Open Europe responds to the draft Withdrawal Agreement

16 November 2018

The British Cabinet agreed in principle the terms of the negotiated Withdrawal Agreement this week. This could take the UK one step closer to an orderly exit from the EU in March next year – but, crucially, a number of significant political obstacles remain ahead. The succession of government resignations yesterday, and above all the departure of a second Brexit Secretary, raises doubts about whether there is sufficient support in the UK for this agreement. Equally, it remains far from clear how the Prime Minister will manage to get her deal past parliament. All of this means that the possibilities of a renegotiated deal, or a No Deal exit, cannot yet be ruled out.

In comparison to earlier drafts of the agreement, important progress has been made. The Prime Minister’s commitment to ensure no customs border between Northern Ireland and Great Britain has largely been upheld, given the whole of the UK will now be in a joint UK-EU customs area. The European Commission therefore substantially moved from its previous position that the customs backstop could only apply to Northern Ireland. However, the UK did not manage to secure a unilateral exit mechanism from the backstop, and problematic Northern Ireland-specific customs and regulatory arrangements do remain.

Elsewhere, the UK has managed to obtain relatively favourable conditions on level playing field commitments in exchange for securing an all-UK customs union. These broadly mirror what the government set out in its Chequers proposal, although without the proposed level of frictionless access. On the future relationship, the current outline of the Political Declaration remains very thin. This is expected to be developed further in advance of the November summit. Without greater detail, the arrangements set out in the backstop are being viewed in isolation, and the government is in a weaker position to argue the backstop need never be used.

Open Europe examines below what the UK and EU have agreed on the Northern Irish backstop and the future relationship. We will examine further details of the draft agreement in future blogs.

The backstop

Customs

The inclusion of a single customs territory for the whole of the UK and the EU represents a significant concession to the UK and addresses the first of the tests set out by the Prime Minister in her statement to the House of Commons on 22 October. The Withdrawal Agreement now explicitly states that “Northern Ireland is in the same customs territory as Great Britain.” However, Northern Ireland still remains subject to different customs arrangements to the rest of the UK: while Great Britain will be in ‘a’ basic customs union with the EU, Northern Ireland will essentially be integrated in ‘the’ EU Customs Union. Northern Ireland alone will apply the Union Customs Code (UCC), for instance. Elsewhere, despite the creation of a joint customs area, Article 15(1) shows that Northern Ireland alone would formally remain in the EU’s customs territory (though it is written in a convoluted way). This raises the risk that if the UK-EU Customs Union under this backstop were to end, Northern Ireland could remain in the EU’s Customs Union and subject to EU trade policy.

There is also some debate about whether the original backstop has been eliminated, or whether it has merely been complemented by the all-UK customs union. Article 6, Annex 2 of the Protocol states that the EU may impose tariffs or other restrictions on the movement of goods into or out of its customs territory “in cases of non-compliance by the United Kingdom…where it considers this necessary to protect the integrity of the single market.” This implies that there could be certain circumstances where the EU could demand East-West checks for customs purposes. Overall there is ambiguity and disagreement about the interpretation of some key passages, a fact reinforced by conversations with officials close to the drafting. Given that the backstop is already politically controversial, this could cause problems for both sides when negotiating the future relationship.

Regulations

Another important question relates to the potential for regulatory divergence between Great Britain and Northern Ireland. The Protocol is based on a principle of “maintaining full alignment” between Northern Ireland and the EU – this is how the EU interprets the commitment made in the December 2017 Joint Report, and is in line with the draft Withdrawal Agreement text it produced in February this year. Under the terms of the backstop, Northern Ireland alone will remain aligned to EU rules in a number of areas as necessary to avoid a hard border – Annex 5 of the Protocol lists the provisions of Union law applying to Northern Ireland, and amounts to some 68 pages.

In recognition of the Prime Minister’s longstanding pledge “to ensure full continued access for Northern Ireland’s businesses to the whole of the UK internal market” however, Article 7 states that “nothing in this Protocol shall prevent the United Kingdom from ensuring unfettered market access for goods moving from Northern Ireland to the rest of the United Kingdom’s internal market.” It goes on to state that a product originating in Northern Ireland would be “presented as originating from the United Kingdom when placed on the market in Great Britain.” However, consistent with the Prime Minister’s recent statements, it does not say the same about goods moving from Great Britain to Northern Ireland. Article 7 also states that the EU and the UK shall use their “best endeavours” to facilitate trade between Northern Ireland and the rest of the United Kingdom, and that the Joint Committee (which is established by the Withdrawal Agreement) shall keep this under review with the aim of avoiding “to the extent possible” controls and checks at the ports and airports of Northern Ireland. The EU’s guidance note states that “There would be a need for some compliance checks with EU standards…The EU and the UK have agreed to carry out these checks in the least intrusive way possible.” For goods these checks could take place “in the market,” while checks on agricultural products at ports and airports would be increased.

It is also clear that under the terms of the backstop, EU agencies and institutions would continue to have an important role in Northern Ireland in the range of areas where it continues to apply EU rules. For instance, the European Commission will “continue to enforce” state aid rules in Northern Ireland. Elsewhere, Article 14(4) of the Protocol gives the European Court of Justice (ECJ) jurisdiction in Northern Ireland with regard to the EU customs code, technical regulations, agriculture and the environment, the single electricity market and state aid.

In October, the then Brexit Secretary Dominic Raab said that any regulatory divergence between Northern Ireland and Great Britain must “carry the consent” of the Northern Ireland institutions – consistent with Paragraph 50 of the December Joint Report. However, the Protocol does not envisage any direct role for the Northern Ireland Assembly in oversight of the backstop arrangements, merely acknowledging the “roles, functions and safeguards” of the Northern Ireland Executive, the Assembly and the North-South Ministerial Council provided in the 1998 Good Friday Agreement. Indeed, Dominic Raab’s concern about the proposed regulatory regime for Northern Ireland was the first reason cited for his opposition to the Withdrawal Agreement in his resignation letter to the Prime Minister. Instead, the operation of the Protocol would be overseen by the Joint Committee, which will have a duty to see that the conditions for North-South co-operation are maintained.

Exiting the backstop

The Protocol downplays the constitutional implications of the backstop. Article 1(4) of the Protocol confirms that the “objective” of the Withdrawal Agreement is “not to establish a permanent relationship between the Union and the United Kingdom,” and adds, “The provisions of this Protocol are therefore intended to apply only temporarily.” However, it then clarifies that they apply “unless and until they are suspended, in whole or in part, by a subsequent agreement.” And according to Article 2 of the Protocol, a future agreement may supersede it only “in part,” keeping open the possibility that some Northern Ireland-specific elements could remain even after the full future agreement enters into force.

Article 20 of the Protocol also contains a review mechanism. This provides the UK with a potential exit from the backstop arrangements, though it is not the unilateral mechanism for which former Brexit Secretary Dominic Raab argued. It states that after the end of the transition period, if either the UK or the EU believes that the Protocol, “in whole or in part,” is no longer necessary to prevent a hard border, then it may notify the other party. The Joint Committee will then meet to consider this notification within six months, and in doing so may “seek an opinion” from the institutions created in the 1998 Agreement (i.e. the Northern Ireland Executive and Assembly, the North-South Ministerial Council and the British-Irish Intergovernmental Conference). The Committee is not obliged to consult these institutions, although presumably the UK representatives on the Committee would push for it to do so. If the UK and EU, through the Joint Committee, then decide that the backstop is no longer necessary, then it shall cease to apply – again, “in whole or in part.” There are also commitments to negotiate a future relationship in “good faith.” Nevertheless, it is hard to interpret all this as adding up to a clearly defined exit route for the UK.

As a separate option to introducing the backstop in the first place, the Withdrawal Agreement makes it possible for the UK to request an extension of the transition period. Under Article 132 of the Withdrawal Agreement, referred to in Article 3 of the Protocol, the UK has the right to request a single extension of the transition at any point before 1 July 2020. The end date of the extension would be written into the agreement, but is not yet determined. The text refers to “[31 December 20XX],” but the square brackets suggest that this is yet to be locked down. The UK therefore secured its ambition to ensure the transition period can be prolonged, to delay or prevent the entry into force of the backstop. However, this is not an open-ended arrangement and cannot be used on a rolling basis during negotiations for the future partnership. If the UK triggered an extension of the transition rather than the backstop, free movement of people would continue to apply and the UK would contribute to the EU budget.

A UK-EU customs union – the basis of future relations?

EU negotiator Sabine Weyand reportedly told EU27 diplomats earlier this week that the draft Withdrawal Agreement text “requires the customs union as the basis of the future relationship.” The outline of the political declaration on future relations also notes that future customs arrangement would “build on” both the single customs territory and the level playing field commitments laid out in the Withdrawal Agreement– this was reportedly added following the October European Council summit which had made no decisive progress in negotiations, without the knowledge of the former Brexit Secretary, Dominic Raab.

A UK-EU customs union is likely now to act as the baseline of the future bilateral arrangement, at least in the medium term. Under the terms of the Irish Protocol, the UK and EU will remain in either a customs union under the transition, or the “single customs territory” backstop, until a joint decision by the Joint Committee that agrees the commitments to protecting the unique circumstances in Ireland and Northern Ireland have been met in another way. The EU therefore holds a veto over whether or not another agreement has responded to the joint obligations regarding the island of Ireland. Given the bloc’s longstanding opposition to purely technical customs and facilitation arrangements on the Irish border, a customs union will de facto act as a starting point for the future relationship.

However, neither the UK nor the EU has an interest in the future relationship resembling exactly the terms of the customs backstop – the Prime Minister has stressed that the arrangement remains politically unpalatable for both parties.

For the UK, the customs union under the backstop would fail to deliver frictionless trade in goods, even within its own sovereign territory. Goods moving between Great Britain and either Northern Ireland or the EU would face documentary requirements and regulatory and customs controls. To avoid this, additional bilateral agreements would need to be negotiated on customs security procedures, VAT, sanitary and phytosanitary checks, and haulage, as well an arrangement to harmonise regulations in goods. Achieving this would mean the UK would obtain the objectives of its Chequers plan in future negotiations.

Elsewhere, EU member states are likely to push for stronger ‘level playing field’ conditions to ensure fair competition, in exchange for granting the UK long-term tariff-free access to the EU market. Reports suggest France and Germany are among those most wary about allowing the UK the flexibility to obtain a competitive advantage over EU businesses, while benefiting from preferential trading arrangements. Indeed, one of the reasons behind Weyand’s remarks to EU27 diplomats may be that she had to justify an agreement that potentially gives the UK preferential market access in goods, with limited obligations. If such a backstop arrangement were to come into force, it is likely to be politically unsustainable for the EU member states.

Level Playing Field commitments under the UK-EU customs backstop

The most robust level playing field provisions in the UK-EU customs backstop relate to state aid – it is worth remembering that the UK sought dynamic alignment with EU state aid rules under its own Chequers proposals. The draft text sets out that the UK would follow in line with EU state aid law, and would create an independent authority to enforce this. Decisions of this authority would be subject to the jurisdiction of UK courts, but the ECJ would have legal standing in UK courts.

In other level playing field areas under the backstop, the UK has secured less binding provisions. For instance, on taxation, the UK agrees its domestic provisions will maintain standards set out in existing EU directives, and elsewhere pledges to good governance and upholding global standards. In environmental and social policy, the UK accepts non-regression of existing EU standards, including a system for carbon pricing, but this would not mean following future EU rules. It also agrees that this would be monitored and enforced by domestic authorities. But in both areas, commitments would not be subject to arbitration.

The draft text does leave open the possibility that the Joint Committee could “modify” these rules “in order to lay down higher standards,” but this would presumably need to be a joint decision by UK and EU representatives.

Elsewhere, the UK obtained an exemption for fisheries under the backstop – EU member states including France, Spain, Ireland and Denmark were among those seeking commitments on fishing rights in return for a customs union.

Member States are currently reviewing the terms of the agreement. It remains possible that the EU27 could demand stricter level playing field provisions within the Withdrawal Agreement itself – as well as, of course, the price for any future relationship which could replace the backstop. It is interesting, for instance, that French Economy Minister Bruno Le Maire yesterday said, “Let’s be careful, we must make sure the tax rules, the environment norms that are valid within the single market are respected by the UK. Let’s not rush into it. We will make sure to defend France and European interests and norms.”

Outline Political Declaration on the future relationship

Alongside the Withdrawal Agreement is a very thin ’Outline Political Declaration’ on the framework for the future UK-EU relationship.

Former Brexit Secretary Dominic Raab had previously told the House of Commons that “there must be a firm commitment in the Withdrawal Agreement requiring the framework for the future relationship to be translated into legal text as soon as possible.” Whilst the Withdrawal Agreement does contain some links to the political declaration (and vice versa), it is difficult to see how they meet this “firm commitment” test. Article 184 of the Withdrawal Agreement contains a clause requiring both parties to negotiate the future relationship referred to the political declaration to “their best endeavours” and “in good faith.” It is unclear how this can be enforced in practice, and both fall far short of the “firm commitment” which Dominic Raab hoped to achieve.

Some expected the political declaration would take the form of a “menu” or “list” which would point to multiple different options for future bilateral relations. This has not turned out to be the case with the text that has been released – instead, the outline political declaration is open-ended, short and lacking in concrete detail. This is in part because of the sequencing of negotiations, which has left discussion on the future arrangement largely undeveloped. But it is also because the future framework has not yet been finalised in negotiations with the EU27; a more detailed text is expected before the European Council Summit on 25 November. The existing document leaves open a range of potential options, including an integrated relationship building on elements of the government’s Chequers proposal. The text also specifically refers to the “possibility to review the relationship” – though this seems less robust than earlier rumoured EU proposals for an ‘evolution clause.’ The publication of the more detailed text may provide the UK with additional assurances that the proposed backstop will indeed be superseded by the overall UK-EU relationship. At present, the lack of detail on the future relationship means that the terms of the backstop are being seen in isolation.

The current declaration calls for the creation of a “free trade area,” as the government’s Chequers plan did. However, rather than a “common rulebook,” this would be underpinned by “deep regulatory and customs cooperation.” Elsewhere, it suggests simply “taking into account” possible regulatory alignment, which is a much weaker commitment. This is unsurprising, given the EU’s well-established objections to the regulatory proposals tabled at Chequers.

The government’s Chequers plan had also proposed a close new partnership with the EU for cooperation on foreign policy, security and defence. These proposals were much better received in the EU than those for the economic partnership, and were relatively uncontroversial in the UK. The declaration similarly proposes close cooperation – for instance, the UK’s participation in the Common Security and Defence Policy would be done on a “case by case” basis and through a Framework Participation Agreement (FPA), similar to that currently in place for Norway. However, on extradition, it is clear that the UK will not be able to maintain access to the European Arrest Warrant (EAW) after the transition period, as Michel Barnier has previously said.

The publication of the full political declaration ahead of this month’s European Council summit is expected to offer more insight into the broad outline of the future relationship. However, it is not clear whether this will be sufficient to provide political cover for the government to get it through parliament. Even if parliament did ratify the Withdrawal Agreement and outline political declaration, the latter – as it stands – does not give the Government a clear mandate to pursue a specific future relationship.

An open-ended declaration is potentially useful to the EU27. The EU27’s unity over the divorce talks has been impressive, and for the moment the political declaration allows this unity to be preserved. It is also worth remembering that the future relationship will be negotiated by a different European Commissioners and ratified by a different European Parliament and, most likely, a different European Council. Open-endedness therefore gives the EU more room to manoeuvre.

No deal remains a possibility

While the cabinet has agreed the draft text in principle, a number of important events lie ahead before the UK and EU can announce the formal conclusion of the Withdrawal Agreement. Crucially, the UK parliament must ratify the agreement before it can enter into force. However, the parliamentary arithmetic, internal divisions in the Conservative party, and the withdrawal of the DUP’s support, all mean obtaining a majority in the Commons for the deal is far from guaranteed. It is also important to recognise the draft agreement has not yet received political support from EU member states. The default outcome of a No Deal exit, which risks significant short-term economic disruption for the UK and the EU, therefore cannot yet be ruled out. The government should therefore begin implementing contingency No Deal plans in parallel to pursuing a negotiated exit.

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