goods for sale in Northern Ireland, even though they would be subject to EU regulations. Interestingly, Northern Ireland hasn’t quite achieved a full single market in goods with the EU – Article 8(3) of the Protocol suggests that, except in certain areas such as veterinary controls or approvals where on-site inspections are required, Northern Irish goods destined for export to the EU should be assessed and certified by an EU member state regulatory authority. This provision has likely been included by the EU to limit the possibility for all UK-approved goods – including those not produced in Northern Ireland – gaining frictionless entry to the European market by the backdoor. Under Article 14(4), EU institutions and bodies, including the European Court of Justice (ECJ), will retain the authority in all the areas where Northern Ireland continues to apply EU law. This includes the five regulatory areas outline above, as well as customs and trade provisions (application of the EU customs code, rules on exports and imports, obligations stemming from the EU’s international agreements, trade defence instruments etc.). The European Commission and the European Court of Justice would therefore have the same authority in Northern Ireland as in an EU member state to supervise and enforce compliance with EU rules. Dispute Settlement mechanism Any disputes relating to the interpretation or implementation of the Withdrawal Agreement – and therefore of the backstop – are to be resolved politically, through the UK-EU Joint Committee which oversees the agreement. A three-month period is 23

allowed for the resolution of disputes at the Joint Committee, after which either part may refer the dispute to an independent five-member arbitration panel, with two members proposed each by the EU and the UK and a single chairperson appointed by mutual agreement. The arbitration panel has the authority to impose fines on 24

whichever side that is considered in breach of the Agreement, and, in extreme cases of non-compliance, parts of the Agreement may be suspended. The arbitration panel is required to refer issues relating to EU law to the ECJ. In such 25

cases, the Court’s ruling on that issue of European law will be binding on the arbitration panel, and the decisions of the arbitration panel are subsequently binding on the UK. A similar dispute mechanism is envisaged in the Political Declaration for any future trade agreement reached between the UK and the EU. The UK should have sought a similar binding referral to our Supreme Court on matters of UK law.

23 HM Government, ‘Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community’, 25 November 2018, Article 164 24 Ibid., Article 170-1 25 Ibid., Article 174


New Rules Where the EU adopts “a new act that falls within the scope of this Protocol” – in other words, new EU directives, regulations or laws that would have an impact on trade between Northern Ireland and Ireland or the EU – the Joint UK-EU Committee would “hold an exchange of views” on the implications of the act, and decide whether it should be adopted in Northern Ireland. The UK government could therefore resist 26

new legislation taking effect in Northern Ireland. It could also unilaterally commit to seeking an opinion from the Northern Ireland Assembly before taking a decision in the Joint Committee – this has been referred to as a “Stormont lock”. If the Joint Committee does not reach agreement within six months, the EU could take “appropriate remedial measures” against the UK. However, unlike other aspects of 27

the Withdrawal Agreement, it is unlikely to suspend the backstop even in extreme cases of non-compliance as this could result in a hard border on the island of Ireland. Unlike under EU law, it would not be able legally to compel the UK to adopt the legislation in Northern Ireland. Article 15(4) of the Protocol states that where EU law applies in Northern Ireland, it applies “as amended or replaced.” This means that if the EU updates or replaces any of the legislation which the UK has agreed under the Withdrawal Agreement to apply in Northern Ireland, this would have direct effect in Northern Ireland. These changes would not be subject to approval by the UK in the UK-EU Joint Committee. Level Playing Field commitments The “level playing field” obligations attached to the backstop relate to commitments in cross-cutting areas such as taxation, state aid and competition, social and environmental policy. The EU placed particular importance on ensuring fair competition via level playing field commitments in return for offering a UK-wide customs backstop. State aid The UK as a whole has committed to align with existing and future EU rules in state aid – except in the area of agricultural subsidies for Great Britain. This is one of the only 28

level playing field areas where the UK has committed to ongoing harmonisation with EU law. This is in line with the government’s Chequers’ plan, which called for binding provisions on state aid. However, the arrangements for monitoring and enforcing these state aid commitments would differ between Great Britain and Northern Ireland: ● In Great Britain, compliance would be ensured by an independent authority,

and any disputes would be settled in UK courts. EU institutions would not have authority in Great Britain. However, the European Commission would

26 HM Government, ‘Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community: Protocol on Ireland / Northern Ireland’, 25 November 2018, Article 15(5) 27 Ibid. 28 Ibid., Annex 4, Article 7


cooperate with the UK independent authority, and would be able to bring cases before the UK courts.

● In Northern Ireland, however, the European Commission and the ECJ would supervise and enforce compliance with EU state aid rules. They would have the same authority in Northern Ireland in this area as they would in a member state.

Articles 13 and 14 of Annex 4 to the Protocol also set out arrangements where the EU could trigger dispute settlement in the UK-EU Joint Committee, with the possibility of this going to international arbitration. If the EU “considers that application or 29

implementation” of relevant state aid rules by the UK “threatens to seriously undermine the equal conditions of competition” between the UK and the EU, it can seek consultation in the Joint Committee. If the Joint Committee does not agree a 30

solution within 30 days, the EU can “adopt interim measures.” Competition The UK as a whole commits to key principles of free and fair competition in its trade and investment relations with the EU under Article 17-20 of Annex 4 to the Protocol. These “reflect concepts of Union law”, and the UK commits to using the criteria set out in EU law, and all relevant acts adopted by the EU, as “sources of interpretation” when applying these principles. This implies ongoing alignment with EU rules in this area. Implementation of these commitments would be monitored by an independent UK authority and enforced by domestic courts. These obligations are not subject to independent arbitration. Taxation The UK as a whole commits to good governance in taxation, including continuing to apply global standards on transparency and exchange of information. It also commits 31

to maintaining in domestic law provisions relating to EU Directives on administrative cooperation on tax, prevention of tax avoidance practices, and prudential supervision of credit institutions – as these stand at the end of the transition. The UK also “reaffirms its commitment” to the EU’s Code of Conduct on business taxation. The taxation commitments do not deal with taxation rates. The UK-EU Joint Commitment would “determine the measures necessary” to ensure the UK upholds these commitments, but these are not subject to arbitration. Environmental protection The UK has broadly agreed not to reduce environmental protections, regulations and practices below EU standards as they are at the end of the transition. However, it has 32

not committed to follow future EU rules in these areas, nor to keep the existing stock of environmental protection legislation in its current form. This applies to the UK as a whole, although Northern Ireland alone does agree to follow specific EU Directives on

29 Ibid., Annex 4, Article 14(3b) 30 Ibid., Annex 4, Article 13 31 Ibid., Annex 4, Article 1 32 Ibid., Annex 4, Article 3


industrial emissions and greenhouse gas emission allowance schemes to ensure the full functioning of the Single Electricity Market. In certain areas, the UK-EU Joint Committee will determine the floor of UK commitments – for instance, this applies to determining the reduction of certain emissions. The UK has also agreed that its future environmental legislation will 33

respect key principles that the EU applies, such as the precautionary principle. The UK also commits to implementing its own carbon pricing system of “at least the same effectiveness and scope” as the EU’s. Commitments in these areas would not be subject to arbitration, and would instead be monitored and enforced domestically in the UK. Social and employment policy The UK commits not to reduce labour and social protections below EU standards as they are at the end of the transition. This means for instance that the UK agrees not 34

to scrap the Working Time Directive. However, it does not agree to follow future EU laws in this area, for instance if the EU were to introduce new legislation on working time. The UK’s commitments in this area would not be subject to arbitration, and would instead by monitored and enforced by domestic authorities. Implications for UK trade policy The backstop imposes constraints on the UK’s independent trade policy in respect of goods. This is because the UK commits to: ● “Align” its tariffs and customs rules with the EU’s Common Customs Tariff

(CCT) – this means the UK cannot independently liberalise the tariffs it 35

imposes on third country goods ● “Harmonise” its trade policy with the EU’s Common Commercial Policy (CCP) in

all areas necessary to create the “single customs territory” – this means the 36

UK must align its import/export policy with the EU, and apply the same preferential conditions for goods coming from countries with Free Trade Agreements with the EU

● Align with the EU’s Generalised Scheme of Preferences (GSP), which allows preferential access for goods from developing countries 37

● Ensure its WTO Schedules are “fully aligned” with the EU – these Schedules 38

set out the UK’s rights and obligations to its WTO partners. It also agrees to cooperate with the EU on sharing out existing Tariff Rate Quotas at the WTO – this prevents the UK from unilaterally liberalising access for New Zealand beef imports, for instance.

33 Ibid., Annex 4, Article 2(3) 34 Ibid., Annex, Article 4 35 Ibid., Annex 2, Article 3 36 Ibid., Annex 2, Article 4 37 Ibid. 38 Ibid .


● Apply the EU’s trade defence regime, imposing the same anti-dumping and anti-subsidy measures as the EU 39

The UK therefore broadly agrees to mirror the EU’s trade policy on goods under the backstop. Under these conditions, the UK may also be required to open up its market to new trade partners if the EU signs new trade agreements while the backstop is in force. In theory, the UK may be able to refuse to do this, and instead continue to raise Most Favoured Nation tariffs, however this is likely to result in greater trade

40

deflection and could threaten the operation of the backstop. The UK would be able to operate an independent trade policy in services and investment. For instance, it could negotiate deeper provisions in services with existing EU trade partners. It could also negotiate and conclude discrete service agreements with other third countries, for instance in areas such as transport or data. Equally, the UK could independently negotiate investment treaties, or agreements on labour mobility and recognition of professional qualifications. Review mechanism The backstop is subject to a review mechanism which can be triggered if either side believes that the backstop is no longer needed – this is most likely to occur if agreement on a future trade agreement has been reached. The procedures for this are set out in Article 20 of the Protocol. When the review is triggered, the Joint Committee must meet within six months “at ministerial level” to consider whether the proposed agreement satisfies the commitments made under Article 1 of the Protocol. These include: ● Respecting the provisions of the 1998 Good Friday/Belfast Agreement

regarding the constitutional status of Northern Ireland ● Respecting the essential State functions and territorial integrity of the UK ● Addressing the unique circumstances on the island of Ireland, maintaining the

necessary conditions for continued North-South cooperation, avoiding a hard border and protecting the 1998 Agreement in all its dimensions

The decision on whether these commitments are met would be a political matter for resolution in the Joint Committee. It would require a joint decision, meaning there is no clear means for the UK to exit the backstop unilaterally. However, the UK and EU have committed in good faith to consider alternative arrangements to the backstop that meet the commitments on the Irish border. If the UK felt this was not being upheld in the review process, it would be able to appeal to international arbitration. There is no formal requirement on either side to take account of the views of the Northern Ireland Assembly or the North-South bodies during the review process,

39 Ibid. 40 Under Article 3(2) of Annex 2, the UK is prohibited from applying lower rates than the EU’s external tariffs. However, this does not prohibit the UK from maintaining the EU’s external tariff rate on goods from a third country, even if the EU lowers theirs. Equally the UK commits to “align” its external tariffs with the EU - this appears a weaker commitment than under the EU-San Marino custom union agreement, for example, where San Marino “shall apply” the EU’s tariff on third country goods.


although they may be consulted. Article 20 notes that “The Joint Committee may seek an opinion from institutions created by the 1998 Agreement.” There would be a strong political argument for the Joint Committee seeking the views of the Northern Ireland Assembly if it was operational at the time of the review mechanism. It may also be that an alternative agreement only supersedes the backstop “in part”. This could mean that the Northern Ireland-only provisions of the backstop could continue to apply, even if Great Britain exits the backstop arrangement. In these circumstances there may be an even stronger argument for taking into account the views of the Northern Ireland institutions as a means of informing the UK government’s position and lending it greater credibility in the review process.

3. The Political Declaration The Political Declaration is a non-binding text. Nevertheless, it serves to establish the direction of travel for the negotiations on the future relationship and carries political weight. The Political Declaration does not signpost the deep level of economic integration proposed by the UK government at Chequers. In particular, no reference is made to achieving “frictionless” trade in goods between the UK and the EU or a “common rulebook” for goods regulation. This is a concession from the UK government and sets future discussions and expectations on a more realistic path. Entirely frictionless trade is not an achievable goal so long as the UK maintains its objectives of leaving the EU’s single market and obtaining an independent trade policy, given the EU’s principle of the “indivisibility of the four freedoms.” Neither does the text provide a clear path to a Norway-plus agreement, where the UK remains integrated in the four freedoms of the EU single market. However, the inclusion of an evolution clause does allow the UK and EU to go beyond the structure of cooperation set out in the declaration, if both sides decided it was in their mutual interest to do so. The Declaration therefore sets out a spectrum of outcomes for the future economic partnership, ranging from a “Canada-plus” comprehensive Free Trade Agreement, to what might be termed a “Chequers-minus” deal. Where a final agreement falls on this scale will depend broadly on how far the UK is willing to align with EU rules, and, correspondingly, how much it would accept in terms of level playing field obligations and an indirect role for the European Court of Justice. Necessarily the Political Declaration is to some degree a fudge, which leaves many questions to be answered in the future. Most significantly, questions remain as to how the future relationship outlined in the Declaration would interact with the backstop. The commitment to consider “facilitative arrangements and technologies” to resolve the question of the Irish border offers a potential way out of the backstop’s customs arrangements but is far from a guarantee.


Movement of goods Both sides “envisage comprehensive arrangements that will create a free trade area, combining deep regulatory and customs cooperation.” The objective is for a 41

relationship that is free of tariffs and “as close as possible,” rather than “frictionless”. 42

On regulation, the document notes the potential for UK alignment with EU rules in relevant areas, in particular to allow for cooperation with the European Medicines Agency, the European Chemicals Agency and the European Aviation Safety Agency. However, there is no reference to the government’s Chequers proposal for a “common rulebook” of regulation. The declaration says the UK and EU would “build and improve on” the single customs territory set out in the backstop, while “respecting the integrity of the [European] Union’s single market and the customs union”. At the same time, there are several 43

references to the “development of an independent trade policy by the United Kingdom”, which is seemingly in tension with a long-term UK-EU customs union. 44

Elsewhere, the declaration notes, “The Parties envisage making use of all available facilitative arrangements and technologies” as part of the future customs agreement, including in order to address the Irish border. This leaves open the possibility of 45

considering a deep customs facilitation agreement, or a modified version of the UK government’s Maximum Facilitation proposal, rather than a customs union in negotiations on the future relationship. Taken together, the declaration notes a “spectrum of different outcomes” for checks and controls on bilateral trade in goods is possible. While a Chequers-style 46

“frictionless” agreement on goods is not signposted, the declaration suggests that the UK and EU could ensure fewer barriers to market access if the UK agrees to align with EU rules. Compatibility with the backstop It is not clear how the proposals for an economic partnership set out in this document would meet the criteria necessary to supersede the backstop. The document states both sides’ “determination to replace the backstop solution on Northern Ireland by a subsequent agreement that establishes alternative arrangements for ensuring the absence of a hard border on the island of Ireland on a permanent footing.” The 47

language has strengthened slightly – the previous outline declaration noted both sides’ “intention” to replace the backstop. It also states that trade and investment facilitation should respect the integrity of the UK’s internal market.

41 HM Government, ‘ Political Declaration setting out the framework for the future relationship between the European Union and the United Kingdom,’ 25 November 2018, Paragraph 22 42 Ibid ., Paragraph 20 43 Ibid., Paragraph 23 44 Ibid., Paragraph 4, 17 45 Ibid., Paragraph 27, 28 46 Ibid., Paragraph 28 47 Ibid ., Paragraph 19


It notes that “facilitative arrangements and technologies will also be considered in developing any alternative arrangements for ensuring the absence of a hard border on the island of Ireland on a permanent footing.” The leaves a path for the UK government to propose technological solutions, in the vein either of its Maximum Facilitation proposal or its Facilitated Customs Arrangement, to ensure an open Irish border which could replace the backstop’s arrangements for customs. No further role is set out for Northern Ireland institutions in determining whether or not the conditions for replacing the backstop have been met. Services The Political Declaration broadly sets out traditional third country arrangements in services. It states both sides’ intention to “[build] on recent Union Free Trade Agreements,” but is thin on detail. 48

In financial services, both sides commit to assessing equivalence before the end of June 2020 – the intention is therefore for an equivalence regime to be ready to be phased in at the end of the transition. The declaration allows for a data adequacy decision for the UK, and aims to ensure this can be adopted by the end of 2020 – again allowing for this framework to be phased in at the end of the transition. Both sides commit to establishing a Comprehensive Air Transport Agreement, ensuring “comparable market access” for road transport, and agreeing bilateral agreements on rail transport. Free movement of people The Declaration specifically notes “the ending of free movement of people between the Union and the United Kingdom.” 49

The provisions on mobility are thin, recalling commitments to “non-discrimination” between member states, and “full reciprocity”, which means that EU individual member states will not cut bilateral deals with the UK on immigration. The Common Travel Area between the UK and Ireland remains protected, however. The declaration therefore resembles traditional free trade agreements’ provisions on mobility, with the parties aiming to ensure “the temporary entry and stay of natural persons for businesses purposes in defined areas.” Both sides also aim to provide visa-free travel for short-term visits, and consider different conditions to entry for study, research and youth exchanges. Level Playing Field The Political Declaration says that the future relationship may “build on” the level playing field commitments agreed in the Withdrawal Agreement with “regard to the scope and depth of the future relationship”. This allows a route for the EU to demand 50

48 Ibid ., Paragraph 29 49 Ibid ., Paragraph 4 50 Ibid., Paragraph 79


deeper level playing field obligations if the UK chooses to pursue deeper regulatory alignment under the future relationship. Fishing A future agreement on fisheries, covering access to waters and quota shares, will be established “within the context of” the overall economic partnership. However, this 51

does not mean that fishing rights will be negotiated as part of the trade agreement, and falls short of the “no fish, no deal” commitment that some EU member states were reportedly pushing for. The declaration notes that the UK and EU will “use their best endeavours” to conclude the fisheries agreement by July 2020 – the same deadline as is required for a decision 52

to extend the transition period, as set out under the Withdrawal Agreement. Governance The document states that the overarching institutional framework for the UK-EU partnership could be an Association Agreement – this was a clear ambition of the 53

European Parliament and was suggested by the UK government in its July White Paper on the future relationship. The Declaration leaves open the possibility that some discrete bilateral agreements could sit outside this structure, subject to other governance arrangements. The governance architecture of the future relationship is broadly expected to follow that set out within the Withdrawal Agreement.

51 Ibid ., Paragraph 75 52 Ibid ., Paragraph 76 53 Ibid ., Paragraph 122


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