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BRIEFING PAPER

Number 08834, 2 March 2020

The UK-EU future relationship negotiations: process and issues

By Sylvia de Mars, Stefano Fella, Ilze Jozepa, Dominic Webb

Contents: 1. Background 2. Process 3. The parties’ objectives 4. Key issues in the negotiations

2 The UK-EU future relationship negotiations: process and issues

Contents Summary 4

1. Background 8 1.1 Introduction 8 1.2 Article 50 and the Brexit negotiations 9 1.3 The Transition Period 10 1.4 The Political Declaration 12 1.5 Timeline and timetable 17 1.6 What is a free trade agreement? 22 1.7 Single market vs FTA? 23

2. Process 25 2.1 The EU 25

EU procedures for agreements with third countries 25 Association Agreements 26 Mixed agreements 27 Specific ‘Future Relationship’ Dimensions 28 EU negotiating team 29

2.2 The UK 30 The EU (Withdrawal Agreement) Act 2020 30 The Constitutional Reform and Governance Act 30 Implementing legislation as a de facto prerequisite 31 Consultation on UK negotiating objectives 32 The UK negotiating team 35

2.3 Terms of reference of negotiations 36

3. The parties’ objectives 37 3.1 UK objectives 37

Free trade agreement 38 Other agreements 41 Other areas of cooperation 43

3.2 EU objectives 44 The Commission’s draft negotiating directives 45 The Council negotiating directives 46 European Parliament position 50

4. Key issues in the negotiations 52 4.1 Trade in goods 52 4.2 Services 56 4.3 Financial services 61 4.4 Level Playing Field 64 4.5 Regulatory alignment 72 4.6 Fisheries 75 4.7 Data adequacy 80 4.8 Security partnership: internal security cooperation 83 4.9 Security partnership: foreign, security and defence policy 86 4.10 Governance 88

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Contributing Authors: Elena Ares, Steven Browning, Graeme Cowie, Joanna Dawson, Claire Mills

Cover page image copyright: EU and UK flags / image cropped. Licensed under CC0 Creative Commons.

4 The UK-EU future relationship negotiations: process and issues

Summary This paper sets out the background to the negotiations between the UK and EU over their future relationship. These negotiations will start in the week beginning 2 March 2020.

The story so far

Following the ratification of the Withdrawal Agreement (WA), the UK left the EU on 31 January 2020. The WA dealt with the orderly exit of the UK from the EU, including, for example, the financial settlement. The WA also included the Protocol on Ireland/Northern Ireland which ensures no return to a hard border in Ireland.

The UK and EU agreed a Political Declaration (PD) alongside the WA. This non-binding document sets out the broad framework for the future relationship between the parties. The details of the UK’s future relationship with the EU are still to be agreed. The purpose of the forthcoming negotiations is to finalise that future relationship.

Having left the EU, the UK is now in a transition period. This transition period is expected to run to the end of December 2020. The UK is still subject to EU rules during this period even though it is no longer a Member State. While the WA allows for the transition period to be extended, the Government has said that it does not want an extension (and has legislated to prevent one). Negotiations, at least on an initial agreement, will therefore have to be completed before the end of year and ratified in time for new arrangements to be in place for the beginning of 2021.

Scope of the negotiations

The negotiations are expected to cover a range of issues such as the future trade relationship, fisheries, aviation, security co-operation, governance and dispute resolution.

Timetable

Assuming there is no extension to the transition period, an agreement between the UK and EU must be negotiated and ratified by the end of 2020. Many have commented that this is a very tight timetable and have contrasted it with other trade agreements which have taken several years to negotiate. Not all commentators agree with this assessment, however, and the UK’s chief negotiator David Frost has pointed to the Treaty of Rome of 1957 (establishing the European Economic Community), which was negotiated in nine months. The European Commission has published a timetable which envisages an initial agreement by October 2020, leaving time for ratification at the end of the year, and with negotiations on outstanding issues to continue in 2021.

The Government has said that it hopes the broad outline of an agreement will be clear by the high level meeting in June between the parties envisaged by the Political Declaration and that the agreement

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could be finalised by September. If this is not the case, the Government may walk away from the negotiations.

The Role of Parliament

Parliament will have a limited formal role in negotiating and approving the future relationship with the EU. The provisions of the Constitutional Reform and Governance Act 2010 (CRAG) will apply. While in theory this gives the House of Commons the power to delay ratification of a Treaty indefinitely, in practice the CRAG powers are widely regarded as being limited. No Treaty has ever been blocked using these powers.

The original (October 2019) version of the EU (Withdrawal Agreement) Bill included provisions giving the House of Commons a role in approving the Government’s negotiating mandate and the agreements themselves. These provisions were removed from the later version of the Bill which passed into law as the EU (Withdrawal Agreement) Act 2020.

EU procedures for negotiations

The EU is conducting negotiations on the same legal basis as its other negotiations with non-EU countries. Future agreements will require approval by Member States in the Council of the EU and the European Parliament. Where agreements go beyond the EU’s exclusive competences they will also require ratification by national and (in some cases) regional parliaments.

UK objectives

The Government is aiming for a relationship with the EU “based on friendly co-operation between sovereign equals”. The Government is looking for a free trade agreement with the EU similar to that which the EU has agreed with other countries, such as Canada. This would involve no tariffs or quotas on UK-EU trade, although a few tariffs remain on EU-Canada trade under their trade agreement. The UK is ruling out regulatory alignment with the EU, jurisdiction of the Court of Justice of the EU (CJEU) and supranational control over the UK in any area of the proposed agreements. In particular, the UK will not agree to be bound by “level playing field” obligations, such as, for example, rules on government subsidies to industry, workers’ rights and environmental protection.

The Government has made it clear that the UK is leaving the EU single market and customs union and, as noted, will not agree to regulatory alignment. This will allow the UK greater economic and regulatory freedom, including an independent trade policy. It will also mean, however, greater friction in relation to trade with the EU. The Government has confirmed that there will be checks on imports into Great Britain from the EU.

The Government proposes that agreements in other areas, for example on fishing, aviation, nuclear co-operation and law enforcement and judicial co-operation, would be separate to the trade agreement.

It foresees all these agreements as distinct with their own governance arrangements—as opposed to a single overarching ‘framework’

6 The UK-EU future relationship negotiations: process and issues

agreement. The Government does not view foreign affairs co-operation as requiring a treaty framework.

The UK’s detailed negotiating position was published on 27 February 2020.

EU objectives

The EU has said it wants to have a partnership with the UK which is “as close as possible”. This would involve an economic partnership, a security partnership and co-operation on other issues. These would be under a single overarching governance structure with a dispute resolution system in which the CJEU provides interpretations of questions of EU law.

The EU agrees that the aim of the negotiations should be to ensure zero-tariff and zero-quota trade between the UK and EU. The EU is, however, only prepared to grant this “privileged” access to its market if the UK agrees to “robust” level playing field commitments and an agreement on fisheries providing continuity in access to UK waters.

The EU’s proposed security partnership would involve co-operation in foreign affairs and defence matters, as well as law enforcement and judicial co-operation.

The EU’s detailed objectives are set out in its Negotiating Directives of 25 February 2020.

Contentious areas

The inclusion of level playing field commitments is likely to be one of the main areas of contention. The UK argues that it is simply asking for the same type of deal as the EU has concluded with countries such as Canada and Japan. Furthermore, the UK argues that it has used state aid less than other EU countries and has higher standards than the EU in some areas.

The EU views the level playing field commitments as particularly important due to the size of the UK economy, its closeness to the EU and the integration between the EU and UK economies. The EU is concerned that the UK could gain an “unfair” advantage if its regulations diverge from those of the EU. The EU argues that its economic relationship with the UK is much closer than that with Canada so the Canadian agreement cannot simply be replicated for the UK.

Fisheries is also likely to be a contentious area. The EU has linked access to the single market to an agreement on fisheries in which continued reciprocal access would be upheld. The UK Government negotiating objectives document proposed annual negotiations with the EU and other neighbouring countries. These would be based on the principle of zonal attachment rather than historical fishing activity, as is currently the case.

Another point of contention could be the EU’s proposal that the security partnership provide for termination of law enforcement and judicial co-operation if the UK were to denounce the European Convention on

7 Commons Library Briefing, 2 March 2020

Human Rights or abrogate domestic law giving effect to it. The UK Government has said the agreement should not specify how the UK or EU protect and enforce human rights within their legal systems.

There are differing approaches to the proposed governance of the relationship, with the EU seeking an overarching institutional structure and the UK preferring separate agreements with their own governance structures. The role of the CJEU could be contentious, depending on whether the UK accepts a role for the court in matters of interpretation of EU law (as is the case with the WA) as distinct from an enforcement or dispute resolution role.

8 The UK-EU future relationship negotiations: process and issues

1. Background

1.1 Introduction The UK left the European Union on 31 January 2020 on the basis of the Withdrawal Agreement (WA) negotiated by the UK Government and the EU. The WA was mainly concerned with ensuring the orderly separation of the UK from the EU, including the settlement of financial obligations and the winding down of existing arrangements, as opposed to setting the terms for the future relationship between the UK and the EU. The Protocol on Ireland/Northern Ireland in the WA did cover many aspects of Northern Ireland’s future relationship with the EU. This was done in order to prevent Brexit leading to a new hard border between Northern Ireland and Ireland. However, most aspects of the UK’s future relationship with the EU are yet to be negotiated.

Alongside the WA, the UK and EU agreed a Political Declaration (PD) setting out the framework for the future relationship between the EU and the UK. This sets out objectives for the future relationship negotiations, but it is not legally binding, and the detail of the future relationship is still to be negotiated.

The EU has made clear since the UK referendum vote to leave the EU in 2016 that negotiations on the post-Brexit UK-EU relationship could only start in earnest once the UK had left the EU and become a third country (a non-EU country).

After leaving the EU on 31 January, the UK Government initially set out its proposed approach to the negotiations in a written statement by the Prime Minister.1 The European Commission published a more detailed draft mandate for the negotiations, which was formally adopted with amendments by the Council of the EU (Member State ministerial representatives) on 25 February. 2 The UK Government then published more detailed negotiating objectives on 27 February.3 The negotiations are expected to begin in the first week of March.

Context of the negotiations The UK has been part of a common system of regulation and/or common policies with the EU in many areas. For some form of co-operation to continue in these areas, the UK and the EU will need to agree new frameworks for managing this co-operation.

The negotiations will be unusual in a number of ways when compared to negotiations on trade and other areas of policy co-operation elsewhere. As highlighted in the PD, the UK and EU have built up a close economic and trading relationship over more than 45 years.4 Each

1 Written Statement, 3 February 2020 2 Commission, Draft Negotiating Directives, 3 February 2020. Council Decision

authorising the opening of negotiations with the United Kingdom of Great Britain and Northern Ireland for a new partnership agreement, 25 February 2020.

3 HM Government, The Future Relationship with the EU. The UK’s Approach to Negotiations, 27 February 2020, CP211.

4 Political Declaration, para 16

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party is an important trading partner of the other and integrated supply chains, spanning the UK and EU, have been developed. Trade agreements usually have the objective of removing trade barriers between two or more partners, and negotiations in other policy areas are also usually about bringing partners closer together. In the case of the UK and EU, this negotiation will involve creating a framework for managing a relationship that will be more distant to that of before.

The UK-EU agreement on the future relationship will increase barriers to trade regardless of how detailed and in-depth the negotiations are. As explained below (sections 1.6-1.7), in moving out of the single market and into a more regular ‘free trade’ agreement, the UK will encounter barriers in trading with the EU even where it does not change any of the rules applicable to trade from when it was a Member State. The UK could agree to follow EU rules in some areas, but if it did so there would still need to be agreement on a new framework to ensure that it followed the agreed rules in order to prevent non-tariff barriers appearing.

Existing co-operation between the EU and the UK goes beyond the economic and related spheres and what would normally be covered by a trade agreement. This has involved, for example, close judicial and law enforcement co-operation. Future co-operation in these areas could be covered by separate agreements. The PD refers to agreements in the plural, while making reference to an overarching institutional framework covering a set of linked agreements5. The EU wants to avoid a similar relationship to the one that it has with Switzerland, with which it has multiple agreements without a coherent governance structure.6 The degree of co-operation in different policy areas and the governance of the UK-EU relationship are issues to be settled in the negotiations. But in its statements, the EU has indicated there will be linkages between progress in some policy areas and greater trade access.

1.2 Article 50 and the Brexit negotiations Article 50 of the Treaty on European Union (TEU) sets out the process for the withdrawal of a Member State from the EU. It provides for a withdrawal agreement to be negotiated but also requires that the withdrawal negotiations take into account the framework for the future relationship.7

5 Political Declaration, para 118 6 See Section 3 of Commons Library Briefing Paper 8483 Brexit: Proposals for the

future UK-EU relationship, 18 April 2019. The EU has proposed a new agreement with Switzerland to bring greater clarity to the relationship and introduce a more effective dispute resolution system, but Switzerland has been reluctant to agree.

7 Article 50 (2) states: “A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union”.

10 The UK-EU future relationship negotiations: process and issues

This approach was followed in the Brexit negotiations after Prime Minister Theresa May sent the notice under Article 50 TEU in March 2017 setting out the UK’s intention to leave the EU.

The European Council adopted guidelines on the Brexit negotiations in April 2017 which noted the Article 50 requirement to take into account the framework for the future relationship. However, the guidelines stated that an agreement on the future relationship could “only be finalised and concluded once the United Kingdom has become a third country”.8

The guidelines therefore set out a phased approach to negotiations in which arrangements for the orderly withdrawal of the UK would be prioritised. A framework for the future relationship would be identified in a second phase of the negotiations.

In the end, whilst the UK and EU reached agreement on some withdrawal issues in December 2017, initial agreement on other issues (notably arrangements for the Northern Ireland-Ireland border) was not reached until November 2018. An initial version of the PD was agreed alongside the WA in November 2018. However, these texts were not approved by the House of Commons, and Boris Johnson replaced Theresa May as Prime Minister in July 2019 seeking a renegotiation.

Boris Johnson’s Government agreed revised versions of both the WA and the PD in October 2019. After gaining a majority at the General Election in December, the Government then had the parliamentary numbers to comfortably pass the European Union (Withdrawal Agreement) Act 2020 to implement the WA and enable UK ratification of it in January 2020.

The passage of the EU (Withdrawal Agreement) Act 2020 was followed by the completion of the EU’s ratification procedures enabling the WA to come into force immediately after the UK’s withdrawal from the EU on 31 January. This meant that the Article 50 process was complete.

Article 50 (2) TEU itself acknowledges the future relationship negotiations will have a separate legal basis in the EU Treaties. The future relationship negotiations will take place in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. This is the legal basis for the EU’s negotiations with third countries.

The UK will continue to be treated as a Member State for the purposes of the application of most EU law during the transition period provided for by the WA (see below). However, for the purposes of negotiations on the future relationship, the UK will be treated as a third (non-EU) country from the date of withdrawal from the EU.

1.3 The Transition Period The WA provides for a transition period until 31 December 2020. With a few exceptions EU law will continue to apply to the UK in this period, but the UK will not be represented in the EU institutions anymore. This

8 European Council (Art. 50) guidelines for Brexit negotiations, 29 April 2017.

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has also been described as an implementation period, and was conceived as a bridging period while the UK and the EU negotiate a new relationship.9

There is provision for the transition period to be extended for one or two years, but the Government has said it will not seek an extension. It has also legislated to prohibit itself from doing so in the EU (Withdrawal Agreement) Act 2020, s33.

This means that for a future relationship agreement to be ready to enter into force on 1 January 2021, it must be negotiated, signed, and ratified in line with all relevant constitutional processes on both the UK and the EU side by the end of 2020 (see section 2).

If no UK-EU agreement on trade is in place on 1 January 2021 then trade will fall back to World Trade Organization rules. No agreement in other policy areas will also mean that arrangements for UK-EU co-operation will no longer be in place, although the EU could take unilateral measures, and the UK could voluntarily align to the EU rules in some sectors to provide for some continuity.

The parties’ positions on different key issues covered in the negotiations will be addressed in Section 4 of this paper. The substantial differences between EU Membership and concluding a trade agreement will be explored in more detail below.

One further matter that will need to be addressed during the transition period, but does not need to be negotiated as part of the future relationship, is the operation of the Protocol on Ireland/Northern Ireland. Unlike the previous version of the Protocol, found in the November 2018 Withdrawal Agreement, this does not provide for a backstop solution for UK-EU trade relations. The 2018 backstop solution would have come into force at the end of the transition period in the absence of a future relationship agreement (or possibly as part of or alongside a future relationship agreement).10 The new version of the Protocol covers arrangements for Northern Ireland’s relations (rather than that of the whole of the UK) with the EU and is intended as an indefinite solution following the transition period, rather than one that the future relationship negotiations will seek to replace.

The Protocol must be made operational by means of solutions agreed in the Joint Committee overseeing the Withdrawal Agreement.11 The nature of the future trade relationship between the UK and the EU will nevertheless impact on the operation of the Protocol as it relates to trade between the Northern Ireland and Great Britain and between Northern Ireland and Ireland and the rest of the EU.

9 See Commons Library Insight, Brexit next steps: The transition period, 31 January

2020 10 See Commons Library Insight, The backstop explained, 12 December 2018. 11 See Commons Library Insight, Brexit and the Northern Ireland border and Commons

Library Briefing Paper 8713 The October 2019 EU UK Withdrawal Agreement.

12 The UK-EU future relationship negotiations: process and issues

1.4 The Political Declaration The negotiations for the future relationship are intended to be built around the framework provided in the PD agreed alongside the WA. Nevertheless a lot of the detail remains to be negotiated, and the UK and EU are not necessarily bound by the parameters it sets.

The PD represents a starting point for the negotiations. The House of Lords EU Committee report on the revised WA and PD commented that:

The Political Declaration is … in many places little more than an agenda for a discussion that has barely begun. But despite its lack of detail and precision, the Declaration is an important signpost to the shape of the future relationship, and to the structure and scope of the forthcoming negotiations.12

While the PD itself is not a legally binding document, Article 184 of the WA states that the UK and EU shall:

use their best endeavours, in good faith and in full respect of their respective legal orders, to take the necessary steps to negotiate expeditiously the agreements governing their future relationship referred to in the political declaration of 17 October 2019 and to conduct the relevant procedures for the ratification or conclusion of those agreements, with a view to ensuring that those agreements apply, to the extent possible, as from the end of the transition period.

The PD sets out broad principles for co-operation and a set of objectives for the negotiation of both a future economic partnership and a future security partnership for the EU and UK13. Alongside this it proposes that the future relationship should be based on an

overarching institutional framework covering chapters and linked agreements relating to specific forms of co-operation, while recognising that the precise legal from of this future relationship will be determined as part of the formal negotiations.

The introduction to the PD sets out the parties’ ambitions for their future relationship:

this declaration establishes the parameters of an ambitious, broad, deep and flexible partnership across trade and economic cooperation with a comprehensive and balanced Free Trade Agreement at its core, law enforcement and criminal justice, foreign policy, security and defence and wider areas of cooperation.14

The relationship will be based on “a balance of rights and obligations.” On the EU’s side, this must reflect the autonomy of the EU’s decision making, the integrity of the single market and customs union and the indivisibility of the four freedoms (free movement of goods, services, people and capital). The introduction also states that on the UK’s side, the agreement must respect the sovereignty of the UK, the

12 House of Lords EU Committee, The Revised Withdrawal Agreement and Political

Declaration, HL Paper 4, 10 January 2020, para 351 13 The Political Declaration is considered in detail in this Commons Library Briefing

Paper. 14 Political Declaration, para 3

13 Commons Library Briefing, 2 March 2020

development of the UK’s independent trade policy and the ending of free movement of people.15

It also notes that the future relationship will not involve the same rights and obligations as EU membership. Nevertheless, the new relationship will take into account the high level of integration between the UK and EU economies. The EU and UK will approach the future relationship “with high ambition with regard to its scope and depth.”16

The PD is structured in five parts:

Part I: Basis for Cooperation This sets out the basis for cooperation—or the overarching issues that underpin the negotiations and will be discussed as part of them:

Core values and rights (such as human rights and the rule of law)

Data protection

Areas of Shared Interest

─ Participation in Union programmes

─ Dialogues

On data, the PD referred to the EU’s rules allowing the Commission to recognise a third country’s data protection standards as providing an adequate level of protection, thereby facilitating transfers of data to that country. It said the Commission would begin its assessments of the UK as soon as possible after UK withdrawal from the EU endeavouring to adopt decisions by the end of 2020 “if the applicable conditions are met”.

On UK participation in EU programmes, the PD said the UK and EU would:

establish general principles, terms and conditions for the United Kingdom’s participation in Union programmes, subject to the conditions set out in the corresponding Union instruments, in areas such as science and innovation, youth, culture and education, overseas development and external action, defence capabilities, civil protection and space. These should include a fair and appropriate financial contribution, provisions allowing for sound financial management by both Parties, fair treatment of participants, and management and consultation appropriate to the nature of the cooperation between the Parties.

Part II: Economic Partnership The PD sets out objectives and principles for the economic partnership. These include the aims of agreeing “an ambitious, wide-ranging and balanced economic partnership”. This will encompass a free trade agreement, as well as wider sectoral cooperation, and will be underpinned by level playing field provisions “for open and fair competition”. It also states that the UK and EU will each retain

15 Political Declaration, para 4 16 Political Declaration, para 5

14 The UK-EU future relationship negotiations: process and issues

autonomy and the ability to regulate in line with their public policy objectives.17

The PD was revised in October 2019, with all references in the earlier November 2018 to a “free trade area” replaced with a “free trade agreement”. The European Commission Q&A on the revised texts describes this as the main change in the PD as the UK Government had “opted for a model based on a Free Trade Agreement”.

References to close UK alignment with EU rules and to a trading relationship that is “as close as possible” were also removed in the October 2019 text. This reflected a change of approach after Boris Johnson replaced Theresa May as Prime Minister in July 2019, and the removal of the “backstop” provisions in the revised October 2019 WA. The previous version of the PD referred to the provisions in the November 2018 protocol (involving a single UK-EU customs territory) as the basis on which to develop future co-operation between the UK and the EU. These provisions were dropped in the October 2019 WA and hence, were no longer referred to in the accompanying PD. In his letter to the European Commission President Jean-Claude Juncker on 2 October 2019, Mr Johnson described the backstop “as a bridge to a proposed future relationship with the EU in which the UK would be closely integrated with EU customs arrangements and would align with EU law in many areas”.18 He said that this proposed future relationship was no longer the goal of the UK Government.

Sub-sections within Part II highlight the following as policy areas where agreement will be sought. Much of this text remained unchanged in the revised October 2019 PD:

Trade in goods

Services and investment

Financial services

Digital

Capital movements and payments

Intellectual property

Public procurement

Mobility

Transport

Energy

Fishing opportunities

Global co-operation

Level playing field for open and fair competition

17 Political Declaration, paras 17-18 18 Letter from the Prime Minister to the President of the European Commission, 2

October 2019.

15 Commons Library Briefing, 2 March 2020

Trade in Goods

The PD said that the economic partnership should maintain the current situation of no tariffs or quotas on trade in goods between the UK and EU. A range of outcomes for checks and controls would be possible, depending on the final design of the customs and regulatory arrangements.

Linked to the removal of references to the single customs territory, the revised October 2019 PD acknowledges that Rules of Origin (which determine the country of origin of goods for tariff purposes) will resurface between the UK and the EU.

Services

The PD leaves the settlement of trade in services and investment open for future EU-UK negotiations. It is built on the premise that the UK leaves the single market for services and pursues regulatory autonomy. On financial services, the future basis of cooperation would be ‘equivalence’ which is different, and less extensive, than the current system of passported services. The UK and EU would accordingly assess equivalence with each other’s regulatory and supervisory regimes for financial services in order to grant access for relevant purposes. The PD states that the parties should start this process of assessment as soon as possible after the UK’s withdrawal from the EU, endeavouring to conclude these assessments by the end of June 2020.

Level Playing Field for Open and Fair Competition

The October 2019 PD includes a revised paragraph 77 on “level playing field” provisions. This is significantly more detailed than the November 2018 version. This relates to the removal of the backstop provisions in the WA which previously included level playing provisions alongside the envisaged single customs territory.

The revised paragraph includes a new opening line which states that given the EU and UK’s “geographic proximity and economic interdependence” the future relations “must ensure open and fair competition, encompassing robust commitments to ensure a level playing field”. Such commitments would be aimed at preventing regression or ensuring continuing alignment of standards in relation to taxation, environmental protection, employment, and state aid and competition policy.

The precise nature of commitments would however be commensurate with the scope and depth of the future relationship. But the paragraph states that the economic connectedness of the parties should be a consideration, and that the parties “should uphold the common high standards applicable in the Union and the United Kingdom at the end of the transition period”.

The more detailed wording relates to EU concerns that the new approach of the UK Government since Boris Johnson became Prime Minister and signalled that he would seek a Free Trade Agreement without the levels of regulatory alignment envisaged under his

16 The UK-EU future relationship negotiations: process and issues

predecessor Theresa May19 could lead to the UK seeking to compete economically with the EU by adopting different regulatory standards.

Part III: Security Partnership The future security partnership negotiations will seek agreement on the following policy areas:

Law enforcement and judicial cooperation in criminal matters

─ Data exchange

─ Operational cooperation between law enforcement authorities and judicial cooperation in criminal matters

─ Anti-money laundering and counter-terrorism financing

Foreign Policy, Security and Defence

─ Consultation and Cooperation

─ Sanctions

─ Operations and Missions

─ Defence capabilities development

─ Intelligence exchanges

─ Space

─ Development Cooperation

Cyber Security

Civil Protection

Health Security

Illegal migration

Counter-terrorism and countering violent extremism

Classified and sensitive non-classified information

The PD states that the new security partnership would take into account geographic proximity and evolving threats, such as international crime, terrorism and erosion of the rules-based international order. This would involve “comprehensive, close, balanced and reciprocal law enforcement and judicial co-operation in criminal matters”. It says this would need to be underpinned by long-standing fundamental rights commitments.

On foreign policy and defence it refers to the need for “close, flexible and scalable cooperation” that respects the autonomy of both Parties; structured consultation between the UK and EU at different levels; the exchange of information, and the need for “close cooperation in Union-led crisis management missions and operations, both civilian and

19 Mrs May indicated a willingness to commit to close alignment with the EU on state

aid and competition in particular. For example, in her speech in March 2018, Mrs May stated that: “As with any trade agreement, we must accept the need for binding commitments – for example, we may choose to commit some areas of our regulations like state aid and competition to remaining in step with the EU’s”.

17 Commons Library Briefing, 2 March 2020

military”. But there is limited detail on how such principles will be delivered.

Part IV: Institutional and other Horizontal Arrangements Part IV of the PD sets out that agreement will be needed on the institutional and ‘other horizontal’ arrangements in the future relationship, highlighting the following areas for negotiation:

Structure

Governance

─ Strategic direction and dialogue

─ Management, administration and supervision

─ Interpretation

─ Dispute settlement

Exceptions and Safeguards

In terms of structure, the PD refers to an overarching institutional framework covering linked agreements. However, it says that where appropriate the UK and EU may establish specific governance arrangements for individual areas. Governance will involve a joint EU-UK committee, and appropriate arrangements for dispute resolution. This will involve an arbitration panel, with references to the Court of Justice of the EU where an interpretation of EU law is required. This is similar to the framework established in the WA, although unlike the November 2018 version of the PD, the October 2019 version no longer proposes building on the dispute resolution and enforcement arrangements set out in the WA.

Part V: Forward Process Part V sets out some general principles on how progress will be made in developing the future relations and a structure for the negotiations on the future EU-UK relationship.

It refers to the shared EU-UK intention to negotiate a new relationship agreement that can be implemented in time for the end of 2020 (when the transition period will come to an end unless there is agreement to extend it). It says that the European Commission will be ready to propose applying relevant parts of the future relationship on a provisional basis (i.e. ahead of ratification by all parties).

It says that the UK and EU will expeditiously draw up a negotiating schedule, identifying the areas most likely to require the greatest consideration. There is a specific commitment to a high level meeting in June 2020 to take stock of progress.

1.5 Timeline and timetable The Political Declaration indicates a number of key dates by which decisions are expected, notably in relation to data protection, financial services and fisheries. It also provides for a high level UK-EU meeting to

18 The UK-EU future relationship negotiations: process and issues

take place in June 2020 to assess progress, and commits the UK and EU to using their best endeavours to get an agreement in place by the end of 2020.

The transition period lasts until the end of 2020. While the transition period can be extended, the Government has said it will not ask for it to be. If there was a request to extend the transition period, the WA states that this would need to be agreed by the UK and EU by 1 July 2020. Presuming there is no extension to the transition period, an agreement on the future relationship will need to be negotiated and ratified by the end of 2020 in order for new arrangements to be in place on 1 January 2021.

These dates provide us with a timeline for the rest of 2020:

Transition Period Timeline

The Government has said that it hopes the broad outline of an agreement will be clear by June’s high level meeting between the parties with a view to the agreement being finalised by September. But if this is not the case, the Government may walk away from the negotiations.20

The Institute for Government highlights a number of implications of the aim to complete the negotiations on the future relationship by the end of 2020:

Scope: the UK will need to limit its ambitions in the negotiations. It is unlikely that areas which impinge on Member State competence (e.g. intellectual property and mutual recognition of professional qualification) could be included (as these would require ratification in each of the Member States).

Leverage: the EU is likely to use the UK’s wish to get a deal done by the end of 2020 as leverage. If the UK wishes to reach a deal by then, it is likely that it will have to make concessions.

20 HM Government, The Future Relationship with the EU: The UK’s Approach to

Negotiations, CP211, February 2020, para 9

31 January 2020: UK leaves the EU

Week beginning 2 March 2020: negotiations start

June 2020: High level meeting between the UK & EU (Pol Dec para 141)

By end June 2020: UK and EU aim to conclude equivalence assessments for financial services (Pol Dec para 36)

Before 1 July: deadline for extending Transition Period (Withdrawal Agreement Art 132)

By 1 July: parties to use best endeavours to reach new fisheries agreement (Pol Dec para 74)

By end 2020: UK and EU aim to reach decisions on data adequacy (Pol Dec para 9)

31 December 2020: end of Transition Period, unless extended (Withdrawal Agreement Art 126)

19 Commons Library Briefing, 2 March 2020

Greater risk of no deal: the Government may decide that a deal is not worth it if large concessions are needed for a limited deal.

Negotiations beyond 2020: if a limited deal is reached in 2020, negotiations on other areas may well extend beyond 2020.

Implementation: once the deal is agreed, it will need to be implemented. Government and businesses will need time and resources to implement changes arising from any Brexit deal.21

The then Brexit Secretary, Steve Barclay, told the Lords EU Committee in October 2019 that a deal could be reached by the end of 2020 as:

The UK and EU start from a position of alignment

Compared to most free trade agreements, the parties will need to spend much less time understanding each other’s economies

The geographic proximity of the UK and EU should speed up the logistics of the negotiations

There is a legal commitment in the withdrawal agreement to work at pace.22

But many believe it will be extremely challenging to reach an agreement by the end of the year. There were nearly eight years between the first round of negotiations on the EU’s trade agreement with Canada and the agreement coming into effect (see box below). The EU’s negotiations for a trade deal with Australia started in June 2018 and are still ongoing.23

Box 1: CETA timeline

May 2009: Canada and EU announce launch of trade negotiations October 2009: 1st round of negotiations in Ottawa October 2013: Canada and EU announce that they have reached agreement in principle August 2014: Conclusion of negotiations October 2016: Canada and EU sign agreement September 2017: Provisional application of CETA Source: Government of Canada: CETA Chronology of events and key milestones

21 Institute for Government, Getting Brexit done: What happens now? January 2020,

pp25-27 22 House of Lords European Union Committee, Scrutiny of Brexit Negotiations,

Uncorrected oral evidence, 21 October 2019, Q14 23 European Commission, EU-Australia Trade Agreement: Launching trade negotiations

with Australia, June 2018

20 The UK-EU future relationship negotiations: process and issues

In January, Michel Barnier described the timeframe for the negotiations as “hugely challenging.24 Mujtaba Rahman, of the political risk research and consulting firm Eurasia, wrote:

The EU’s 27 member states will only agree on the commission’s mandate to negotiate on their behalf by the end of February. The cabinet and Whitehall will also need time to settle on a final policy. Ratification of the deal will probably take two to three months. In a best-case scenario, that leaves March to September – about seven negotiating cycles – to strike an agreement. It’s an understatement to suggest this might not be long enough.25

The Lords EU Committee noted that the transition period had initially been more than two years. This has now been cut to less than a year, but the scale of the task remains the same. The Committee concluded:

The current Government has made clear that it will not request an extension to the transition period. Yet the Political Declaration contains, for the most part, only an overview of the terms of the economic relationship, and while the two sides start from a position of alignment, the prospect of future divergence could make reaching agreement more difficult, technically and politically, than the Government allows. If agreement is to be reached by the end of 2020, both sides will have to commit from the outset to intense, continuous negotiation. But success cannot be guaranteed, and it would in our view be prudent for the Government to keep open the option of seeking an extension to the transition period, should more time be required to conclude an agreement in the best interests of both sides.26

Some commentators are, however, more optimistic that a deal can be reached by the end of the year. For example, Raoul Ruparel, a former government adviser, has written:

Contrary to popular belief, I believe negotiations in 2020 can return a clear outcome by the end of the year – subject to a few caveats. Of these, time may prove most pertinent, and may constrain the ambition with which any free-trade agreement (FTA) is produced.27

In his Brussels speech on 17 February 2020, UK chief negotiator David Frost said:

We are always told we don’t have enough time. But we should take inspiration, I think, from the original Treaty of Rome back in 1957. This was negotiated and signed in just under 9 months – surely we can do as well as that as well as our great predecessors, with all the advantages we have got now?

The European Commission’s Q&A on the EU’s negotiating mandate published on 25 February states:

The Commission intends to achieve as much as possible during the transition period. We are ready to work 24/7 to make the best

24 Remarks by Michel Barnier at the European Commission Representation in Sweden,

9 January 2020 25 Mujtaba Rahman, Brace yourself: the next stage of Brexit is going to get messy,

Guardian, 7 January 2020 26 House of Lords EU Committee, The Revised Withdrawal Agreement and Political

Declaration, HL Paper 4, 10 January 2020, para 292 27 Raoul Ruparel, Getting the UK ready for the next phase of Brexit, IFG, December

2019, p2

21 Commons Library Briefing, 2 March 2020

out of the negotiations. It is possible to extend the transition period by 1 to 2 years. This decision must be taken jointly by the EU and the UK before 1 July.

In January Commission President Ursula von der Leyen said that while it would be "impossible" to reach a comprehensive trade deal by the end of 2020, if the transition deadline was not extended it was not a case of "all or nothing", but of priorities.

A slide (reproduced below) used by Michel Barnier when presenting the Commission’s draft negotiating directives on 3 February indicates that the Commission envisages negotiations being concluded in time for the 15-16 October European Council, to provide time for the conclusion and ratification of the agreement by the end of December. Negotiation of outstanding issues would then continue in 2021.28

The UK Government and the EU published initial terms of reference for the negotiations on 28 February29. The negotiations would begin on 2 March. Negotiating rounds would last three to four days and take place every two to three weeks. A timetable for the first five rounds up to the middle of May 2020 was published, with further rounds to be mutually agreed.

28 Slides used by Michel Barnier on occasion of the presentation of the Commission's

proposal for a Council recommendation on directives for the negotiation of a new partnership with the UK

29 Prime Minister’s Office, Terms of reference on the UK-EU future relationship negotiations, 28 February 2020.

22 The UK-EU future relationship negotiations: process and issues

Prioritising certain areas of agreement by 2020 would most likely mean a focus on a basic “bare bones” agreement. This will be faster to conclude if there is agreement on the EU’s offer of a “zero tariffs, zero quotas” deal. But this would require UK agreement on the level playing field commitments the EU has called for, as well as on fisheries (see section 3.2).

If agreement is not reached on these issues, then this may mean the EU and UK settling for a trade agreement with tariffs in some areas. But as noted by Jennifer Rankin of The Guardian: “Consensus in Brussels is that line-by-line negotiation on tariffs will take far longer to negotiate”.

1.6 What is a free trade agreement? The revised October 2019 PD confirms that the future relationship would be on the basis of a free trade agreement (FTA) rather than a more closely integrated economic relationship. An FTA is an agreement between two (or more) countries to reduce trade barriers between them. These reductions go beyond the commitments countries make to all World Trade Organization (WTO) members. Trade agreements typically reduce tariff barriers30 but now cover many other issues. For example, CETA (the Comprehensive Economic and Trade Agreement between the EU and Canada) contains 30 chapters. These include chapters on trade and sustainable development, intellectual property and sanitary/phytosanitary measures (SPS – measures concerned with food safety and animal and plant health). The text of CETA runs to more than 1,000 pages.

The forthcoming UK-EU negotiations will be unusual in that the UK’s decision to leave the single market and customs union and to seek regulatory autonomy means that trade barriers will increase, rather than be reduced, as normally happens in an FTA.

The WTO allows an exception for FTAs to its general principle of non-discrimination. Article XXIV of the General Agreement on Tariffs and Trade (GATT) permits free trade agreements subject to certain conditions, including a requirement that the agreement cover substantially all trade between the parties and is notified to the WTO. The equivalent Article V of the General Agreement on Trade in Services (GATS) permits the same for trade in services.

Some barriers to trade generally remain even after an FTA is in force. For example, it is unusual for a trade deal to eliminate all tariffs and quotas on trade between its signatories.31 These often remain for agricultural products.

Furthermore, a free trade agreement will also mean UK-EU trade will be subject to Rules of Origin. These are rules used to determine the “economic nationality” of a good to see whether it qualifies for preferential treatment under the FTA. Complying with rules of origin,

30 Tariffs are taxes on imports 31 David Henig, Twitter, 16 December 2019

23 Commons Library Briefing, 2 March 2020

which are not needed in a customs union like the EU, adds costs to business.

Finally, trade agreements are generally quite limited when it comes to services. As trade expert David Henig has noted, “trade agreements don’t deliver significant access to services markets over and above WTO commitments.”32 For example, trade agreements can exclude certain sectors. The EU usually has carve-outs for audio-visual and air transport sectors. Moreover, parties can include reservations that limit liberalisation within sectors where market access is granted. In EU agreements, each Member State can make specific reservations, depending on how liberal their services trade with third countries is, and that varies per sector.

Trade deals are increasingly controversial as they now extend beyond tariffs and quotas into areas of public policy, such as regulation of food standards. The protests over TTIP (the Transatlantic Trade and Investment Partnership – the previously proposed trade agreement between the EU and US) were an illustration of this.

1.7 Single market vs FTA? For goods, the single market means free movement and no border controls on trade between EU Member States. Under an FTA, there is no general provision for free movement and there are customs controls and procedures.33 The EU cooperates on customs with other countries (such as Japan, US, Switzerland and Norway) to reduce costs of customs controls.34 The table below, taken from the European Commission’s slides, illustrates some of the differences between the single market and an FTA.

32 David Henig, Twitter, 16 December 2019 33 European Commission, Slides on free trade agreement, 13 January 2020 34 Slides, p8

24 The UK-EU future relationship negotiations: process and issues

With regard to services trade, in the Single Market businesses have the freedom to provide services and establish themselves in any Member State. This is possible due to a combination of common EU rules for various types of services, including financial services, and the principle of mutual recognition by default. As a result, a business that follows UK rules and standards is considered compliant across the EU and vice versa. Member States have regulatory powers, but their rules generally may not discriminate or prohibit access to their market.

Other cross-cutting EU rules also facilitate trade in services. For example, the rules on freedom of movement make it easier for people to work across the EU. The directives on the recognition of qualifications mean that professionals like nurses, vets and engineers can practise in other EU states. Common data protection rules cover all Member States and support many services that rely on the free flow of personal data.

In the financial services sector, passporting allows a financial institution that is established in one European Economic Area state to carry out a range of activities in any other EEA state. These passporting arrangements are not available outside the Single Market.

Services liberalisation is constructed quite differently under a free trade agreement. A distinction is made between “market access” and applicable domestic regulation. When market access is granted, third country service providers and investors are not to be discriminated against (national treatment). But they have to fully abide by domestic regulations – the so-called host state rules.

To trade in services with the EU, non-EU businesses must largely comply with the national rules of each Member State; a few common EU rules and protections apply. Even in the most progressive EU FTAs like CETA and the EU-Japan agreement, market access commitments with respect to services are more limited than under Single Market rules. In addition, Member States can make specific sectoral reservations, depending on how free their trade with third countries is.

Having regard for the regulatory autonomy of the parties to an FTA, regulatory co-operation takes place on a voluntary basis, in a limited number of areas, focusing on exchange of information and best practices. This is very different to how EU Member States work together on services.

25 Commons Library Briefing, 2 March 2020

2. Process

2.1 The EU Article 50 of the Treaty on European Union (TEU) sets out a process for negotiating a withdrawal agreement. It states that this should also take into account the framework for a future relationship between the EU and departing Member State. But it makes clear that the future relationship agreement will be negotiated under the EU’s normal procedures for agreements with third countries. These are set out in Article 218 of the Treaty on the Functioning of the EU (TFEU). This requires that that the Council of the EU (also known as the Council of Ministers - ministerial representatives of the Member States) adopts a negotiating mandate on the basis of recommendations from the European Commission.

The December 2019 European Council invited the European Commission to submit its recommendations and for the General Affairs Council35 to adopt the mandate as soon as possible after UK withdrawal from the EU (see section 3.2). A European Commission spokesperson said in January said the EU would start negotiations “as quickly as we can, but it will certainly not be before the end of February, beginning of March”. This, he said, was not “a slowing down or speeding up of the process” but

simply the nature of the institutional process and the consultations that need to take place before the negotiation directives can be formally adopted.

EU procedures for agreements with third countries Under Article 218 TFEU, the Council authorises the opening of negotiations, adopts negotiating directives and adopts decisions authorising the signing of agreements and concluding them. The European Commission submits recommendations to the Council prior to the authorisation of negotiations. The Council also nominates a lead negotiator.

The European Parliament is to be kept fully informed at all stages of the procedure.

For association agreements and other forms of international agreements listed in Article 218 (6), the consent of the European Parliament will be required before the Council can adopt a decision concluding the agreement. This gives the European Parliament a veto power over these agreements. Among the forms of agreements requiring Parliamentary consent are fields where the European Parliament acts as a co-legislator with the Council (the ordinary legislative procedure). These include the Common Commercial Policy (Article 207 TFEU), under which trade agreements are negotiated.

35 The General Affairs Council is mainly made up of European affairs ministers from the

Member States. It usually meets once a month, and deals with cross-cutting policy issues. It also co-ordinates preparations for European Council (EU leaders) meetings.

26 The UK-EU future relationship negotiations: process and issues

The Council acts by a qualified majority throughout the procedure set out in Article 218 TFEU, but with exceptions where unanimity is required. The exceptions where unanimity apply include for association agreements and fields for which unanimity is required for the adoption of an internal EU act.

Article 207 TFEU specifies that agreements in the fields of trade in services and the commercial aspects of intellectual property, and foreign direct investment, require Council unanimity where they include provisions for which unanimity is required for the adoption of internal rules. Article 207 TFEU also specifies that the Council shall act unanimously for the negotiation and conclusion of agreements covering certain aspects of cultural and audio-visual services and trade in social, education and health services.

Article 218 TFEU finally provides that the EP, Council, Commission and Member States can seek an opinion of the CJEU as to whether an agreement envisaged is compatible with the Treaties.

Association Agreements The European Commission’s explanatory memorandum for the draft Council negotiating mandate, published on 3 February, recommended Article 217 TFEU, providing for the establishment of association agreements with third countries, as the “appropriate substantive legal basis for the decision authorising the opening of the negotiations and addressing directives to the negotiators”. This is because of the “comprehensive scope of the envisaged partnership and the ambitious and long-term relationship that it seeks to establish”.

The European Commission’s Q&A on the draft negotiating mandate described Article 217 TFEU as “the most natural since it is the widest legal basis possible” allowing for “the closest possible partnership with a country that is not an EU member”. It said an association agreement was “also suitable in order to provide for an overarching governance framework, which is one of the EU's objectives”. It explained:

There are many different types of association agreement, but what they all have in common is their comprehensive nature and the fact that they establish a long-term institutional framework.

However, it said the legal basis “can only be final once we know the content of the final agreement”.

Article 217 TFEU simply states:

The Union may conclude with one or more third countries or international organisations agreements establishing an association involving reciprocal rights and obligations, common action and special procedure.

The legal basis for the opening of negotiations and approval of agreements, including association agreements, with third countries remains Article 218 TFEU. Article 218 TFEU also specifies that the Council must approve association agreements by unanimity and that the European Parliament must give its consent.

27 Commons Library Briefing, 2 March 2020

Mixed agreements A further complication to the ratification of a future EU-UK agreement is that where agreements go beyond the EU’s exclusive competence (so-called mixed agreements36) then ratification in each Member State according to their own constitutional procedures is required. In some cases this means approval by sub-national parliaments or national referendums.

Following a CJEU ruling in 2017 that investment provisions in the proposed EU-Singapore agreement rendered it a mixed agreement, the EU has followed a twin-track approach with third countries.37 Both the EU-Singapore and the EU-Vietnam agreements were split between Free Trade Agreements requiring approval at the EU level only, and Investment Protection Agreements requiring Member State ratification.38 The EU has also taken this approach for other trade agreements in order to avoid the ratification problems that beset the EU-Canada Comprehensive Economic and Trade Agreement (CETA).39

The EU-Japan Economic Partnership Agreement, which came into force in 2019, is also an EU exclusive competence agreement. Alongside this, the EU and Japan agreed a broader Strategic Partnership Agreement covering 40 areas of common interest including security co-operation. The Strategic Partnership Agreement is a mixed agreement, requiring ratification by all EU Member States.

International treaties can be applied provisionally ahead of ratification. Some EU international agreements have been applied provisionally once the EU-level approval procedures and ratification in the third country concerned have been completed, ahead of ratification in each of the Member States. Most of CETA has been applied provisionally pending full ratification.

Under Article 218 (5) TFEU, the Council would need to adopt a decision authorising provisional application. The European Commissioner for Trade between 2014 and 2019, Cecilia Malmström, said that trade agreements would not be applied provisionally before the European Parliament had given its consent except for urgent or technical reasons.

Although the EU has called for an overarching institutional framework for the future EU-UK relationship, the PD referred to agreements in the plural and it is possible that a twin track or multiple track approach could emerge in future relationship discussions. A trade agreement could by and large fall within EU exclusive competence and could be ratified at the EU level without the need for individual Member State ratification. A security partnership and other areas of co-operation

36 See the explainer of the EU’s external competences on the EU’s Eur-Lex website here and the explainer of mixed agreements on the UK in Changing Europe website here. 37 See the European Commission explainer on the CJEU opinion on the EU-Singapore

agreement here. For a discussion of this new EU approach to negotiating trade agreements see these Council of Ministers conclusions from 2018.

38 See European Commission, Overview of FTA and other trade negotiations 39 See House of Commons Library Briefing Paper 7492, CETA: the EU-Canada

agreement

28 The UK-EU future relationship negotiations: process and issues

would cover shared competence areas and require ratification by Member States as a mixed agreement.

Specific ‘Future Relationship’ Dimensions Given that the Political Declaration addresses at least two distinct partnerships, and a wide range of policy areas within those partnerships, the shape of the ‘future relationship’ agreement has been subject to some debate. As the Institute for Government has noted, the entire relationship can be concluded in the form of an Association Agreement—but alternatively, separate agreements can also be concluded under Article 218 TFEU:

At one end of the spectrum, the two sides could decide to opt for a comprehensive agreement – in the form of an association agreement similar to the EU’s agreement with Ukraine. Negotiations would cover many sectors – from tariffs to internal security – and the agreement would only be adopted once all negotiations had been completed. An agreement of this scope is also likely to involve areas of EU and member-state law – and would almost certainly take longer than 11 months to negotiate and ratify. Such a broad agreement would allow negotiators to trade off unrelated issues.

Alternatively, the two sides could choose to strike separate agreements covering specific areas – similar to Switzerland but with far fewer agreements and a clear institutional architecture. A decision to do this would most likely be a result of the short timeframe, with the priority being agreement of a basic deal covering the principal areas of trade in goods – with more difficult talks delayed until after 2020. For those areas not covered by the agreement, the UK and the EU could issue unilateral, time-limited measures to try to provide a legislative stopgap.

This could in theory limit the amount of ‘horse-trading’ that happens between unrelated issues, but in practice that looks unlikely. The EU and the UK are likely to combine issues – even those unrelated to the direct negotiations, for example within the Joint Committee overseeing the Withdrawal Agreement – wherever possible to increase leverage in talks.40

In light of the likely split between shared and exclusive competences, as well as the time restraints present in these negotiations, it is more likely than not that several agreements will be concluded to make up the future relationship. Whether those fall under an Association Agreement—as the EU would prefer, for oversight purposes—or a series of separate but related agreements with a single governance structure, in the form of an ”improved” Switzerland relationship, remains to be seen.

A further complicating dimension is that unlike in the Withdrawal Agreement negotiations, where the Member States successfully presented a single united front in terms of negotiating priorities, it is likely that the Member States’ individual priorities (in terms of their trading relationship with the UK, and what sectors it is based on) will be far more visible in these negotiations. This is a complicating factor, as

40 Institute for Government, Getting Brexit done: What happens now? January 2020,

p12

29 Commons Library Briefing, 2 March 2020

any disagreement on the part of the EU will make it more difficult to conclude the agreements quickly:

For the EU, member states could agree on priorities for the first phase of negotiations – protecting citizens’ rights, ensuring the UK settles its debt and avoiding a hard border on the island of Ireland. But the next phase of talks will bring in individual issues, from fishing to financial services, where different member states will have very different interests. Ensuring there is unity and a coherent approach on the EU side, which does not result in an approach dominated by the lowest common denominator, will be much more of a challenge. The EU’s position will be a delicate compromise of member-state interests, which will make compromising for British demands even harder.41

EU negotiating team Michel Barnier, who led the Article 50 withdrawal negotiations for the EU, has been appointed to head the new EU ‘Task Force for Relations with the United Kingdom' (UKTF). This was established in November 2019, within the European Commission's Secretariat-General. The deputy head of UKTF is Clara Martinez Alberola.

UKTF coordinates all the Commission's work on all issues related to the UK’s withdrawal from the EU and the negotiations on the future relationship with the UK. It operates under the direct authority of Commission President Ursula von der Leyen and in close cooperation with the European External Action Service (EEAS).42

The EU’s negotiating directives, adopted by the Council on 25 February, state that the Commission will conduct the negotiations “in continuous coordination and permanent dialogue with the Council and its preparatory bodies”.

The Council and Coreper (the Committee of EU Member State ambassadors), assisted by the Council Working Party on the UK (bringing together representatives of the Member States) will provide guidance to the Commission. The Commission will consult and report to the Coreper and the Working Party on the UK “in a timely manner”. The Working Party will meet before and after each negotiating session.43

European Parliament

As with the Article 50 withdrawal process, the European Parliament is not a formal participant in the negotiations. However, under Article 218 TFEU it is to be kept informed on the negotiations and will have to give consent for association agreements, trade and other types of agreements.

The European Parliament has established a new UK co-ordination group, replacing the Brexit Steering Group that was led by Guy

41 Institute for Government, Getting Brexit done: What happens now? January 2020,

p13 42 See European Commission, Task Force for Relations with the United Kingdom. This

page also links to a staff organigram for UKTF. 43 Council negotiating directives, 25 February 2020, paragraphs 169-170.

30 The UK-EU future relationship negotiations: process and issues

Verhofstadt. The new UK co-ordination group will be chaired by the German MEP, David McAllister, also chair of the European Parliament ’s Committee on Foreign Affairs (AFET).44 The group will liaise with UKTF and relevant European Parliament committees, and also includes representatives from other European Parliament committees and Political Groups. These include the chairs of the European Parliament international trade committee and security and defence sub-committee.45

2.2 The UK The EU (Withdrawal Agreement) Act 2020 The October 2019 version of the EU (Withdrawal Agreement) Bill, introduced to implement the revised WA, included provisions which gave the House of Commons a role in approving the Government’s negotiating mandate for the future relationship negotiations and the future relationship agreements negotiated by the UK and EU. The Government would have had to secure a resolution of the House of Commons endorsing its objectives, and to report to Parliament on progress being made on these objectives. Where it seemed unlikely that the objectives would be secured, a Minister would have had to explain to Parliament why this was the case and would have had to seek an updated mandate from MPs for the negotiations. Once an agreement had been reached, the Government would have had to secure a resolution of the House of Commons to endorse the treaty.46

These provisions were not present in the version of the Bill presented after the general election in December which eventually became the EU (Withdrawal Agreement) Act 2020. This means that there are no specific provisions in UK statute regarding Parliament’s role in the negotiation and approval of the future relationship with the EU. In the absence of any such specific arrangements, the provisions of the Constitutional Reform and Governance Act (CRAG) 2010 relating to UK ratification of international treaties will apply.

The Constitutional Reform and Governance Act Under CRAG, there are two routes to the ratification of a treaty. The default route, under section 20, requires the Government to lay a copy of the treaty before Parliament together with an explanatory memorandum. It must then wait for 21 sitting days47 during which time either House of Parliament might object to ratification. If that 21 sitting day period ends without either House resolving that the treaty should not be ratified, then the Government may go ahead and ratify (this is what has always happened so far).

44 Mr McAllister is a member of the ruling centre-right CDU party in Germany, and

holds dual British-German citizenship. 45 See The Parliament Magazine, Brexit shakes up European Parliament, 17 February

2020 46 See Commons Library Insight, Withdrawal Agreement Bill: Parliament’s role in the

future UK-EU relationship, 22 October 2019 47 For this purpose, a “sitting day” is defined as one in which both the House of

Commons and the House of Lords is sitting.

31 Commons Library Briefing, 2 March 2020

If during the 21 sitting day period either House resolves that the treaty should not be ratified (i.e. objects to ratification), the Government must lay before Parliament a statement setting out its reasons for nevertheless wanting to ratify. If the House of Commons resolves against the treaty, then a further 21 sitting day period is triggered during which the Government cannot ratify it. This process can be repeated indefinitely if the Commons continues to resolve against ratification, effectively giving the Commons the power to block ratification.48

If only the Lords and not the Commons resolves against ratification, the Government may then go ahead and ratify (after laying its statement explaining why it is proceeding with ratification).

There is no obligation on the part of the Government to make time for a debate on the floor of the House of Commons on the matter of a treaty it has laid. There are no examples since this Act came into force of a treaty having been blocked from ratification by the House of Commons by this means.

The second route to ratification applies to “exceptional cases”. If those apply the Government can alternatively dispense with the requirement to wait for 21 sitting days before ratifying a treaty. Section 22 requires a Minister to explain why, in his or her view, those “exceptional” circumstances apply.

CRAG is widely regarded as being of limited impact in terms of the role it gives to Parliament. In a report on parliamentary scrutiny of treaties in 2019, the House of Lords Constitution Committee described the CRAG process as “limited and flawed” and called for reform “to enable Parliament to conduct effective scrutiny of the Government’s treaty actions, irrespective of the consequences of Brexit”.49

CRAG is best understood as a passive form of Parliamentary approval: in practice and, in the absence of objection, it at most delays, rather than prevents the ratification of a treaty.50

Implementing legislation as a de facto prerequisite Parliament’s role in relation to the future relationship negotiations is (formally at least) weaker than its role was for the WA, in relation to which the European Union (Withdrawal) Act 2018 set out requirements in section 13 for approval of both the WA and PD (the “meaningful vote”) as well as passage of legislation to implement the WA. The European Union (Withdrawal Agreement) Act 2020 repealed the “meaningful vote” requirement.

In practice, Parliament may have more of a role than that provided by CRAG, since future relationship treaties of a certain kind are likely to require at least some primary legislation to implement provisions as to

48 See House of Commons Library Briefing Paper CBP5855, Parliament’s role in

ratifying treaties, 17 February 2017. 49 See House of Lords Select Committee on the Constitution, Parliamentary Scrutiny of

Treaties, 30 April 2019, HL Paper 345. 50 See also Commons Library Briefing Paper, Parliament's role in ratifying treaties,

SN05855, 17 February 2017

32 The UK-EU future relationship negotiations: process and issues

trade, security or political cooperation. Whether this primary legislation will be specific to the treaty or treaties on the future relationship, or alternatively those treaties will be treated in the same way as (e.g.) trade agreements with other countries remains to be seen.

Where a treaty cannot reasonably be implemented without primary legislation, Parliament can at least be said to have a de facto veto over major treaty change. If Parliament does not approve the necessary primary legislation to implement a treaty, the Government would be in breach of its international obligations if it ratified the treaty.

Although there was no formal Parliamentary power of veto over the UK’s accession treaty to the EEC in the UK’s constitutional arrangements, it would have been unthinkable in practice for the Government of the day to ratify that treaty without the passage of the European Communities Act 1972 to give effect to those new rights and obligations in international law.

Nevertheless, Parliament’s role traditionally has come at the end of the process of a negotiation, rather than at the beginning or during it, because the prerogative of foreign affairs rests with the executive rather than the legislature. Although Parliamentary committees can and do scrutinise the Government’s activities in international negotiations, and can bring political pressure to bear on particular matters of interest, the legislature typically has not directly approved or controlled the terms on which international negotiations have taken place.51

Consultation on UK negotiating objectives The Institute for Government (IFG) argues that the Government should

reach into Parliament, different layers of government – particularly the devolved administrations – and business to try to build as much support as possible for its negotiating objectives.52

The Government command paper on 27 February said the Government intended to “invite contributions about the economic implications of the future relationship from a wider range of stakeholders via a public consultation” (paragraph 12). This would take place in the spring. However, there is less clarity as to how the Government will engage with Parliament and the devolved institutions and whether any formal consultative structures will be established for stakeholders to input into the negotiations.

Parliament

The EU (Withdrawal Agreement) Act 2020 gave both the European Scrutiny Committee and the House of Lords EU Committee a new scrutiny role during the transition period. The Government would have to make time for a debate in the Commons or Lords if the relevant Committee reports on certain EU legislation being made during the transition period and believes the legislation raises a matter of “vital national interest”. It is possible that the Scrutiny Committee or Lords EU

51 See Commons Briefing Paper 8805, Constitutional implications of the Withdrawal

Agreement legislation, 20 February 2020 52 Institute for Government, Getting Brexit done: What happens next?, 10 January

2020, p6.

33 Commons Library Briefing, 2 March 2020

Committee could use this role to ensure Parliamentary debate when the Council of the EU takes decisions on the negotiating mandate in the EU-UK negotiations.

The IFG suggests that:

MPs will need to decide what committee structure they want to set up for scrutinising the future relationship negotiations with the EU. They could seek to retain a central, dedicated Brexit committee or decide to give departmental select committees a greater role in scrutiny, drawing on their expertise and avoiding putting too much of a burden on a single committee. Whatever they decide, ministers should be prepared to properly engage.

Select committee scrutiny is a vital route for the government to publicly justify the choices – and trade-offs – it makes during the talks. And would prove useful in understanding where the challenges could be when it comes to legislating later on.53

The withdrawal negotiations were initially led by the now abolished Department for Exiting the EU. Its work was scrutinised by the Select Committee for Exiting the EU. The Committee is continuing for the time being54, although it no longer has a department to scrutinise. Given that the future relationship negotiations are now led by a political appointee, David Frost, reporting directly to the Prime Minister, this could make scrutiny within the existing Parliamentary committee structure more difficult.

In his statement to the House of Commons on 27 February, Michael Gove said that the Government will “keep Parliament fully informed about the negotiations, and colleagues will be able to scrutinise our progress”.55 This followed the publication of the Government’s negotiating objectives. Following Mr Gove’s statement, there was an initial opportunity for MPs to question him on the Government’s negotiating approach56.

Devolved Institutions

Similarly the EU (Withdrawal Agreement) Act 2020 did not provide for any role for the devolved institutions in the scrutiny and approval process for a future UK-EU relationship agreement. The October version of the EU (Withdrawal Agreement) Bill included a provision that quarterly reports be provided to Parliament, and the devolved administrations and legislatures, on the progress of the negotiations. This clause was removed in the December version of the Bill and eventual Act.

All three devolved legislatures adopted resolutions opposing the passage of the EU (Withdrawal Agreement) Act 2020 so far as it regarded devolved matters. The Scottish Parliament also withheld consent from the earlier EU (Withdrawal) Act 2018. The devolved institutions are all nevertheless likely to seek opportunities to scrutinise

53 Institute for Government, Getting Brexit done: What happens next?, p7-8. 54 It has been proposed that the Committee will have a new name: the Committee on

the Future Relationship with the EU. 55 HC Deb 27 February 2020 c469 56 The statement and questions together lasted just under an hour.

34 The UK-EU future relationship negotiations: process and issues

and express their views on the negotiations and any eventual agreement.

While foreign affairs and international relations are matters reserved for the UK parliament, implementation of the future UK-EU relationship is likely to touch on the competences of the devolved institutions. These include agriculture and fisheries as well as broader regulatory matters. Where legislation is required to implement a future UK-EU relationship agreement, there could be further questions about whether legislative consent should or will be granted by the devolved legislatures.

The Scottish Government has said that “where there are devolved competences, the decision on those devolved competences must be made by the devolved administrations, not by anybody else”. More broadly, the Scottish Government has called for an enhanced role for the Scottish Government and Scottish Parliament in the development of future UK trade policy “and the preparation, negotiation, agreement, ratification and implementation of future trade deals” Both the Scottish and Welsh First Ministers wrote to Boris Johnson in July 2019 to demand a commitment to the full involvement of the devolved administrations in international negotiations which impact on devolved competence.57

The Government command paper on 27 February said the UK Government is “committed to working with the devolved administrations to deliver a future relationship with the EU that works for the whole of the UK”(paragraph 10).

The Institute for Government notes that the devolved administrations have been highly critical of how the UK Government has engaged them in its negotiations with the EU, and that the UK Government became “more reluctant” to share information after July 2019. It states that:

The UK government must do more to involve the devolved administrations in the next phase of negotiations in a meaningful and systematic way. A review of intergovernmental relations is under way, including work towards an agreement on new working arrangements for trade negotiations. The UK government should agree and set out detailed plans on how it will involve the devolved administrations in this next phase as soon as possible.58

Business and Civil Society

As noted, the command paper on 27 February said the Government would be inviting stakeholders to take part in a public consultation about the economic implications of the future relationship in the spring.

The Institute for Government suggests that the Government seek broad backing for its negotiating objectives and that it “is more likely to secure early support for its mandate and future deal if it gives business and civil society a chance to voice their concerns”. It observes:

Striking a deal does not, in itself, deliver benefits – those benefits come from businesses trading with the partner country taking

57 See Scottish Parliament Information Centre Briefing SB 20-07, Negotiating the future

UK and EU relationship, 17 January 2020, p16-21. 58 Institute for Government, Getting Brexit done: What happens next?, p9.

35 Commons Library Briefing, 2 March 2020

advantage of the terms of the deal and the preferential access on offer. Not all businesses do, however – whether it is due to lack of understanding, the deal not reflecting their needs or because the administrative burden necessary to prove eligibility for the preferential access outweighs the benefits.

If the government wants to ensure businesses take advantage of any deal it strikes with the EU, involving them early in the process to find out what they want would help to achieve that.

The government should quickly set up consultation groups, akin to the Department for International Trade’s Strategic Trade Advisory Group (STAG), for cross-sectoral engagement on future trade deals. These groups should be representative and involve experts, business and civil society leaders and officials from all relevant government departments. Given the time constraints, STAG could prove a useful starting point.59

The Confederation of British Industry (CBI) has published a set of recommendations for future UK trade policy and also advocates setting up a high-level Strategic EU Trade Advisory Group for the EU negotiations working in a similar fashion to STAG. It argues:

Effective business engagement during mandate setting would allow the UK to understand its crucial offensive and defensive interests in each area of the economy. A mandate based on economic evidence from business would give UK negotiators clear objectives, ensure the final agreement works for maximally for the economy and ultimately help with the ratification process.

It also proposes thematic working groups to tackle cross-cutting issues such as data, customs, and people, and Sector Trade Advisory Groups to provide detailed, technical advice for specific sector negotiations for EU and non-EU trade.60

The UK negotiating team The Prime Minister has appointed his Europe advisor David Frost as chief negotiator for the UK in the future relationship negotiations with the EU. Mr Frost previously led UK negotiators in revising the WA and PD in late 2019 after his appointment by Mr Johnson as Europe advisor. He will lead a 40-person task force, reporting directly to the Prime Minister. Mr Frost has three deputies. Two of these are civil servants, from the Foreign and Commonwealth Office (FCO) and the Treasury respectively. The other is, like Mr Frost, a political appointee. The task force will be aided by the UK’s Ambassador to the EU, Sir Tim Barrow. The team will draw on expertise from across Government departments on specific policy areas.61

The Department for Exiting the EU (and the position of Brexit Secretary), which was previously responsible for the withdrawal negotiations with the EU, was abolished on 31 January.

Key Government decisions on the negotiations could be taken by the EU Exit Strategy cabinet committee established after Boris Johnson became Prime Minister in July 2019. This is chaired by the Prime Minister and

59 Institute for Government, Getting Brexit done: What happens next?, p6-7. 60 CBI, Building a World-Leading UK Trade Policy, 13 January 2020. 61 The organisation of the UK negotiating task force is explained in this video from the

No.10 press office.

36 The UK-EU future relationship negotiations: process and issues

previously included the Foreign Secretary, Chancellor of the Exchequer, Brexit Secretary, Attorney General and Chancellor of the Duchy of Lancaster. The Exit Strategy committee approved the Government’s negotiating mandate published on 27 February.62

2.3 Terms of reference of negotiations The UK Government and the EU published initial terms of reference for the negotiations on 28 February, and an agenda for the first week of negotiations63. It outlines eleven different negotiating groups in different areas of future co-operation. These are:

1. Trade in Goods

2. Trade in Services and Investment and other issues

3. Level Playing Field for open and fair competition

4. Transport

5. Energy and Civil Nuclear Cooperation

6. Fisheries

7. Mobility and Social Security Coordination

8. Law enforcement and judicial cooperation in criminal matters

9. Thematic Cooperation

10. Participation in Union Programmes

11. Horizontal arrangements and governance

The two parties may agree to merge or split up the negotiating groups, create sub-sets within them or additional negotiating groups. Negotiating groups will work under the guidance of plenary negotiating sessions co- chaired by the chief negotiators and/or their deputies.

Negotiating rounds will last three to four days and take place every two to three weeks. These will begin with an opening plenary session at chief or deputy-chief negotiator level, followed by concurrent negotiations within the negotiating groups. The rounds will also end with a plenary stock-take of progress. The rounds will alternate between London and Brussels. Documents will not be made public without the consent of the originator party or both parties in the case of joint documents.

The negotiations will begin in Brussels on 2 March. A timetable for the first five rounds up to the middle of May 2020 was published, with further rounds to be mutually agreed. At the high-level meeting planned for June, the parties will take stock of progress “with the aim of agreeing actions to move forward in negotiations”.

62 Financial Times, Michel Barnier irritated by UK stance ahead of trade talks, 26

February 2020 63 Prime Minister’s Office, Terms of reference on the UK-EU future relationship

negotiations, 28 February 2020.

37 Commons Library Briefing, 2 March 2020

3. The parties’ objectives

3.1 UK objectives A formal written statement to the House of Commons by the Prime Minister on 3 February 2020 set out in broad terms what the UK is seeking in the future relationship:

The Government wishes to see a future relationship based on friendly cooperation between sovereign equals for the benefit of all our peoples. There is complete certainty that at the end of 2020 the process of transition to that relationship will be complete and that the UK will have recovered in full its economic and political independence. The Government remains committed in all circumstances to securing all those benefits for the whole of the UK and to strengthening our Union.

The question for the rest of 2020 is whether the UK and the EU can agree a deeper trading relationship on the lines of the free trade agreement the EU has with Canada, or whether the relationship will be based simply on the Withdrawal Agreement deal agreed in October 2019, including the Protocol on Ireland / Northern Ireland. In either event the UK will be leaving the single market and the customs union at the end of this year and stakeholders should prepare for that reality.

The Government will work hard to achieve a balanced agreement that is in the interests of both sides, reflecting the wide range of shared interests. Any agreement must respect the sovereignty of both parties and the autonomy of our legal orders. It cannot therefore include any regulatory alignment, any jurisdiction for the CJEU over the UK’s laws, or any supranational control in any area, including the UK’s borders and immigration policy.

This points to a suite of agreements of which the main elements would be a comprehensive free trade agreement covering substantially all trade, an agreement on fisheries, and an agreement to cooperate in the area of internal security, together with a number of more technical agreements covering areas such as aviation or civil nuclear cooperation. These should all have governance and dispute settlement arrangements appropriate to a relationship of sovereign equals.

Future cooperation in other areas does not need to be managed through an international Treaty, still less through shared institutions. The UK will in future develop separate and independent policies in areas such as (but not limited to) the points-based immigration system, competition and subsidy policy, the environment, social policy, procurement, and data protection, maintaining high standards as we do so. Cooperation on foreign affairs and related issues is of course likely to be substantial, but does not in itself require a joint institutional framework.

The Government thus appeared to be distinguishing between aspects of the future relationship that require formal settlement, including a joint institutional framework, and those that do not. In the former category, the free trade agreement (FTA), an agreement on fisheries, and an agreement on internal security are highlighted. Cooperation that will take place outwith an international Treaty is not further specified in this general description, beyond noting that it will involve foreign affairs and related issues.

38 The UK-EU future relationship negotiations: process and issues

The Prime Minister made a speech in Greenwich on 3 February, emphasising that the UK had “made our choice”. This was for “a comprehensive free trade agreement, similar to Canada’s”. The Prime Minister said that the UK was not seeking “alignment of any kind”64.

On 27 February, the Government published a command paper setting out the UK’s approach to the negotiations in greater detail.65 It reiterated:

It is a vision of a relationship based on friendly cooperation between sovereign equals, with both parties respecting one another’s legal autonomy and right to manage their own resources as they see fit. Whatever happens, the Government will not negotiate any arrangement in which the UK does not have control of its own laws and political life. That means that we will not agree to any obligations for our laws to be aligned with the EU's, or for the EU's institutions, including the Court of Justice, to have any jurisdiction in the UK.

Publication of the document was followed up by a statement in the House of Commons by the Chancellor of the Duchy of Lancaster Michael Gove. He reiterated the above message and said:

We want the best possible trading relationship with the EU, but in pursuit of a deal, we will not trade away our sovereignty.66

The command paper restated the UK’s desire for a FTA along the lines of the EU-Canada one “supplemented by a range of other international agreements covering, principally, fisheries, law enforcement and judicial cooperation in criminal matters, transport, and energy”. But it said that many areas, including foreign policy and immigration would not require an institutionalised relationship with the EU.

In terms of the timing and pace of negotiations, the command paper said that it hoped that a broad outline of an agreement would be clear by the time of the high-level meeting in June foreseen by the Political Declaration (PD). This would be with a view to finalising the agreement by September. But if this was not the case by June, it said:

the Government will need to decide whether the UK’s attention should move away from negotiations and focus solely on continuing domestic preparations to exit the transition period in an orderly fashion. In so doing, it will be necessary to take into account in particular whether good progress has been possible on the least controversial areas of the negotiations, and whether the various autonomous processes on both sides are proceeding on a technical basis according to agreed deadlines.

Free trade agreement The Prime Minister’s written statement on 3 February indicated that the Government would be seeking an FTA with provisions “at least as good as those in the EU’s recent trade agreements, such as those with Canada or Japan”. This “should reflect, and develop where necessary,

64 Prime Minister’s speech in Greenwich, 3 February 2020. 65 HM Government, The Future Relationship with the EU. The UK’s Approach to

Negotiations, 27 February 2020, CP211. 66 HC Deb 27 February 2020, c468

39 Commons Library Briefing, 2 March 2020

existing international best practice as set out, inter alia, in FTAs already agreed by the EU”.

The written statement previously set out what the UK envisages as being part of that FTA. It mentions “no tariffs”, fees, charges or quantitative restrictions, “modern and appropriate” rules of origins, and WTO-concepts like ”national treatment” (precluding discrimination between imported goods and domestically produced goods once they are on the market). Other standard components of an FTA are also mentioned: trade remedies, technical barriers to trade (going beyond what the WTO TBT agreement sets out on regulatory barriers to trade in goods), and sanitary and phytosanitary (SPS) measures (e.g. the rules applicable to protecting human, animal and plant life and the environment while trading.)

On SPS, the UK stresses it wishes to maintain its own autonomous regime, but indicates that it “may be possible to agree equivalence provisions” in certain areas so as to reduce barriers at the border between the UK and the EU.

Finally, on trade in goods, the written statement suggests that the future relationship should enable customs and trade facilitation.

The command paper on 27 February 2020 provided more detail on this approach, setting out a proposed chapter structure for what it describes as a comprehensive free trade agreement (CFTA) with the EU (part 1 of the command paper).

In his statement, Mr Gove said that the Government’s proposal was based on the existing precedents of the EU’s agreements with third countries, and this would enable the UK and EU to “to move swiftly towards the goal envisaged in the political declaration . . . of concluding a zero-tariff, zero-quota free trade agreement”.67

Trade in Services

The CFTA would also include chapters on cross-border trade in services, and investment, as well as regulatory cooperation across a wide range of services sectors. The command paper of 27 February (part 1, chapters 8-17) explains in more detail the UK objectives set out in the Prime Minister’s written statement on 3 February. The command paper refers to modern EU FTAs, such as CETA and EU-Japan FTA, as precedents for an agreement in many sectors. It notes that ”in areas of key interest, such as professional and business services, there may be scope to go beyond these commitments”’.

As part of trade in services, the command paper emphasises the need for reciprocal commitments to permit temporary entry and stay for individuals for the purposes of short-term business trips (so-called ‘Mode 4’ services). It also indicates the UK wants the CFTA to “provide a pathway” for mutual recognition of UK and EU qualifications.

In addition, the UK is seeking specific commitments on telecommunication services, delivery services and audio-visual services.

67 HC Deb 27 February 2020, c468

40 The UK-EU future relationship negotiations: process and issues

On financial services, the command paper states that “the Agreement should promote financial stability, market integrity, and investor and consumer protection for financial services, providing a predictable, transparent, and business-friendly environment for cross-border financial services business” (part 1, chapters 53-55). The written statement on 3 February suggested that there “should also be enhanced provision for regulatory and supervisory cooperation arrangements with the EU”, and for “structured processes for the withdrawal of equivalence findings”, given the depth of the financial services relationship between the UK and the EU.

Road Transport

The Government singles out road transport as an area where market liberalisation is necessary to allow for the competitive provision of services. The command paper states that UK and EU road transport operators should be entitled to provide services “to, from and through each other’s territories with no quantitative restrictions”. It also states that the agreement should respect UK autonomy and not require it to follow EU standards (part 1, chapter 19).

Geographical indications

Chapter 23 of the command paper on intellectual property refers to geographical indications (GIs). These are currently covered by the Withdrawal Agreement (WA) unless superseded by a new agreement. The paper states that the UK will keep its approach to GIs under review as negotiations with the EU and other trade partners progress. Any agreement on GIs “must respect the rights of both parties to set their own rules on GIs and the future directions of their respective schemes”.

Governance

The command paper proposes a governance structure for the CFTA with a joint UK-EU committee, drawn from existing FTA practice. This would include a dispute resolution mechanism if necessary, but no role for the CJEU in this mechanism (part 1, chapters 29-31).

Level Playing Field

The 3 February written statement appears firm on UK refusal to agree to alignment for the sake of a level playing field:

The Government will not agree to measures in these areas which go beyond those typically included in a comprehensive free trade agreement. The Government believes therefore that both Parties should recognise their respective commitments to maintaining high standards in these areas; confirm that they will uphold their international obligations; and agree to avoid using measures in these areas to distort trade.

In his Greenwich speech, the Prime Minister said that the UK did not intend to engage in some cut-throat race to the bottom. He pointed to a number of examples where he said the UK was ahead of the EU, such as spending less on state aid, giving more maternity leave, higher animal welfare standards and cuts to carbon emissions. He said that the UK would not insist that the EU match UK standards in these areas. He added:

41 Commons Library Briefing, 2 March 2020

There is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment, or anything similar any more than the EU should be obliged to accept UK rules.

The UK will maintain the highest standards in these areas – better, in many respects, than those of the EU – without the compulsion of a treaty.

The command paper on 27 February made no mention of the level playing field concept. It proposed chapters in the CFTA on environmental and labour standards with reciprocal commitments not to weaken protections, and on subsidies (reciprocal commitments to transparency), competition policy (commitments to main effective competition laws) and tax policy (commitments to good tax governance). In these chapters, it said that in line with precedents in EU FTAs such as CETA, the provisions should not be subject to the CFTA’s dispute resolution mechanism (part 1, chapters 20-22, 26-28).

Mr Gove referred to the EU’s level playing field requests in his statement on 27 February, and said there was “no intrinsic reason why requirements that both parties uphold desirable standards should prejudice any deal”. He said:

We do not need the EU’s permission to be a liberal nation leading the world in the fight against climate change and for social progress. That is why the UK Government seek an FTA with robust protections for the environment and labour standards, but we do not see why the test of suitability in those areas should be adherence to EU law and submission to EU models of governance. The EU does not apply those principles to free trade agreements with other sovereign nations, and they should not apply to a sovereign United Kingdom.68

On the EU’s argument that the volume of EU-UK trade and geographical proximity meant that the UK should be treated differently, Mr Gove noted that the volume of US-EU trade was similar but had not sought a role in US standard setting. Furthermore, he said:

proximity is not a determining factor in any other FTA between neighbouring states with large economies . . . We need only look at the United States-Mexico-Canada agreement for an example of a trade agreement that does not require regulatory alignment to one side’s rules or demand a role for one side’s court. Geography is no reason to undermine democracy.

To be clear, we will not be seeking to align dynamically with EU rules on EU terms governed by EU laws and EU institutions.69

He added that “the precedents that exist in actual agreed FTAs are the most appropriate ones for the relationship of sovereign countries.”

Other agreements The command paper states that the CFTA should be supplemented by a range of other agreements, including in the following areas:

68 HC Deb 27 February 2020, c469 69 HC Deb 27 February 2020, c469

42 The UK-EU future relationship negotiations: process and issues

Fisheries

The proposed agreement would provide a framework for fishing opportunities and access to waters to be negotiated annually (part 2, paragraphs 2-5). In his statement, Mr Gove said that the Government would “take back control of our waters as an independent coastal state, and we will not link access to our waters to access to EU markets”.70

Aviation

The UK and the EU should agree a comprehensive air transport agreement to ensure continued connectivity for passengers, together with an aviation safety agreement. The air transport agreement should at a minimum enable UK and EU airlines to operate flights between points in the UK and points in the EU (part 2, paragraphs 6-8).

Energy

The UK would be open to an agreement with the EU covering energy trading over the interconnectors between the UK and the EU, carbon pricing and climate change (part 2, paragraphs 9-16).

Mobility and Social Security co-ordination

The UK is ready to work to establish practical reciprocal provisions on social security co-ordination, similar to those the UK has with non-EU countries. These could also provide for health care cover for tourists, business visitors and service providers. These arrangements would also support mobility for those working across borders (part 2, paragraphs 17-18).

Participation in EU programmes

The UK is ready to consider third country participation in certain EU programmes where in the UK and EU interest. These include participation in Horizon Europe, Euratom Research and Training and Copernicus, and access agreements for EU Space Surveillance and Tracking and the European Geostationary Navigation Overlay Service.

The UK will consider options for participation in elements of Erasmus+ “on a time limited basis, provided the terms are in the UK’s interests”.

Agreements for participation in EU programmes should contain fair terms for the UK, including a fair and appropriate financial contribution (part 2, paragraphs 19-23).

Nuclear co-operation

The UK and European Atomic Energy Community (Euratom) should conclude a Nuclear Cooperation Agreement for cooperation on civil nuclear matters. This should cover compliance with international nuclear safeguards, safety and security standards, facilitate civil nuclear trade and facilitate technical cooperation and information-sharing (part 2, paragraphs 24-26).

70 HC Deb 27 February 2020, c468

43 Commons Library Briefing, 2 March 2020

Agreement on law enforcement and judicial co-operation in criminal matters

The UK is ready to discuss an agreement in these areas “to the extent that this is in both parties’ interests”, covering arrangements that support data exchange for law enforcement purposes; operational cooperation between law enforcement authorities; and judicial cooperation in criminal matters. This would be a separate agreement with its own appropriate governance structure. The agreement “must not constrain the autonomy of the UK's legal system in any way” and “should not provide any role for the CJEU in resolving UK-EU disputes”. The agreement “should not specify how the UK or the EU Member States should protect and enforce human rights and the rule of law within their own autonomous legal systems”(part 2, paragraphs 27-53).

Agreement on Asylum and Illegal Migration

The command paper refers to the UK’s specific commitment to seek to negotiate a reciprocal agreement for family reunion of unaccompanied children seeking asylum in either the EU or the UK. Beyond this, it says that the UK is open to an agreement regulating asylum and migrant returns between the UK and the EU, or alternatively with individual Member States, underpinned by data sharing, to help counter illegal migration and deter misuse of asylum systems (part 2, paragraphs 54-55).

Security of Information Agreement

The UK is open to negotiating a Security of Information Agreement covering classified information, if the EU requires it (part 2, paragraph 56).

Other areas of cooperation The command paper states that the UK would be open to exploring co-operation in other “specific and narrowly defined areas” where there is a mutual interest, for example on health security (part 2, paragraph 57). It also proposes to continue to work together with the EU in the area of civil judicial co-operation (part 3, paragraph 64).

The command paper states that there should be rapid agreement on the UK and EU listing each other and similar procedures for trade in live animals, animal products, seeds and agri-foods (part 3, paragraph 58). The UK will also seek data adequacy decisions from the EU (part 3, paragraphs 59-62) and notes the mutual commitment to conclude equivalence assessments for financial services by the end of June 2020 (part 3, paragraph 63). The written statement on 3 February referred to progress in these areas as an “early … test of the constructive nature of the negotiating process”. It said that the UK would see the EU’s assessment processes on financial services equivalence and data adequacy “as technical and confirmatory of the reality that the UK will be operating exactly the same regulatory frameworks as the EU at the point of exit” and that the “UK intends to approach its own technical assessment processes in this spirit”.

44 The UK-EU future relationship negotiations: process and issues

3.2 EU objectives The European Council meeting in December 2019 reconfirmed the EU’s desire to establish as close a future relationship as possible with the UK “in line with the Political Declaration and respecting the previously agreed European Council’s guidelines”. It said the future relationship “will have to be based on a balance of rights and obligations and ensure a level playing field”.71

The European Council adopted guidelines on the Brexit negotiations in April 2017, and on the future relationship negotiations in March 2018. These stressed that once the UK left the EU and no longer had the obligations of a Member State, it could not have the same rights and benefits as a Member State. They also referred to a future relationship agreement involving a balance of rights and obligations for the UK, and level playing field commitments to prevent unfair competition.72

This approach was reiterated by European Commission President Ursula von der Leyen in a speech at the London School of Economics on 8 January 2020. Ms von der Leyen said:

But the truth is that our partnership cannot and will not be the same as before. And it cannot and will not be as close as before – because with every choice comes a consequence. With every decision comes a trade-off. Without the free movement of people, you cannot have the free movement of capital, goods and services. Without a level playing field on environment, labour, taxation and state aid, you cannot have the highest quality access to the world's largest single market.

The more divergence there is, the more distant the partnership has to be. And without an extension of the transition period beyond 2020, you cannot expect to agree on every single aspect of our new partnership. We will have to prioritise. The European Union's objectives in the negotiation are clear. We will work for solutions that uphold the integrity of the EU, its single market and its Customs Union. There can be no compromise on this.

Nonetheless, Ms von der Leyen indicated that the EU will strive to go beyond existing trade agreements concluded by the EU:

But we are ready to design a new partnership with zero tariffs, zero quotas, zero dumping. A partnership that goes well beyond trade and is unprecedented in scope. Everything from climate action to data protection, fisheries to energy, transport to space, financial services to security. And we are ready to work day and night to get as much of this done within the timeframe we have.

The EU’s offer of a “zero tariffs, zero quotas, zero dumping” FTA has also been stressed in statements by the EU’s chief negotiator Michel Barnier, and in Commission internal slides on the negotiations. By “dumping”, the EU is referring to products on the market produced through what it views as “unfair” competition.

71 European Council conclusions: 72 European Council guidelines for Brexit negotiations, 29 April 2017. European

Council guidelines on the framework for the future EU-UK relationship, 23 March 2018.

45 Commons Library Briefing, 2 March 2020

The Commission’s draft negotiating directives The Commission published a draft Council decision authorising the opening of UK-EU future relationship negotiations, including a proposed draft negotiating mandate on 3 February 2020.

The European Commission also published a Q&A on the draft negotiating mandate on 3 February.73 It stated that the EU “will not agree on an FTA without solid level playing field guarantees and an agreement on fisheries”. Michel Barnier made a statement on the presentation of the Commission’s proposals reiterating that agreement on these points, together with “the necessary enforcement mechanisms” would lead to “a very ambitious free and fair trade agreement”.

However, even with such a “best-in-class” free trade agreement, he said this could not mean “business as usual”. As the UK and EU would now have two separate markets rather than one single market, this would mean:

• Rules of origin and customs formalities will apply between the UK and the EU;

• Access to the EU market will be subject to certification and market authorisation and supervision activities;

• There will be no harmonisation or mutual recognition of rules.

• This means, for example, that UK financial services suppliers will no longer have the passporting rights they used to enjoy under Union legislation.

In addition, Mr Barnier said that UK goods entering the EU would be subject to regulatory checks to ensure they comply with EU product standards. These are all “automatic, mechanical consequences of the UK's choices”. Businesses would need to adapt, although greater UK-EU convergence on rules would facilitate higher-quality market access.

Mr Barnier said that the EU would also consider whether the economic partnership would be accompanied by equivalences of financial services or adequacy of the UK data protection regime. He stressed:

• These will be unilateral decisions of the EU. They are not part of the draft mandate.

• However, they are relevant for the overall future relationship and need to be considered in that light.

• We will start the assessment work in those areas immediately.74

The Q&A also explained the Commission’s intention was to negotiate a comprehensive partnership that would come into force at the end of

73 The Q&A was published on this web page alongside the draft negotiating mandate,

Mr Barnier’s statement, slides used by Mr Barnier in making his statement, and earlier slides used by the Commission in preparatory discussions with representatives of the EU27 in January.

74 Statement by Michel Barnier at the presentation of the Commission's proposal for a Council recommendation on directives for the negotiation of a new partnership with the UK.

46 The UK-EU future relationship negotiations: process and issues

the transition period. The partnership would have three main components:

• general arrangements (including provisions on basic values, essential principles and on governance);

• economic arrangements (including provisions on trade, level playing field guarantees and fisheries); and

• security arrangements (including provisions on law enforcement and judicial cooperation in criminal matters, as well as on foreign policy, security and defence).

As with the withdrawal negotiations, the EU has stressed the importance of the unity of the Member States in negotiating the future relationship with the EU.75 Nevertheless, there are different interests among the Member States, and some have put greater emphasis on certain aspects of the EU’s negotiating objectives. There were reports that following the publication of the Commission’s draft negotiating directives some Member States were seeking to strength them in certain areas. Notably, Member States with strong fishing interests including France, the Netherlands, Belgium and Ireland were reported to be seeking to strengthen the text so that it would demand that current levels of reciprocal access to fishing waters was maintained.76 Several Member States also wanted the level playing field requirements in the draft directives to be strengthened, with France reported to be seeking dynamic alignment in all level playing field areas (meaning the UK would be required to keep up with changes made by the EU in these areas).77 There were also reports that Member States wanted strengthened wording on continuing UK commitment to the European Convention on Human Rights (ECHR), and on aviation co-operation.78

The Council negotiating directives The negotiating directives were formally adopted by the General Affairs Council on 25 February.79 The final version included revised language on both level playing field and fisheries.

On level playing field, a reference was added to using EU standards as a reference point when seeking to uphold “corresponding” high standards over time. Discussion of a level playing field on environmental protection was also expanded to include “health and product sanitary quality in the agricultural and food sector”. There was not however any strengthening of the text to require dynamic alignment in all level

75 The European Council conclusions in December 2019 said that the “negotiations will

continue to take place in a coherent manner and in unity and transparency with all Member States”.

76 The Telegraph, EU member states hardening demands for ‘status quo’ access to UK fishing grounds after Brexit, 8 February 2020.

77 The Telegraph, France demands UK aligns with EU rules forever in return for Brexit trade deal; Paris wants Britain to commit to changing its laws to mirror the EU's rules as they evolve over time as part of new trade agreement, 7 February 2020

78 Bloomberg, EU toughens negotiating demands before Brexit trade talks start, 10 February 2020.

79 Council Decision authorising the opening of negotiations with the United Kingdom of Great Britain and Northern Ireland for a new partnership agreement, 25 February 2020.

47 Commons Library Briefing, 2 March 2020

playing field sectors, as the French reportedly wanted80. As with the Commission draft, the call was for dynamic alignment in state aid, and for common standards to be upheld in other areas. There would be enforcement and dispute settlement mechanisms to ensure compliance with the level playing field commitments, and the EU would have the possibility of applying its own autonomous measures in response to “disruptions of the equal conditions of competition” (paragraphs 94-108).

On fisheries, whereas the wording in the Commission draft referred to the agreement providing for continued reciprocal access for fishing vessels and defining stable quota shares, the adopted directives refer to continued reciprocal access and quotas being “upheld” (paragraph 89).

The final version of the negotiating directives includes a new paragraph 11 stating that the negotiations will be conducted “in a way that ensures parallelism among the various sectoral tracks of the negotiation”. As Professor Simon Usherwood of the University of Surrey explains: “Less obtusely put, this means that blockage in one area will mean blockage of the entire package”.81

On human rights, paragraph 12 referring to core values and principles as the basis for co-operation was amended. This now includes continued UK commitment to respect the ECHR among the “essential elements for the cooperation envisaged in the partnership”.

There is also a new paragraph 33 which states that:

The Parties should, consistently with Union rules, address issues relating to the return or restitution of unlawfully removed cultural objects to their countries of origin.

This paragraph was reportedly included at the behest of the Greek Government and has been interpreted as related to Greek demands for the return of the Elgin marbles. However, it has also been reported that the new paragraph relates more to Greek concerns, supported by Italy and Cyprus, about trafficking of antiquities and art around Europe and London’s role as a centre for art and auction houses.82

Other changes to the mandate include the following:

• A new line in paragraph 5 on protection of the Good Friday Agreement which states that:

While preserving the integrity of the Single Market, the envisaged partnership should ensure that issues arising from Ireland's unique geographic situation are addressed.

• A new paragraph 46 in the section on financial services stating that equivalence mechanisms and decisions “remain defined and implemented on a unilateral basis” by the EU. This also refers to

80 See inews, Fishing and finance among France's sticking points for a trade deal

between the EU and Britain, 18 February 2020. 81 See UK in a changing Europe blog, The EU’s mandate for the Future Partnership, 26

February 2020. 82 See The Independent, UK refuses to include Elgin marbles in Brexit trade talks after

EU negotiation draft leak, 19 February 2020 and this tweet by Jennifer Rankin of The Guardian.

48 The UK-EU future relationship negotiations: process and issues

“transparency and appropriate consultation” between the EU and UK in relation to equivalence decisions, while preserving the EU's regulatory and supervisory autonomy.

• Paragraph 61 on co-operation on aviation was amended to include a line stating that the envisage partnership should “consider arrangements typically included in Union bilateral aviation agreements”.

• Paragraphs 13 and 118 were amended to make clear that the adoption of a data adequacy decision by the EU in relation to the UK’s data protection arrangements would be a condition for the envisaged high level of law enforcement and judicial co-operation.

• Paragraph 123 on surrender of suspected and convicted persons was amended to include a reference to the possibility that the EU can declare, on behalf of any of its Member States, that nationals will not be surrendered, as well as to allow for the possibility to ask for additional guarantees in particular cases.

• A new paragraph 59 proposed exploring options for enhanced judicial cooperation in matrimonial, parental responsibility and other related matters.

• Paragraph 140 on the possibility of UK access to the Galileo global satellite programme was amended to say this “could” rather than “should” be possible.

• A new paragraph146 proposes cooperation in matters of health security in line with existing EU arrangements with third countries. It proposes cooperation in international fora in relation to established and emerging threats to health security.

In most parts, the negotiating directives remained unchanged from the Commission draft or there were relatively minor changes in wording. The directives consist of 172 paragraphs and follow a similar structure and subject matter to the PD.

Rather than analyse each paragraph in turn, the below are some of the key points of emphasis (and possible disagreement with the UK):

• The EU is seeking a trade agreement covering both goods and services (Paragraph 17). On goods, it aims for no tariffs or quotas (Paragraph 20)—but applying the EU’s standard approach to rules of origin (Paragraph 21). It also aims to negotiate on trade remedies, customs facilitation, technical barriers to trade, and sanitary and phytosanitary (SPS) rules (Paragraphs 23-32), making reference to WTO rules in all these areas. On SPS rules, the EU indicates that the future relationship needs to respect the EU’s use of the precautionary principle as set out in the TFEU – but does not oblige the UK to operate the precautionary principle in the same way. (Paragraph 29).

• On services, the EU seeks an FTA that goes beyond the WTO commitments made by the EU, but it will exclude audio-visual services altogether. It also seeks “Mode 4” business travel for

49 Commons Library Briefing, 2 March 2020

natural persons and a framework for mutual recognition of professional qualifications where this is in the EU’s interest. (Paragraphs 34-43).

• On intellectual property, the EU seeks coverage beyond the WTO’s and related rules, and specifically wants to see future geographical indications established by the EU recognised in the UK. (Current ones are covered by the Withdrawal Agreement). (Paragraphs 50-53).

• The EU seeks to go beyond the commitments on public procurement in the WTO Government Procurement Agreement. (Paragraphs 51-52).

• On cooperation in other areas: the EU is envisaging UK participation in EU programmes (such as Horizon research, Erasmus student exchanges and others). It will develop the “general principles, terms and conditions” under which the UK can participate in these programmes now that it is no longer a Member State. (Paragraph 14)

• On mobility of persons, the EU is seeking non-discriminatory arrangements covering visa-free travel for short stays, entry and stays for research, study, training and youth exchange purposes, and social security coordination for those moving after the transition period. (Paragraphs 54-55).

• On air transport, the EU seeks to establish a “reciprocal, sustainable and balanced opening of markets while preserving the internal market for air transport services”. (Paragraph 61-70). However, it also indicates that the right for UK airlines to operate flights between Member States will not be automatic. (Paragraph 64).

• On road transport, the EU seeks to enable “bilateral road freight transport” between the EU and the UK, on the condition that the UK observes the level playing field regarding social rules relating to road transport – but excludes the possibility of UK-based firms being automatically permitted to engage in road haulage between Member States. (Paragraphs 71-76).

• On energy, the EU seeks significant commitments on renewable energy; a level playing field on carbon pricing; and wide-ranging cooperation between Euratom and the UK on “peaceful uses of nuclear energy”. (Paragraphs 79-85).

• On the security relationship, the EU makes an agreement conditional on UK adherence to the ECHR as well as continuing UK domestic law allowing citizens to invoke it in UK courts (i.e. the Human Rights Act 1998). (Paragraph 118).

• On data exchange more generally, the EU wishes to establish arrangements for “timely, effective, efficient and reciprocal exchanges” between relevant UK and EU bodies, but does not link such exchanges to the Schengen Information System that operates between Member States. (Paragraphs 119-121).

50 The UK-EU future relationship negotiations: process and issues

• On internal security, the EU seeks as much cooperation between law enforcement authorities and judicial authorities in criminal matters as possible, going beyond the relevant Council of Europe conventions where possible. (Paragraphs 122-125).

• On foreign policy, the EU seeks alignment on the application of sanctions. (Paragraph 133). It also wishes to be able to involve the UK on a case by case basis on EU defence missions or in EU defence industry projects. (Paragraphs 134-137).

• On governance, the EU seeks an overall framework and formal system of institutions that govern all areas of the relationship, with its own dispute resolution process, that reflects what it is in the PD. (Paragraphs 147-157).

• On dispute settlement, the EU sets out a process that is identical to that contained in the WA: where the UK and EU disagree about interpretation or operation of the future relationship agreements, they would first enter into consultations and (where applicable, so where the agreement foresees dispute settlement) then engage in binding arbitration. The CJEU would have a role if a concept of EU law has to be interpreted by an arbitration panel but not beyond that. (Paragraphs 158-161). Finally, the EU seeks safeguard provisions whereby either party can unilaterally disapply parts of the agreement where defined emergencies take place—with provision for the other party to retaliate by disapplying parts of the agreement itself. (Paragraphs 164-165).

European Parliament position Although it is not part of the future relationship negotiations, the European Parliament must be kept informed on negotiations with third countries and will have to give consent to the future trade or association agreement and other possible agreements. The European Parliament adopted a resolution on the proposed mandate for the EU-UK negotiations on 12 February by a large majority. It called inter alia for the following:

• A deep EU-UK association agreement based on three main pillars: economic partnership, foreign affairs partnership, specific sectoral issues and thematic cooperation.

• A consistent governance framework and robust dispute resolution mechanism “avoiding a proliferation of bilateral agreements and the shortcomings which characterise the EU’s relationship with Switzerland”.

• Robust enforceable level playing commitments “with a view to dynamic alignment” on labour standards, environmental protection and relevant tax matters, as well as state aid.

• While striving for the widest possible trade in goods “evaluation of possible quotas and tariffs for the most sensitive sectors as well as the need for safeguard clauses to protect the integrity of the EU single market”.

51 Commons Library Briefing, 2 March 2020

• Access to the single market for food and agricultural products to be conditional on strict compliance with all EU law and standards.

• That any EU-UK free trade deal must be conditional on a prior agreement on fisheries, and that this should involve continued reciprocal fishing access.

• The establishment of a joint EU-UK parliamentary body to monitor implementation of the future agreement.83

83 See European Parliament resolution of 12 February 2020 on the proposed mandate

for negotiations for a new partnership with the United Kingdom of Great Britain and Northern Ireland and European Parliament Press Release, EU-UK future relations: “level playing field” crucial to ensure fair competition, 12 February 2020

52 The UK-EU future relationship negotiations: process and issues

4. Key issues in the negotiations

4.1 Trade in goods Issues to be discussed The negotiations will cover tariffs, quotas, customs arrangements and regulatory alignment. These are important as they will influence the degree of friction (and therefore extra costs) in future UK-EU trade.

UK position The Prime Minister set out the UK’s position in a Written Statement and speech on 3 February 2020. The position was clarified further in a speech by David Frost in Brussels on 17 February. On 27 February, the Government published a paper setting out its approach to the negotiations.

The Prime Minister said “we want a thriving trade and economic relationship with the EU”. The UK’s aim is to have “a comprehensive free trade agreement, similar to Canada’s”.

The Prime Minister said that if this was not possible, the UK-EU trading relationship would be more like the one that the EU has with Australia. Australia does not currently have an FTA with the EU (although negotiations are underway – see Box below).

An editorial in the Financial Times described an Australia-style deal as “a euphemism for a damaging no deal Brexit”. It described the Prime Minister’s speech as a “the return of the no deal is better than a bad deal approach taken, at least rhetorically, by Mrs May”.84

The Written Statement published on 3 February 202085 set out a choice between “a deeper trading relationship on the lines of the free trade agreement the EU has with Canada” or a relationship “based simply on the Withdrawal Agreement deal agreed in October 2019”. An agreement could not include “any regulatory alignment, any jurisdiction for the CJEU over the UK’s laws, or any supranational control in any area”. It said that:

Unless otherwise stated, it should be assumed that the UK’s aspiration and level of ambition is to reach agreement on provisions which are at least as good as those in the EU’s recent trade agreements, such as those with Canada or Japan. 86

The Conservative Party’s 2019 manifesto said:

Our goals for British trade are accordingly ambitious. We aim to have 80 per cent of UK trade covered by free trade agreements within the next three years, starting with the

84 UK government must come clean on EU trade, Financial Times (editorial), 3 February

2020 85 There was also a statement to the House of Commons on Global Britain by Foreign

Secretary, Dominic Raab (HC Deb 3 February 2020 cc25-40) 86 HCWS86 3 February 2020.

53 Commons Library Briefing, 2 March 2020

USA, Australia, New Zealand and Japan. These will be negotiated in parallel with our EU deal.87

As the EU accounts for 49% of UK trade, it will be impossible to achieve this aim without a deal with the EU.88

Box 2: EU trade with Canada and Australia

Canada The EU and Canada have a trade agreement, CETA (the Comprehensive Economic and Trade Agreement). Negotiations for this treaty began in May 2009 and were completed in August 2014. CETA was signed on 30 October 2016. Parts of the agreement came into force provisionally on 21 September 2017. The text of CETA runs to more than 1,000 pages. It is worth noting that the EU’s trade relationship with the UK is very different to that with Canada. The EU does far more trade with the UK than with Canada. EU2789 goods exports to Canada were €35 billion in 2018 compared to €320 billion exported to the UK. The EU imported €19 billion of goods from Canada in 2018 compared to €`197 billion from the UK.90 Canada does far more trade with the US than the EU. In 2018, the US accounted for 74% of Canada’s goods exports. The EU accounted for 8%.91 The US accounted for 64% of Canada’s goods imports in 2018 while the EU accounted for 10%.92 For further information on CETA, see: European Commission: CETA Commons Library Briefing Paper, CETA – the EU-Canada Free Trade Agreement What is a ‘Canada-style’ trade deal? BBC, 3 February 2020

Australia There is no free trade agreement in place between the EU and Australia. Negotiations for an agreement are underway, suggesting Australia thinks it can improve on the current arrangements.93 The EU and Australia do have agreements on mutual recognition of conformity assessments and on trade in wine.94 The EU’s trade relationship with Australia is very different to that with the UK. The EU exported €31 billion of goods to Australia in 2018, compared to €320 billion to the UK. The EU imported €8 billion of goods from Australia compared with €197 billion from the UK. For further information on EU-Australia trade relations, see European Commission, EU-Australia Trade Agreement Trade negotiations with Australia and New Zealand, Study for the European Parliament Committee on International Trade, June 2019

87 Get Brexit Done, Unleash Britain’s Potential; The Conservative and Unionist Party

Manifesto 2019, p57 88 Exports and imports of goods and services to/from EU as % of total, 2018. Source:

ONS, Balance of payments, UK: July to September 2019, 20 December 2019, Table C

89 EU27 refers to the EU excluding the UK. 90 Source: Eurostat 91 Global Affairs Canada, Canada’s State of Trade 2019, Table 12, p64 92 Global Affairs Canada, Canada’s State of Trade 2019, Table 13, p66 93 EU-UK deal or no deal, Financial Times, 4 February 2020 94 Delegation of the European Union to Australia, Australia and the EU

54 The UK-EU future relationship negotiations: process and issues

EU position The EU position is that the integrity of the single market and customs union should be respected.95 The EU views the four freedoms (free movement of goods, services, people and capital) as indivisible.

In her speech at the London School of Economics in January 2020 European Commission President Ursula von der Leyen said the EU was “ready to design a new partnership with zero tariffs, zero quotas, zero dumping.”96 EU trade agreements with Canada, Japan and South Korea eliminate the vast majority of tariffs but a few still remain. Zero dumping refers to the EU’s position that access to its market without tariffs and quotas is conditional on the UK’s acceptance of various level playing field obligations (see section 4.4). This point was reiterated in the EU’s negotiating directives:

The envisaged partnership should aim at establishing a free trade area ensuring no tariffs, fees, charges having equivalent effect or quantitative restrictions across all sectors provided that a level playing field is ensured through robust commitments97

The negotiating directives also said that the future partnership would not allow the UK to have the same benefits as being an EU member and should:

reflect the United Kingdom’s status as a non-Schengen third country, and that a non-member of the Union, that is not subject to the same obligations as a member, cannot have the same rights and enjoy the same benefits as a member.98

Implications of the parties’ positions The UK and EU agree that the future economic relationship should be based on a free trade agreement. Both sides agree that the aim should be for no tariffs or quotas on trade between them.

The UK will be leaving the EU single market and customs union. The UK and EU “will form separate markets and distinct legal orders”99. Leaving the customs union means the UK will be able to pursue an independent trade policy. The UK is also seeking regulatory autonomy from the EU allowing it to set its own regulatory standards.

These greater freedoms will come at the price of greater trade friction - i.e. barriers to trade between the UK and EU. The Political Declaration (PD) makes it clear that there will be checks on UK-EU trade:

… following the United Kingdom's withdrawal from the Union, the Parties will form separate markets and distinct legal orders. Moving goods across borders can pose risks to the integrity and

95 Political Declaration, para 17 96 Ursula von der Leyen, Old friends, New beginnings: building another future for the

EU-UK partnership, Speech at the London School of Economics, 8 January 2020 97 European Commission, Negotiating directives, 25 February 2020, para 20 98 European Commission, Negotiating directives, 25 February 2020, para 10 99 Political Declaration, para 20

55 Commons Library Briefing, 2 March 2020

proper functioning of these markets, which are managed through customs procedures and checks.100

The Government has confirmed that there will be checks on imports into Great Britain from the EU.101 The application of these checks may be mitigated by UK commitments on customs and regulatory cooperation.102

In particular, a free trade agreement would need agreement on “rules of origin”). These rules determine the “economic nationality” of a good to see whether it qualifies for a zero tariff under the trade agreement. These rules would be used to distinguish a UK good (which would qualify for a preferential tariff under the trade agreement) from, for example, a Chinese good being transported from the UK to the EU (which wouldn’t). As many goods are processed in several countries, these rules can be complex. A paper for the Food and Drink Federation said:

Modern European and UK foodstuff manufacturing is an internationalised business, routinely sourcing inputs from across the EU single market, but also globally. This reflects not only the fact that UK production of key ingredients is insufficient to meet industry demand all year round, but also that many key ingredients – such as tropical fruits – are simply only produced in parts of the world outside of Europe’s temperate zone. This imported content currently has no bearing on a product’s right to be traded freely between the EU and the UK. Under any future origin framework, it will.

Many EU and UK producers have built supply and distribution models in the single market framework that may fail to comply with origin requirements in a future framework, and therefore will be ineligible for preferential trade terms. Because the EU (and, in the future, UK) are likely to maintain high basic tariffs for many processed food and drink products, some producers excluded from preferential terms may face the prospect of either costly restructuring of supply chains, or de facto barring from EU-UK trade. This would be to impose a ‘hard Brexit’ on these businesses, even if the EU and the UK were able to reach an accommodation on tariff-free trade.

[…]

Origin rules for food and drink in an EU-UK FTA should be designed for the globalised industries that they will impact. They should not unnecessarily discriminate against food and drink producers that use a combination of local and global ingredients.103

The Lords EU Committee commented on these trade frictions:

The Political Declaration’s commitment to tariff-free trade in goods is welcome. The change in objective from a free trade area to a free trade agreement is one of the most consequential in the

100 Political Declaration, para 20 101 Cabinet Office, Government confirms plans to introduce import controls, 10

February 2020 102 Political Declaration, paras 21and 26 103 Global Counsel, Rules of origin in an EU-UK FTA, (paper for the Food and Drink

Federation and the National Association of British and Irish Millers, 2018, p4

56 The UK-EU future relationship negotiations: process and issues

revised Political Declaration, involving in particular the deletion of references to the single customs territory and alignment of rules.

While these changes provide greater clarity, they also imply that there will be some new friction in trade in goods, notwithstanding that the Declaration holds out the possibility, without commitment, of the use of facilitative arrangements and technologies, and refers, without elaboration, to “facilitation” of customs processes, checks and controls. We call on the Government to specify what new facilitative arrangements and technologies are envisaged, when, at what cost, and to what effect.104

The acceptance of trade frictions at the border is in contrast to the approach taken by Theresa May which aimed for frictionless trade.105

The EU’s position that tariff free trade is linked to UK acceptance of level playing field conditions is likely to be a major sticking point in the negotiations (see section 4.4).

4.2 Services Issues to be discussed This negotiation will determine the new conditions under which UK investors and service providers such as law firms, banks, insurers, architects, tour operators or recycling services will be able to establish a business or to sell services in the EU and vice versa.

The stated aim of the UK and EU is to reach “an ambitious, comprehensive and balanced deal on trade in services and investment,” while retaining regulatory and decision-making autonomy of both sides.

The UK and the EU will strive to give each other’s service providers and investors market access without discrimination, based on national treatment under host state rules.106

The principle of national treatment means that imported and local services are treated equally in a country's market. EU FTAs generally assume that host state, or EU27, rules apply, as opposed to the single market, where, a company registered in one Member State can provide services in other Member States.

The agreement would be aiming to cover a wide range of sectors and all modes of supply.107 This is in line with GATS obligations for a services FTA. Both the EU and the UK will have to decide on the depth of coverage. It not clear at this stage how much can be covered within a short timeframe.

104 House of Lords EU Committee, Brexit: the revised Withdrawal Agreement and

Political Declaration, HL Paper 4, 10 January 2020, p82 105 See HM Government, The future relationship between the UK and the EU, Cm

9593, July 2018 106 Political Declaration, Articles 27-28 107 The WTO distinguishes four different modes of supply: cross-border supply (mode 1),

consumption abroad (mode 2), commercial presence (mode 3) and migration of natural persons (people) to supply services (mode 4).

57 Commons Library Briefing, 2 March 2020

Negotiations on services agreements are expected to be complex as regulatory issues vary per sector. Priority areas for this negotiation are expected to include at least professional and business services, financial services and transport. Cross-cutting subjects such as business travel, digital trade, mutual recognition of professional qualifications and intellectual property are important for many services sectors and will require attention.

Finally, broad terms of regulatory autonomy and cooperation in services sectors will have to be agreed upon.

UK position The Government has outlined its aspirations for an agreement on services in the Prime Minister’s Written Statement on UK/ EU relations on 3 February and the subsequent command paper on 27 February. It is aiming to minimise barriers for cross-border trade in services and investment, with provisions which are “at least as good” as those in existing EU FTAs like CETA and the agreement with Japan.108 In areas such as professional and business services, the agreement could potentially go beyond such precedents.

The UK has also highlighted the following priorities:

• measures to support digital trade; and

• reciprocal commitments on the temporary entry and stay of individuals (Temporary entry for Business Purposes or Mode 4 services).

The ambitions with regard to a regulatory framework for services are described as “streamlining practical processes and providing for appropriate regulatory cooperation” in order to reduce unnecessary barriers to trade.

Furthermore, the UK seeks to agree “a pathway for the mutual recognition of UK and EU qualifications, underpinned by regulatory cooperation, so that qualification requirements do not become an unnecessary barrier to trade.”109

In addition, the UK is seeking commitments on telecommunications, delivery, audio-visual services, financial services (see section 4.3), road and air transport. It does not mention rail transport.

EU position The EU Council’s negotiating mandate states that the EU and UK can aim at liberalisation in services that goes beyond the baseline provided by the EU’s existing WTO GATS commitments, similar to its most recent FTAs.110

108 UK / EU relations: Written statement, HCWS86, 3 February 2020; HM Government,

The Future Relationship with the EU. The UK’s Approach to Negotiations, 27 February 2020, CP211

109 UK / EU relations: Written statement, HCWS86, 3 February 2020 110 European Council Directives for the negotiation of a new partnership with the United

Kingdom of great Britain and Northern Ireland, 25 February 2020, 5870/20

58 The UK-EU future relationship negotiations: process and issues

Regarding its preferences, the EU has explicitly mentioned professional and business services, telecommunications, courier and postal services, distribution, environmental services, tourism, financial and transport services. As customary in its FTAs, the EU will exclude audio-visual services (this includes traditional broadcasting and on-demand streaming services) and seek protections for the way Member States provide their public services.

Market access and non-discrimination

The EU is ready to offer market access to UK service providers and investors without discrimination, based on host state rules of the EU27, meaning a separate set of rules in each Member State. There is a limited number of overarching common EU provisions for third country service providers.111

Furthermore, the agreement should include provisions “for the entry and temporary stay of natural persons for business purposes in defined areas” (Mode 4). For example, individuals would be able to enter or temporarily move between the EU and UK in order to provide services under a contract; firms would be able to transfer employees between offices in the UK and the EU for their business. The EU wants national rules of the EU27 to apply, including rules on working conditions and workers’ rights.

Regulatory aspects

The EU elaborates its ambitions for regulatory cooperation in services in line with what was agreed in the Political Declaration. The EU reiterates its intent to cooperate on regulation, and to promote transparency, efficiency and compatibility. The EU is seeking to agree on:

• a framework for voluntary regulatory cooperation in a limited number of areas in order to exchange information and share best practices;

• the so-called ”disciplines“ on domestic regulation. The disciplines refer to certain limits to the freedom to set domestic standards which countries accept in trade negotiations. These would include horizontal provisions that apply across all sectors, such as on licensing procedures;

• “cross-cutting disciplines on good regulatory practices and transparency”, such as holding public consultations on significant changes to regulation on services or investment.

The EU is proposing a “framework for negotiations” on mutual recognition of professional qualifications.

Public procurement

The EU aims to negotiate access to procurement markets beyond the UK’s commitments under the WTO Government Procurement Agreement (GPA). It is, for example, seeking to include procurement at all levels of government. It proposes to include the utilities sector and

111 Commons Briefing Trade in services and Brexit, 20 December 2019, pp 26-7

59 Commons Library Briefing, 2 March 2020

continued commitments on transparency of market opportunities, sustainability, regulations and procedures.

Digital trade

In order to facilitate digital trade (such as e-commerce) covering both services and goods, the EU’s objective is to agree provisions on:

• electronic trust and authentication services;

• not requiring prior authorisation solely on the grounds that service is provided by electronic means;

• consumer protection in the online environment and unsolicited direct marketing communication.

The EU is ready to facilitate cross-border data flows, insofar as they do not affect EU personal data protection rules.

Likely issues in the negotiations Commentators have noted that the May Government had already reconciled to losing full access to the EU market for services in return for greater regulatory autonomy. Both the UK and EU positions before opening the negotiations appear to further scale down on ambitions for trade in services. The Political Declaration stated:112

The Parties should aim to deliver a level of liberalisation in trade in services well beyond the Parties’ World Trade Organization (WTO) commitments and building on recent Union Free Trade Agreements (FTAs).

The phrase “well beyond” does not return in either party’s positions. Instead, both the UK and EU refer to the recent FTAs such as with Canada and Japan as examples to replicate, and perhaps exceed in some areas.113 The European Commission has said in its recent slides that the EU has a limited margin to top up its commitments which exist in its other FTAs.114

What is the level of aspiration? CETA and the EU-Japan FTA are more ambitious in liberalisation of services and investment than older EU FTAs. Both contain provisions, that to various degrees, go further than GATS commitments. However, the level of market access under these agreements is much more limited than within the single market. The gap with GATS provisions is rather small economically.115

According to Borderlex, a trade news service, in case the negotiations do not progress as hoped, the EU is ready to prioritise goods trade over services and let the trade in services operate on WTO terms:

The EU mandate covers the wide range of topics the EU wants to see covered with Britain but also plans for a thinner deal focused

112 Political Declaration, para 27 113 UK / EU relations: Written statement, HCWS86, 3 February 2020, section 1; EU draft

directives, para 21 114 European Commission, slides Internal preparatory discussions on future relationship,

Free Trade Agreement II, p16 115 M. Morita-Jaegar, L.A. Winters, The UK’s future services trade deals with non-EU

countries: A reality check, UKTPO Briefing Paper 24, November 2018; See also John Peet, The risk of Britain leaving the EU with no trade deal remains high, The Economist, 6 February 2020

60 The UK-EU future relationship negotiations: process and issues

on a series of priority topics by the end of the year if talks do not go as quickly as expected. Barnier said the EU focuses on areas where “rupture is most risky, the gravest and most important”. Among others it is understood that the EU would put goods trade first and allow services trade to operate on the basis of WTO terms – the GATS – next year if necessary.

A toned-down ambition reflects the complexity of service sectors that include areas as diverse as legal, distribution or recycling services. Agreeing terms beyond the available examples of liberalisation would take time.

Agreeing on equivalence for financial services can become a difficult issue and could be potentially leveraged against reaching an agreement on fisheries. See section 4.3 on financial services.

On public procurement, the Institute for Government notes that the GPA does not give the UK the same full access to EU procurement markets that it currently enjoys.116 The EU seems willing to extend access beyond the commitments of the GPA in order to close that gap, for example on procurement by sub-national authorities, procurement of public utilities, and transparency of procurement opportunities, rules and procedures, which is embedded in EU rules. The question is whether this will match the Government’s wish to develop its own independent policies on procurement. Notably, the Government Command paper of 27 February does not mention procurement.

Also, the EU is explicit about excluding audio-visual services, while the UK wants to include them in the agreement.

Both parties’ interests could converge on more generous provisions for the entry and temporary stay of professionals and investors (Mode 4). However, while the EU has powers to agree a broad framework the EU27 retain competences to regulate labour migration from third countries. It means that host state rules would apply to UK business travellers and investors.

An agreement on access to telecommunications networks and services also seems plausible.

Furthermore, UK and EU interests could coincide in relation to digital commerce where technologies are evolving and there are few global rules to adhere to. Progress in this area is linked to the EU recognising UK rules on personal data protection as adequate (see section 4.7 below).

The UK has indicated in the past that it wishes to continue mutual recognition of professional qualifications going well beyond the standard FTA practice.117 This is essential for many competitive UK business services like accountants and architects. The Commission is

116 Institute for Government Explainers, Public procurement [accessed 6 February 2020] 117 In 2018, for example, the UK proposed more ambitious provisions on mutual

recognition of professional qualifications, covering the same range of professions as the existing single market regulations.

61 Commons Library Briefing, 2 March 2020

more cautious, offering a framework for future negotiations in this area. However, a successful outcome in this area is in both sides’ interests.

Finally, seeking a workable framework for cooperation on regulation for services could offer new opportunities for the UK and the EU. Trade expert David Henig has suggested that the UK-EU agreement could set an example of a new type of a regulatory partnership:118

First, tell a story of trade and regulation. What we are looking for is a new regulatory cooperation partnership, which respects the rights of both sides to make regulatory choices, but which also sees alignment where this makes sense to meet common challenges such as climate change or because there are global norms, to name but two. And where there is alignment, market access barriers will be reduced.

Next, accept that regulations always evolve, as therefore do the trade effects. This means that the task of managing regulations and trade is never complete, and there will always be dialogue. The UK and EU should have a permanent and structured regulatory dialogue, from which mutual decisions to align and reduce barriers to trade should be taken. This dialogue should engage business and civil society as well as officials.

Finally ensure that the framework for the overall relationship is suitably flexible yet robust such that new areas of alignment or divergence can be agreed without risking the wider relationship.

There should be an annual regulatory report detailing activities, discussed by political leaders at a summit. In terms of flexibility it is probably not helpful for example for the EU to demand that all regulatory alignment is subject to ECJ, equally it is not helpful for the UK to make sweeping comments on dynamic alignment or the follies of the EU system.

Whatever the outcome, UK-EU services trade and investment will face additional barriers under a free trade agreement compared to the present access.

4.3 Financial services Issues to be discussed119 Future financial services arrangements will replace the current system of “passporting” in which UK and financial services businesses can operate freely across the EEA and vice versa. Passporting will end on 31 December 2020.

The October 2019 Political Declaration set out broad aspirations for future cooperation based on equivalence regimes. It also noted an intention to have concluded equivalence assessments by the end of June

118 D. Henig, Finding the right trade and regulatory framework (or learning lessons from

TTIP, Brexit, and EU-US trade), January 2020 119 For further reading see: Commons Library Insight, Trade in services: Parting with the

EU?; Commons Library Briefing 8586, Trade in services and Brexit; Commons Library Briefing 7628, Brexit and financial services; Commons Library Briefing SN06193, Financial services: contribution to the UK economy.

62 The UK-EU future relationship negotiations: process and issues

2020, and to “keep their respective equivalence frameworks under review” thereafter.120

Equivalence regimes allow mutual recognition and market access. They involve both parties reviewing each other’s regulatory arrangements and agreeing that their “regulatory outcomes” are compatible. While the EU currently has an overall equivalence regime in place, it is important to note that this is limited to specific activities and types of financial services.121 This implies that wider financial services arrangements will default to GATS arrangements.

FTAs typically offer few provisions for trade in services. The financial services provisions in CETA, for instance, fall a long way short of passporting, and don’t go far beyond WTO terms.122

UK position The Prime Minister’s written statement to the Commons on 3 February envisaged a commitment by both sides:

to provide a predictable, transparent, and business-friendly environment for financial services firms, ensuring financial stability and providing certainty for both business and regulatory authorities, and with obligations on market access and fair competition. Given the depth of the relationship in this area, there should also be enhanced provision for regulatory and supervisory cooperation arrangements with the EU, and for the structured withdrawal of equivalence findings.

He later suggested that the fact of current complete alignment of regulation should ease this process:

Similarly, the UK would see the EU’s assessment processes on financial services equivalence and data adequacy as technical and confirmatory of the reality that the UK will be operating exactly the same regulatory frameworks as the EU at the point of exit. The UK intends to approach its own technical assessment processes in this spirit.

These statements emphasise the hope for rapid, pragmatic progress, but nevertheless imply a desire to promote more predictable and stable arrangements than the current EU equivalence framework provides: EU equivalence decisions can be unilaterally withdrawn with 30 days’ notice.123

The Government’s negotiating mandate published on 27 February refers to recent agreements with Canada and Japan as models based on “trust and understanding” between systems “as they evolve”. It also reiterates a desire for more “consultation and structure” on any withdrawal of equivalence arrangements (part 1, chapter 16). Later, the Government

120 Political Declaration, para 36 121 European Commission, Recognition of non-EU financial frameworks (equivalence

decisions), accessed on 18 February 2020; Commons Library Insight Trade in services: Parting with the EU?, 20 December 2020

122 Brexit and financial services, Institute for Government, 12 February 2020 123 Commons Library Briefing Brexit and financial services, Brexit: where do the EU and

UK stand before talks begin? The Guardian, 3 February 2020

63 Commons Library Briefing, 2 March 2020

notes that it still expects to have concluded equivalence assessments by the end of June (part 3, paragraph 63).

EU position The EU’s negotiating directives also closely mirrored the aspirations set out in the Political Declaration. While they express a desire to promote continued stability, they do not include the UK reference to reconsidering processes for withdrawing equivalence agreements. Instead they emphasise the “unilateral” nature of such decisions.124

More generally, the EU has maintained a strong public line on its approach to equivalence, in particular highlighting the importance of continued close regulatory alignment. In December 2019, Valdis Dombrovskis, the European Commission executive vice-president who oversees financial services, reiterated this position:

[H]e said that the European Commission would be especially vigilant in checking that British rules for ensuring financial stability and protecting consumers remained aligned to the EU’s own standards, and would act decisively in the event of any lapses.

Access will depend on Britain “not starting to engage in some kind of deregulation”, said Mr Dombrovskis… “The more systemically important the market is for the EU, the more we import potential risks, [and] the closer the regulatory alignment that is expected.”…125

The final version of the EU’s negotiating mandate adopted by the Council on 25 February added a new paragraph emphasising the unilateral nature of its equivalence decisions, while noting that “transparency and appropriate consultation” with the UK is “important” (paragraph 46).

Likely difficulties in the negotiations The different emphases in the position set out above reflect wider differences in the approaches of the two parties – while the UK focuses on the apparent pragmatism of complete regulatory alignment at the outset, the EU highlights that continued alignment is fundamental to its concept of equivalence. That tension is likely to become more acute given the target date in the Political Declaration of 30 June 2020 for concluding the equivalence assessments.

The priorities and timetables for different aspects of the wider negotiations are likely to lead to strong tactical pressure and trade-offs as the interests of member states emerge. 126 The Prime Minister’s written statement of 3 February appeared to indicate that progress on an EU equivalence decision by June 2020 would be a sign of “good

124 European Commission, Recommendation for a Council decision authorising the

opening of negotiations for a new partnership with the United Kingdom of Great Britain and Northern Ireland, 3 February 2020, para 24-43

125 Financial Times, “EU chief issues Brexit warning over City of London access”, 2 December 2019.

126 Institute for Government, Getting Brexit done: What happens now? January 2020, p13

64 The UK-EU future relationship negotiations: process and issues

faith” which would enable progress in the wider negotiations (see section 3.1).

The Irish Taoiseach Leo Varadkar has explicitly noted that agreement on financial services may depend on Member States’ achievement of ambitions for fisheries:

[…] Mr Varadkar told the BBC: “The UK has a lot of waters and a lot of fish is taken out of your waters by boats from other countries. But bear in mind that 70 per cent of the fish you sell, you sell into Europe.

“That’s an area where you are in a strong position. An area where you’re in a very weak position is one of the most valuable parts of the British economy — financial services. “You may have to make concessions in areas like fishing in order to get concessions from us in areas like financial services. That’s why things tend to be all in the one package.”127

4.4 Level Playing Field The issues to be discussed The commitments to guarantee a level playing field for fair and open competition are controversial and have the potential to become a make or break issue early in the negotiations.128 Borderlex trade news service quotes Ivan Rogers, a former UK envoy to Brussels on the importance of an agreement in this area:

It is widely understood that negotiations could fail over two key items: fisheries and the EU’s level playing field provisions. “[The] Level Playing Field is the really difficult one and that’s where it can all fall apart.

I think there is a major crisis coming in Q3 and Q4″, referring to the third and fourth quarter of this year. Rogers sees “a major crunch, with real risk. Both sides may well threaten to walk out. Probably this side of next summer.”

Defining a level playing field

Level playing field provisions – common rules on competition, state aid, the environment and social rights – are at the core of the EU’s internal market and ensure fair competition between businesses.129

Referring to the geographical proximity and economic interdependence of the two markets, the UK and the EU agreed in the Political Declaration that their future economic partnership must be based on open and fair competition. This would be ensured by “robust commitments” to a “level playing field” – high standards in the areas of

127 Financial Times, “UK and EU set for clash on fish and financial services”, 27 January

2020. 128 Alex Stojanovic, A bumpy level playing field awaits the next round of Brexit talks,

Institute for Government, 16 January 2020 129 Note that the EU level playing field requirements for the most part do not require the UK to make regulatory commitments on product standards but rather on preventing deregulation in specific areas and increased state financial support (for a discussion see section 4.5). A notable exception is health and sanitary rules in the agri-food sector.

65 Commons Library Briefing, 2 March 2020

state aid, competition, social and employment standards, environment, climate change, and relevant tax matters.130

The UK and EU stated in the Political Declaration that distortions of trade and unfair competitive advantages would be prevented by agreeing at least not to regress below common EU and international standards which would be in place at the end of the transition period in several areas of law.

The text of the Political Declaration (Chapter XIV) details that the Parties should in particular:

• maintain a robust and comprehensive framework for competition and state aid control that prevents undue distortion of trade and competition;

• commit to the principles of good governance in the area of taxation and to the curbing of harmful tax practices; and

• maintain environmental, social and employment standards at the current high levels provided by the existing common standards.

The text says that “the precise nature of commitments should be commensurate with the scope and depth of the future relationship and the economic connectedness of the Parties”, meaning that it would be decided during the negotiations what level of commitments matches the new partnership.

Why is ‘level playing field’ a sticking point? Before the negotiations officially started, the UK Government’s and the EU’s interpretation of what is a corresponding level of obligations diverged significantly.

The EU has expressed concerns with the new approach of the UK Government under Boris Johnson to seek a Free Trade Agreement without the levels of regulatory alignment envisaged under his predecessor Theresa May.131 The EU is worried that the UK could seek to compete economically with the EU by adopting different regulatory standards. This EU concern was reflected in the detailed wording of the PD.

Subsequently, various EU and Member States’ officials have reiterated that if the UK does not agree to commitments on the level playing field, then the EU will not offer a zero tariff and zero quota free trade agreement.132 EU Commission President Von der Leyen has stated:

130 Political Declaration, Chapter XIV “Level playing field for open and fair competition” 131 EU warns Johnson plan on rules divergence will hinder trade talks, Financial Times, 5

September 2019; The Northern Ireland protocol in the 2018 version of the Withdrawal Agreement contained provisions on the level playing field which, in the EU’s view, would serve as a basis on which to develop a future UK-EU relationship. The removal of these provisions from the revised WA has heightened EU’s concerns.

132 EU’s chief negotiator Barnier said on 3 February that a level playing field had to be a condition for a “zero-tariffs, zero-quota” deal.” France demands UK aligns with EU rules forever in return for Brexit trade deal, The Telegraph, 7 February 2020

66 The UK-EU future relationship negotiations: process and issues

Without a level playing field on environment, labour, taxation and state aid, you cannot have the highest quality access to the world's largest single market.133

In the EU’s view, geographic proximity, the value of trade and economic interconnectedness are such that asking for “commensurately strong [level playing field] guarantees” in return for access to its single market is only fair.134

As discussed below, the UK Government has a different view.

UK Position The Prime Minister’s written statement of 3 February 2020 on UK-EU relations sets out that the UK is seeking a comprehensive free trade agreement which covers substantially all trade. But the Government does not believe that to secure such an agreement, it is necessary to be bound by an international treaty or guided by shared institutions in other areas, like competition and subsidies policy, the environment and social policy. Such commitments could hamper its aspirations to develop “separate and independent policies” in these and other areas.135

The Government wants its commitments to high national and international standards and fair competition in areas of “competition policy, subsidies, environment and climate, labour and tax” recognised but without resorting to having to follow EU law or having supervision cemented in treaty provisions. It “will not agree to measures that go beyond what is being typically included in a comprehensive FTA.”:

The Government believes therefore that both Parties should recognise their respective commitments to maintaining high standards in these areas; confirm that they will uphold their international obligations; and agree to avoid using measures in these areas to distort trade.136

This follows earlier remarks by Boris Johnson and his Government Ministers rejecting commitments on level playing field and regulatory alignment.

David Frost, the UK’s chief Brexit negotiator confirmed in his speech in Brussels on 17 February that not accepting EU supervision on level playing field issues is fundamental to the Government’s position:

It is central to our vision that we must have the ability to set laws that suit us – to claim the right that every other non-EU country in the world has. So to think that we might accept EU supervision on

133 Speech by European Commission President von der Leyen at the London School of

Economics on 'Old friends, new beginnings: building another future for the EU-UK partnership', 8 January 2020

134 European Commission, Q&A on the draft negotiating directives for a new partnership with the UK, 3 February 202; The European Parliament Resolution of 12 February 2020 underlines that a deeper relationship will require a robust framework for competition and state aid, “in order to ensure that the UK does not engage in unfair and anti-competitive behaviour leading to the undercutting of EU economic actors”.

135 The Government aspires to develop separate and independent policies for, among others, competition and subsidies, the environment, social policy, procurement and data protection.

136 UK / EU relations: Written statement, HCWS86, 3 February 2020

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so-called level playing field issues simply fails to see the point of what we are doing.

The Government’s position is confirmed and elaborated in the command paper on 27 February. It states that, in line with precedents in EU FTAs like CETA, provisions on subsidies, competition policy, state-owned enterprises, labour and environmental standards should not be subject to the FTA’s dispute resolution mechanism.

This is in contrast to Theresa May’s Government which proposed “reciprocal commitments that would ensure UK businesses could carry on competing fairly in EU markets”. These included a common rulebook for state aid and non-regression provisions in areas like environment and employment rules.137

EU position In its negotiating directives, the EU closely follows the principles set out in the Political Declaration. It sees mutual commitments on level playing field as one of the core underlying principles of its future economic partnership with the UK. In addition, it emphasises that ”the envisaged agreement should uphold common high standards, and corresponding high standards over time with Union standards as a reference point”.138

Crucially, the text sets out a need for “adequate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement, including appropriate remedies” to guarantee the implementation of commitments in the long term. The EU also wants to be able to take autonomous steps quickly and retaliate in reaction to any disruption of competition.139

The negotiating directives elaborate on the scope of commitments, also including provisions relating to state-owned enterprises and climate change.140 There are also related requirements to uphold international rules and principles on sustainability related to the environment, social rights and climate change, as promoted by the United Nations, the International Labour Organisation, and other international organisations.

In addition to general requirements on level playing field, the negotiating directives propose sector-specific provisions for aviation and road transport (e.g. non-regression from social rules for road operators and drivers), maritime transport, energy and the carbon Emission Trading System. The directives also refer to product standards in the agri-foods sector.

137 HM Government, The future relationship between the United Kingdom and the European Union, Cm 9593, p9 138 Council Directives, para 94 139 Ibid 140 Ibid

68 The UK-EU future relationship negotiations: process and issues

Box 3: A summary of EU level playing field requirements

In its negotiating directives, the EU is seeking level playing field commitments in the future EU-UK trade agreement underpinning trade in goods and services in the areas detailed below:

State aid and competition The EU is proposing to apply EU state aid rules to and in the UK. An independent UK enforcement authority would work in close cooperation with the Commission. There would be a prohibition on anti-competitive conduct and concentration of firms. State owned enterprises The treaty would include provisions on state-owned enterprises, designated monopolies and enterprises with special rights to prevent distortion of competition or barriers to trade and investment by these entities. Taxation The EU is proposing that both sides sign up to the principles of good governance in matters of taxation (e.g. regarding transparency and fair taxation) and curbing harmful tax measures in line with internationally recognised policy frameworks, such as G20 and OECD guidance. There would be non-regression clauses in areas such as exchange of information on income, tax and beneficial ownership, and anti-tax avoidance practices. Labour and social protection The treaty would contain non-regression clauses with regard to fundamental rights at work, occupational health and safety, fair working conditions and employment standards, information and consultation rights at company level and other areas. Both the UK and EU would promote social dialogue in labour matters. Environment and health The EU is proposing non-regression clauses in a number of areas of regulations, including access to environmental information, environmental impact assessment, industrial emissions, air quality, nature conservation, waste management and climate change. The final version of the directives also includes non-regression on standards related to health and product sanitary quality in the agricultural and food sector. In addition, the directives propose adherence to the precautionary principle, ‘the polluter pays’ principle and other principles at the heart of EU environmental law. Climate change Both the EU and UK would make commitments to international agreements, such as the Paris Agreement. The UK would have a system of carbon pricing equivalent to the EU system and consider linking its greenhouse gas emission trading system (ETS) with the EU ETS, with respect to level playing field commitments. Relating to areas not covered by a system of carbon pricing, the parties would agree not to regress below EU standards and targets set by the end of the transition. A general so-called ‘ratchet clause’ stipulates that if either the EU or the UK go beyond the agreed level of environmental, social, labour, and climate protection, these protections are locked in and cannot be lowered again in order to boost trade and investment.

At the same time, the EU is seeking ways to evolve the agreed commitments over time or extend their scope to new areas. The negotiating directives refer to upholding “common high standards, and corresponding high standards over time with Union standards as a reference point”. To this end, the EU proposes a continued application of existing EU rules on state aid (paragraph 96). It would expect non-

69 Commons Library Briefing, 2 March 2020

regression on aspects of tax, labour and the environment (paragraphs 99, 101, 103), meaning that the level of protection in those areas would not be reduced from common standards applicable within the EU and UK at the end of the transition period. In addition, the EU proposes giving the governing body powers to modify the commitments to reflect evolving standards over time.141

This appears to be a carefully worded search for an acceptable form of dynamic alignment or “parallel evolution” of standards. Georgina Wright of the Institute for Government has suggested that the UK would not be expected to adopt the same standards but to use EU rules and standards as benchmarks for adjusting its own rules in the long term.

On 12 February 2020, the European Parliament, which would have a binding say over any trade deal, in a resolution on the proposed negotiating mandate requested guarantees for a level playing field “with a view to dynamic alignment” across a range of issues. The Parliament’s position could potentially strengthen the EU negotiators’ hand towards the UK.142

Likely difficulties The upcoming negotiations on level playing field will be difficult due to the fundamentally different approaches of both parties.

On the one side, the EU has since the opening of Article 50 negotiations said that level playing field arrangements are required in return for deep access to the single market.143 On the other, the UK is rejecting the premise that the proximity of markets and the volume of trade require rigorous level playing field arrangements. Prime Minister Johnson maintains that such guarantees are not needed as the country is seeking “a comprehensive free trade agreement, similar to Canada” and adds:

The UK will maintain the highest standards in these areas – better, in many respects, than those of the EU – without the compulsion of a treaty.

In the February command paper, the Government refers to the EU agreements with Canada, Japan and Korea as templates for a UK-EU agreement.

In his Brussels speech on 17 February, David Frost argued that:

the model of an FTA and the precedents that exist in actual agreed FTAs are the most appropriate ones for the relationship of sovereign countries in highly sensitive areas relating to how their jurisdictions are governed and how their populations give consent to it.

141 Council Directives, paras 94-95 142 UK alignment on EU standards price to pay for trade deal, say MEPs, the Guardian,

12 February 2020; Brexit: EU Parliament makes tough demands for talks, BBC, 12 February 2020

143 European Commission internal slides, 14 February 2020, p4; Michel Barnier: Johnson agreed last year to stick to EU rules, The Guardian, 3 February 2020

70 The UK-EU future relationship negotiations: process and issues

EU FTAs with other countries include various provisions to uphold regulatory standards or a level playing field element. According to the Financial Times:144

The Canada deal, known as CETA, includes commitments by both sides not to weaken workers’ rights; Brussels is in the middle of a dispute settlement process with South Korea over what it alleges is Seoul’s violation of commitments to uphold International Labour Organization standards; and the EU’s trade deal with Japan contains a promise to honour the Paris climate agreement.

CETA, EU-Japan Economic Partnership Agreement, and the EU-Korea agreement contain provisions which limit trade-distorting government subsidies. These commitments expand on the existing WTO rules in this area.

However, the Commission has said that the commitments in its other FTAs offer insufficient safeguards for the UK-EU partnership as no other country outside the EU enjoys tariff-free and quota-free access to the single market.145

If both Parties find a common “landing zone”, the negotiation will be complex and time consuming. The EU is seeking hard guarantees from the UK that it will live up to its commitments. It wishes to establish “adequate mechanisms to ensure effective implementation domestically, enforcement, and dispute settlement, including appropriate remedies”. (Paragraphs 94-108). But such mechanisms do not exist now and have to be invented.146

Some level playing field areas could be less controversial than others. The Government has said that its policy is not to lower labour, social and environmental standards or change regulations “for the sake of divergence”.147 In these areas, the EU is not asking the UK to adopt new EU rules but to maintain the current level of protection and ensure “corresponding high levels of protection over time”, with EU standards as a reference. An agreement could potentially be found on a type of guarantee that would satisfy EU demands.

Alex Stojanovic of the Institute for Government has suggested that to succeed, the UK would need to explain why it wants to diverge from EU rules and that its aim is not to undercut the EU market. It would need to demonstrate that it can be relied upon to enforce rules domestically, and provide examples of different, beneficial approaches to regulation:

The UK is unlikely to suddenly attempt a race to the bottom after Brexit. But there is a risk that talking up the freedoms of Brexit at home will simply encourage the EU to adopt a more hard-line negotiating stance. The government needs to make clear that the

144 Johnson’s free trade vision hits familiar sticking points, Financial Times, 4 February

2020 145 Cracks appear in Britain-EU talks over free-trade agreement, Daily Telegraph, 20

January 2020 146 Brussels to fight tough on state aid in post-Brexit talks, Financial Times, February

2020 147 See also HC Deb 19 October 2019 vol. 666 c602

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regulatory freedom it wants after Brexit will not pose a threat to the EU […]148

Box 4: UK reaction to EU level playing field objectives

A Sky News report on 16 February said that a government source had described the EU’s level playing field demands as “unreasonable and ridiculous”. The source compared the EU’s demands for the UK to what it asked of other third countries in recent trade deals, giving the examples: of the EU-South Korea trade deal, where the EU removed 99.5% of tariff lines; the EU-Japan trade deal, where the EU removed 99% of tariff lines; and the EU-Canada deal, where the EU removed 98.7% of tariff lines. In each of these cases, the source said that there was no requirement for dynamic alignment on regulation and the third countries were not subject to EU state aid rules. While the trade deals included commitments on workers’ rights and environment, there were no strong enforcement mechanisms. The source also said that asking for alignment on standards did not make sense for the EU, as some of its standards fell below those of the UK.149 On 18 February, the No.10 press office tweeted a slide Michel Barnier had used in a presentation to the European Council in December 2017. The slide showed that the UK’s red lines at the time meant that the EU could only offer a free trade deal along the lines of those the EU had negotiated with South Korea and Canada. “What’s changed?”, the tweet asked of Mr Barnier. In response, a senior EU official was reported to have said that this was “disingenuous” and in “bad faith”, given that the European Council’s Brexit guidelines in April 2017, its guidelines for the future relationship in March 2018, and the Political Declaration all refer to the need for level playing field commitments. The Commission’s UK Task Force published a briefing presented to the Council Working Party on the UK on 18 February. It included a graphic showing the intensity of trade and geographical distance of its major trading partners. It also emphasised that the UK had agreed to level playing field commitments in the Political Declaration in October 2019. It also said that every EU trade deal around the world has a level playing field element “tailored to the specific circumstances of our partners” and that:

Each agreement with a third country depends on a number of different factors, including distance, and the level and intensity of trade we have with that particular country.

The UK-Canada comparison did not work, it said, given the level and intensity of EU-UK trade “determined as well by its past economic integration with the EU” and the extent of EU-UK “economic interconnectedness and geographic proximity”.150 Following the Council’s approval of the negotiating directives on 25 February, Mr Barnier reiterated that the UK had signed up to level playing field requirements in the Political Declaration. In response to another No.10 tweet which pointed out the EU had not tried to place similar conditions on the USA in trade negotiations, Mr Barnier referred to the greater distance between the US and EU economies.151

State aid rules and their enforcement mechanisms are going to be a critical area in the negotiations. Under the Commission’s proposal, EU state aid rules would continue to apply to and in the UK. An independent UK enforcement authority would operate in close cooperation with the European Commission.152

148 Alex Stojanovic, A bumpy level playing field awaits the next round of Brexit talks,

Institute for Government, 16 January 2020 149 Sky News, Government dismisses EU trade demands as unreasonable and ridiculous,

16 February 2020 150 European Commission UK Task Force, Trade Agreements: Geography and trade

intensity, 19 February 2020, UKTF (2020) 13 – Commission to EU 27 151 Financial Times, Michel Barnier irritated by UK stance ahead of trade talks, 26

February 2020 152 Brussels to fight tough on state aid in post-Brexit talks, Financial Times, 27 January

2020

72 The UK-EU future relationship negotiations: process and issues

The EU proposal to base the UK state aid regime on EU law would require a role for the Court of Justice of the EU (CJEU) which has an exclusive competence to interpret EU law. As the UK Government is ruling out “any jurisdiction for the CJEU over the UK’s laws”, or “any supranational control in any area”153 and considering a subsidy regime based on WTO rules, an agreement on state aid rules would seem hard to achieve.

State aid experts and commentators have noted however, that by signing the Withdrawal Agreement with the Irish Protocol, the UK has already agreed to a system which could in practice extend the reach of EU state aid enforcement further than just Northern Ireland.154 This would make it quite difficult for the UK to operate a radically different state aid regime. Staying closer to EU rules would be more practicable.

To reach an agreement, the UK Government would have to demonstrate that its regime offers equivalent protection to the EU state aid regime, possibly with the EU being able to invoke trade sanctions if the agreement is breached.

4.5 Regulatory alignment Much discussion about the UK-EU future relationship has centred on the concept of “regulatory alignment”, with the general pattern of noting that the EU is pushing for as much regulatory alignment as possible, and the UK will wish to diverge from EU regulations.

However, there are different areas of regulation that are being conflated in these discussions - and so it is important to be clear about both the type of regulation that is being discussed and what is meant in that specific context by alignment.

Broadly, we can distinguish between two sets of regulations as being at play in the future relationship negotiations:

─ Product regulations (where the EU is not expecting regulatory alignment)

─ Social and environmental regulations (where the EU will attempt to negotiate regulatory alignment)

Product regulations are the rules that determine the conditions under which goods can be sold on the EU’s internal market. At the moment, the UK and the EU apply equivalent regulations; and under the Protocol on Ireland/Northern Ireland, Northern Ireland will continue to apply equivalent regulations so as to avoid a border on the island of Ireland.

153 UK / EU relations: Written statement, HCWS86, 3 February 2020; The Government says in its February command paper that it would accept reciprocal

commitments on transparency, going beyond the WTO ASCM requirements. It would also agree to a right to request consultations on any subsidy, but would exclude such commitments from the Agreement’s dispute resolution mechanism.

154 MLex, Comment: Brexit deal's state aid rules might have long reach, 19 October 2019; MLex, EU powers to review UK state aid under Irish Border Protocol to be assessed 'case by case', 24 January 2020; G.Peretz QC in Boris Johnson’s efforts to escape EU state aid rules ‘mistaken’ Financial Times, 9 February 2020

73 Commons Library Briefing, 2 March 2020

However, after the implementation period, the UK (on behalf of Great Britain) will be able to adjust these regulations.

Product regulations, broadly, cover technical standards applicable to products, so as to ensure that all products circulating in the internal market are both safely usable and represent a set standard or quality of product.

The consequence of diverging on product regulations within the UK may be that products that are legally produced in the UK, in accordance with those standards, are no longer acceptable for sale in the EU27. An example of an area of possible product divergence is in agriculture: if the UK, on account of a trade deal with the US or otherwise, opts to relax its current regulations applicable to animal products and permits (for example) chlorine-washed chicken to be produced and sold on the UK market, UK chicken may not meet the EU standards for sale anymore. Domestic producers who wish to sell chicken in the EU will have to continue to apply the EU standard, and their products can be checked at the border to see if they comply.

On the majority of products, diverging from the EU standards will offer few advantages to the UK – the EU standards are globally recognised, and domestic manufacturers will be disinclined to adopt an entirely new standard unless it can replace the existing standard without them suffering losses. However, as the chlorine chicken example demonstrates, there may be select sectors where aligning with the US instead of the EU will be something that the Government is interested in pursuing.

Social and environmental regulations are very different in nature, in that they affect the conditions under which products and services are made more than they affect the nature of those products and services themselves. The EU had adopted extensive environmental and employment law that aims to protect the environment and the conditions of workers or service providers across the EU. These rules are sometimes described as “red tape”, in that they set a baseline standard that businesses must comply with in order to trade in Europe, and complying with the rules has costs attached: for example, the “green” products may not be the cheapest to produce, and extensive holiday rights or parental leave rights will also pose a cost to business.

As discussed more in Section 4.4, the EU wishes to see a level playing field in these areas of regulation (as well as in state aid law, competition law and tax law), as divergence here can have as the end result that businesses operating in the UK will be able to offer products and services at a lower cost because they are being made with less “red tape” in terms of employee rights and environmental standards attached. This, of course, reflects a concern that the UK (for competitive advantage) will lower these standards and attract business away from the EU27 and into the UK instead. The UK government has indicated it has no intention to lower standards—but after Brexit, will be able to do so regardless.

74 The UK-EU future relationship negotiations: process and issues

The European Commission’s slide reproduced in section 1.7 shows the practical differences between the single market, where regulatory alignment operates regarding both product and social/ environmental regulation, and a free trade agreement.

The slide demonstrates what divergence in product regulation under an FTA, as opposed to membership of the single market, will amount to. Products will have to be compliant with the rules of the importing country and checks (for health, safety and other public policy purposes) will remain. The Commission says there is a “qualitatively big difference” between single market membership and an FTA in this area. A free trade agreement (even with zero tariffs, and zero quotas) will not mean frictionless trade.155

This is well explained by Sam Lowe of the CER:

… it matters little that on day one of a new EU-UK FTA, all UK rules and regulations would be the same as the EU’s. Once the UK leaves the EU’s single market rule book and institutions, British exports to the EU will broadly be treated as if they came from any EU FTA partner. The British government claims to have accepted that gaining the freedom to regulate as it sees fit will mean new trade friction. But it is not yet clear that businesses and the public have understood what this means in practice. ….

To give another example, the moment the UK is outside of the EU’s single market, even if British producers continue to produce to EU standards, they will not be able to place them directly on the European market. Instead they will need an EU-established entity to take on the legal responsibility for ensuring the product complies with EU product rules. This could be the EU-based importer or an EU-based legal representative of the British company. No longer being able to place products directly on the EU market creates an additional cost for British businesses selling to Europe, no matter what the UK’s domestic regime. Whether the UK then decides to introduce its own product standards (as is currently the ambition), or accepts certain US standards, the barriers facing British exporters selling to the EU remain the same.156

In summary, divergence from the EU’s product regulations will impact individual manufacturers in the UK who wish to sell in the EU. Where there are different regulations on products like agricultural ones in the UK, border processes between the UK and the EU will become more complex and more checks of products crossing will be required (so as to avoid, for example chlorinated chicken legally sold in the UK making its way onto the EU market). Even in the absence of different regulations, however, being outside of the EU’s single market will mean risk-based border checks to ensure that UK standards continue to satisfy EU standards. Regulatory alignment, in the sense of adopting the same product regulations, does not negate the need for border checks. Only where there are governance mechanisms in place that satisfy the EU that these unchanged UK standards meet the EU ones would border

155 Slides p28 156 Sam Lowe, Flexibility does not come for free, Centre for Economic Reform, 16

January 2020

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checks be unnecessary, and those governance mechanisms do not exist outside of the single market. The EU therefore is not seeking regulatory alignment on product standards.

Divergence from social and environmental standards, on the other hand, will not impact individual businesses in the UK in terms of their ability to trade with the EU—but may impact the employment rights of those in the UK, and the overall environmental standards applied to UK business activity. The EU here is seeking regulatory alignment, so as to avoid the UK getting a competitive advantage over the EU27 by taking a more relaxed approach to operating standards for businesses.

4.6 Fisheries Background At the end of the transition period the UK will cease to be part of the EU Common Fisheries Policy (CFP). The UK becomes an independent coastal state and fully responsible for managing fisheries in the UK’s Exclusive Economic Zone (EEZ) of 200 miles. This will include setting total allowable catches (TACs), distributing quotas and determining who has access to fisheries.157

The UK will continue to be bound by the requirements of the UN Convention on the Law of the Sea (UNCLOS) and how they relate to the management of fisheries. UNCLOS requires coastal states to give neighbouring states access to the surplus of the allowable catch in its EEZ. It also emphasises the need to minimise economic dislocation for states whose nationals have habitually fished in the zone. The Convention also places an obligation to co-operate with other coastal states on the management of shared stocks or stocks of associated species.158

The Fisheries White Paper Sustainable fisheries for future generations, published in July 2018, set out the Government’s intention to continue to co-operate closely with the EU and other coastal states on the sustainable management of fish stocks that cross borders. It states that “any decisions about giving access to our waters for vessels from the EU, or any other coastal states including Norway, will then be a matter for negotiation”.159

Fisheries is a small part of the UK economy. However, the economic activity from fisheries is concentrated in some coastal areas, where it is important both socially and economically. Fisheries featured prominently in the Brexit debate. Fishers, both quota and non-quota sectors, are expecting greater fishing opportunities. The processing sector and shellfish exporters have concerns about access to export markets and potential border delays.

157 Article 61(1) of the UN Convention on the Law of the Sea (UNCLOS) states that:

“The coastal State shall determine the allowable catch of the living resources in its exclusive economic zone.”

158 UN Convention on the Law of the Sea (UNCLOS) 159 Defra, Fisheries White Paper Sustainable fisheries for future generations, published

July 2018

76 The UK-EU future relationship negotiations: process and issues

How fishing opportunities are allocated to individual fishing vessels is unaffected by Brexit or the transition period. This is because it has always been within the UK’s competence rather than the EU’s. Fishing for non-quota species in UK waters, such as most shellfish species, isn’t affected either as it does not fall under the CFP.

The future level of access for EU vessels to UK waters and vice versa once the transition ends will be decided during the negotiations. Depending on the outcome of the negotiations, any agreed access may or may not be linked to a trade agreement. The aim set out in the Political Declaration is to reach agreement on fisheries by 1 July 2020 in advance of agreement in other areas.

Further background can be found in the Commons Briefing Papers on Fisheries and Brexit, and on Fisheries Management in the UK.

Reaching agreement on fisheries Previously, the stated Government position on any future agreement with the EU on fisheries was one that increased the quota share for UK vessels while recognising the “need to do that over time”.

Reaching agreement on the detail of sharing fish stocks has always been a technically complicated and politically charged issue. Setting quota within the Commons Fisheries Policy is already based on annual negotiations between all Members States on what the Total Allowable Catch (TAC) of each stock in each area should be. However, within the CFP the share of each TAC for Member State is fixed based on the historical fishing activity of each nation, so called relative stability.160

Any new fisheries agreement with the EU will need to set out if and how each TAC is agreed and shared. The UK and the EU have set out very different views on how this should be done.

UK position: Annual negotiations independent of trade As already referred to in previous sections, the UK Government set out in the Written Statement of 3 February 2020 that it envisages a “suite of agreements” including an agreement on fisheries. The UK has reiterated that it wants to negotiate fisheries access on an annual basis with neighbouring nations:

The UK will become an independent coastal state at the end of 2020 and any agreement must reflect this reality. The UK will, like Norway, Iceland and the Faroe Islands, have annual negotiations with the EU on access to waters and fishing opportunities, and will consider a mechanism for cooperation on fisheries matters

Further detail was provided in the command paper published by the Government on 27 February 2020 (part 2, paragraphs 2-5). This set out that trade in fisheries products should be covered by its proposed CFTA, which should be supplemented by a range of other agreements,

160 The principle of equal access and relative stability is applied under EU Regulation

1380/2013 on the Common Fisheries Policy. This sets out that “fishing opportunities allocated to Member States shall ensure relative stability of fishing activities of each Member State for each fish stock or fishery”.

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including one on fisheries. The agreement on fisheries should be a framework agreement:

Overall, the framework agreement on fisheries should provide a clear basis for an on-going relationship with the EU, akin to the EU’s relationship with other coastal states, one that respects the UK’s status as an independent coastal state and the associated rights and obligations that come with this.

Any such framework agreement on fisheries should cover access to fish in UK and EU waters, fishing opportunities and future cooperation on fisheries management, as follows.

a. It should set out the scope and process for annual negotiations on access to the parties’ exclusive economic zones and fishing opportunities (total allowable catch and shares).

b. Fishing opportunities should be negotiated annually based on the best available science for shared stocks provided by the International Council for Exploration of the Seas (ICES). The UK will no longer accept the ‘relative stability’ mechanism for sharing fishing quotas, which is outdated, based on historical fishing activity from the 1970s. This means that future fishing opportunities should be based on the principle of zonal attachment, which better reflects where the fish live, and is the basis for the EU’s fisheries agreement with Norway.

c. Any EU vessels granted access to fish in UK waters in annual negotiations would be required to comply with UK rules and would be subject to licensing requirements including reporting obligations. New fisheries management measures will be notified in good time.161

The document goes on to state that the Government supports sustainable fisheries and is open to:

The creation of a forum for cooperation on wider fisheries matters outside of annual negotiations. This could include cooperation on matters to support responsible fisheries management, such as data-sharing, science and control and enforcement.162

Zonal attachment The Government’s suggested approach to agreeing fishing allocations is based on the principle of zonal attachment. This is a methodology where share of quota of a particular stock between neighbouring countries is determined based on its behaviour, mainly where it is present during its lifecycle.163

This approach was set out by the Government in the Fisheries White Paper published in 2018, which also included some examples of how it could be applied. The reason for this approach was set out as follows:

The UK’s overall share of fishing opportunities under relative stability does not accurately reflect the quantity of fish found and caught within the UK’s Exclusive Economic Zone (EEZ), which

161 HM Government, Future Relationship with the EU The UK’s Approach to

Negotiations 27 February 2020 162 HM Government, Future Relationship with the EU The UK’s Approach to

Negotiations 27 February 2020 163 NEF, Not in the same boat: the economic impact of brexit across UK fishing fleets,

17 November 2019

78 The UK-EU future relationship negotiations: process and issues

extends out to 200 nautical miles or the median line with other states. Relative stability therefore results in a poor deal for the UK.164

A Parliamentary Office of Science and Technology (POST) note on UK Fisheries Management set out some of the challenges agreeing quotas based on zonal attachment can present:

Norway and the EU use zonal attachment in some bilateral negotiations on certain stocks. This allocates fishing opportunities using information on the spatial distributions of stocks over time and lifecycle. This may be difficult because of complexity in species lifecycles or changes in their distributions due to factors such as climate change.

Selecting the criteria to use, such as biomass or abundance, in determining allocations is done on a political basis. Although scientific evidence and advice can be provided to inform the political choice of criteria, there is also uncertainty over how objectively it can be used in decisions. For example, differences in survey sampling between areas could weight criteria differently. Social and economic factors will also need to be considered in negotiations.165

Annual negotiations can also create difficulties if no quota is agreed. The POST Note refers to the challenges that arose when the EU, Norway and other countries failed to reach agreement in 2010, resulting in some TACs being set unilaterally.166

More recently, agreement was reached between the EU and Norway on 13 December 2019 for fishing quotas for 2020. However the TAC for cod, which has seen a fall in numbers, was set higher than the EU had suggested as necessary to maintain stocks within Maximum Sustainable Yield.

EU position: continued reciprocal access linked to trade The EU position set out in the Council’s negotiation directives is that agreement on fisheries shall guide the conditions on agreement of a future economic partnership, specifically any “access conditions under the free trade area”.167

The negotiating directives restated the EU’s position of continued access to EU fishers to UK waters. The Commission’s original draft was strengthened by Member States, and now calls for any agreement to “uphold continued reciprocal access” and “uphold stable quota shares”. The EU sets out that any quota share should only be amended with the agreement of both parties. And that the agreement on fisheries should “avoid economic dislocation for Union fishermen that

164 Defra, Fisheries White Paper: Sustainable fisheries for future generations, July 2018 165 POSTNote, UK Fisheries Management, 21 February 2018 166 POSTNote, UK Fisheries Management, 21 February 2018 167 Council of the European Union, Directives for the negotiation of a new partnership

with the United Kingdom of Great Britain and Northern Ireland, 25 February 2020

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have been engaged in fishing activities in the United Kingdom waters”.168

The EU wants a comprehensive agreement, which provides a framework for fisheries and, in the latest version of the directives refers to “common technical and conservation measures”:

The envisaged partnership should include, in its economic part, provisions on fisheries setting out a framework for the management of shared fish stocks, as well as the conditions on access to waters and resources and common technical and conservation measures.169

And:

The provisions on fisheries should be underpinned by effective management and supervision, and dispute settlement and enforcement arrangements, including appropriate remedies.170

Fisheries has been referred to as a red line issue by French Ministers to their Parliament:

There must be a fisheries component in the agreement; it’s not an issue where we’ll tolerate any unilateral decisions.

Indeed, fisheries is the most affected, most visible, most iconic sector. And we’re making it an absolute red line. We must protect access to British waters for our fishermen. We must also secure a distribution criterion ensuring we have quotas and protect the resource.

We’ve got to have multiannual arrangements for stock management and we’ve got to have fair competition conditions.171

The link between reaching agreement on fisheries and other sectors which are a significant part of the UK economy, such as services, has also been made by EU Ministers.

Fishing sector response to EU position Fisheries is a diverse sector, with a range of concerns about Brexit. However as noted by the New Economics Foundation in its report on Media Capture in UK fisheries, media coverage is often limited in its range of stakeholders, with regular coverage of potential gains from Brexit, but less on the impact of tariff and non-tariff barriers.172

There has been limited commentary from the fisheries sector on the Council Negotiation Directive. However, the National Federation of Fisheries Organisation (NFFO), which mainly represents larger scale

168 Council of the European Union, Directives for the negotiation of a new partnership

with the United Kingdom of Great Britain and Northern Ireland, 25 February 2020 169 Council of the European Union, Directives for the negotiation of a new partnership

with the United Kingdom of Great Britain and Northern Ireland, 25 February 2020 170 Council of the European Union, Directives for the negotiation of a new partnership

with the United Kingdom of Great Britain and Northern Ireland, 25 February 2020 171 French Embassy in London, Fisheries "an absolute red line" in Brexit talks – Minister,

20 January 2020 172 NEF, Media Capture in UK fisheries, 4 September 2019

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quota fishers, was highly critical of the EU negotiating directives, stating:

Conceding to these demands would eviscerate the UK’s legal status as an independent coastal state and would commit the UK to remaining in an asymmetrical and exploitative relationship with the EU on fisheries. The UK could only accept these provisions by breaking the promises that have been made repeatedly by the Prime Minister and Cabinet level ministers, commitments on fishing made during the EU referendum. It would amount to a betrayal on a scale equivalent to the UK’s sell-out on fishing in 1973.173

And on the linking of a fisheries agreement to access to trade:

The EU has made plain that a free trade deal would be contingent on UK concessions on fishing rights. There is no international precedent for including free access to exploit another country’s natural resources as part of a trade deal. A trade deal is important for both the UK and the EU. Some EU member states will be extremely vulnerable if the UK is forced to trade on WTO terms.174

The strength of views within the fishing industry, and the wider political debate, have led to some speculation that the very different positions set out by both parties could lead to a failure to reach agreement on fisheries, and derail trade talks with the EU.175

4.7 Data adequacy Issue being discussed As a member of the EU, the UK was subject to EU data protection law - the General Data Protection Regulation (GDPR). The Data Protection Act 2018 (DPA) implemented GDPR in the UK. However, in order for the UK and the EU to continue to exchange data after the end of the transition period, the EU will need to be satisfied that the UK will continue to provide adequate protection to EU citizens’ data (as the UK will of the EU, conversely). This is true both of data exchanged between companies for commercial purposes, and law enforcement data exchanged between criminal justice agencies.

This issue is not subject to a negotiation. Each party will have to take a unilateral decision as to whether the other satisfies the requirements of its data protection laws.

According to EU law, an adequacy decision by the European Commission requires that the laws in a third country provide “essentially equivalent” protection, but need not be identical.

The Commission can grant a country-wide adequacy decision, meaning that it is safe for EU organisations to exchange data with organisations

173 NFFO, EU Negotiating Mandate and NFFO Comment, 26 February 2020 174 NFFO, EU Negotiating Mandate and NFFO Comment, 26 February 2020 175 Financial Times, Brexit: why fishing threatens to derail EU-UK trade talks , 28 January

2020

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in the other country without looking at their specific data processing practices.176

It can also grant a decision on a more limited basis, as in the case of the US Privacy Shield.177

If no adequacy decision is granted, data may be exchanged but this would be on the basis of specific agreements governing the exchange of data between organisations.

UK position The Prime Minister’s written statement to Parliament on 3 February stated that the UK will in the future develop a separate and independent data protection policy. It also envisaged that the EU’s assessment of the UK’s data adequacy would be “technical and confirmatory of the reality that the UK will be operating exactly the same regulatory framework as the EU at the point of exit”. It committed to approaching its own assessment of EU adequacy “in this spirit”.178

In his Greenwich speech, the Prime Minister said that the UK would “restore full sovereign control over … data protection”.179

The Government’s negotiating mandate on 25 February provided a little more detail, stating that the UK will seek an adequacy decision from the EU under GDPR and the Law Enforcement Directive (governing exchange of law enforcement data) before the end of the transition period. It also emphasises that this is separate from the wider future relationship and does not form part of trade agreements.180

EU position The Political Declaration commits the Commission to endeavouring to adopt decisions by the end of 2020, and for the UK to “take steps to ensure the comparable facilitation of transfers of personal data”.181

The EU negotiating directives state that

The envisaged partnership should affirm the Parties’ commitment to ensuring a high level of personal data protection, and fully respect the Union’s personal data protection rules, including the Union’s decision-making process as regards adequacy decisions.182

176 So far, the Commission has recognised 13 countries as providing adequate

protection: Andorra, Argentina, Canada, Faroe Islands, Guernsey, Israel, Isle of Man, Japan, Jersey, New Zealand, Switzerland, Uruguay, and the USA. Some of these are limited to certain data transfers (USA and Canada), and none cover law enforcement data.

177 Privacy Shield aims to protect the fundamental rights of anyone in the EU whose persona data is transferred to the US for commercial purposes. It includes data protection obligations on US companies receiving data from the EU and safeguards on US government access to data. A separate EU-US Umbrella Agreement applies to law enforcement data exchange.

178 UK/EU relations: HCWS86, 3 February 2020 179 PM speech in Greenwich: 3 February 2020 180 Paras 59-62 181 Revised text of the Political Declaration setting out the framework for the future

relationship between the EU and the UK, 17 October 2019, para 9 182 Directives for the negotiation of a new partnership with the United Kingdom of

Great Britain and Northern Ireland, para 13

82 The UK-EU future relationship negotiations: process and issues

It does not commit to a particular timeframe for a decision.

Are there any potential obstacles to a data adequacy decision? When assessing adequacy, the Commission does not only look at a country’s data protection laws. It also takes account of laws governing data obtained under surveillance powers. As a Member State, the UK’s surveillance powers were exempt from EU law as they were deemed to be a matter of national security.183

The CJEU struck down a previous adequacy agreement with the USA, Safe Harbor, on the basis of a complaint about US surveillance practices revealed by Edward Snowden. The replacement agreement, Privacy Shield, is currently being challenged in the CJEU.184

The Investigatory Powers Act 2016 (IPA) governs the UK’s surveillance regime. The IPA has already been amended as a result of a successful challenge in the CJEU and there are ongoing legal challenges concerning its compatibility with EU law and the European Convention on Human Rights. These issues are likely to be relevant to the Commission’s assessment of the adequacy of the UK’s ongoing data protection arrangements.

The European Parliament’s resolution on the proposed EU negotiating mandate expressed concern that the UK framework on the retention of electronic telecommunications data (under the IPA) is not compatible with EU law and that the UK does not therefore currently meet the conditions for adequacy. It also notes that mass surveillance programmes might not be adequate and encourages the Commission to take into consideration the case law of the CJEU and the European Court of Human Rights on these issues.185

Linkage to negotiations on security partnership The EU’s negotiating directives link adequate protection of personal data to the agreement on a future security partnership. They state that it is a necessary condition for the law enforcement and judicial cooperation envisaged, and that the agreement should be suspended if the Commission’s adequacy decision is suspended or declared invalid by the CJEU.186

183 There is currently a case pending before the CJEU concerning the scope of this

exemption: Privacy International v SSFCO & others, C-623/17 184 Data Protection Commissioner v Facebook Ireland Ltd and Maximillian Schrems, C-

311/18 185 European Parliament resolution of 12 February 2020 on the proposed mandate for

negotiations for a new partnership with the United Kingdom of Great Britain and Northern Ireland (2020/2557(RSP)), paras 32-34

186 Para 118

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4.8 Security partnership: internal security cooperation

The UK currently participates in more than 40 EU measures that aim to support and enhance internal security and criminal justice cooperation. Measures deemed to be particularly significant include:

• The European Arrest Warrant (EAW);

• Access to databases, including the Second Generation Schengen Information System (SIS II); European Criminal Records Information Exchange System (ECRIS); Passenger Name Records (PNR); the Prüm Convention – the framework for the exchange of DNA profiles, fingerprints and vehicle registration data; and

• Participation in agencies, including Europol and Eurojust.

At the end of the transition period the UK will cease to have access to these cooperation mechanisms, and it is therefore necessary to agree a new basis on which to extradite people between the UK and the EU; to exchange law enforcement data; and to facilitate cooperation between law enforcement and criminal justice agencies.

UK position The Government’s written statement to Parliament on 3 February said that it believed it to be in the mutual interests of the UK and EU to reach a “pragmatic agreement” on a framework for law enforcement and judicial cooperation. This should deliver “strong operational capabilities” whilst being consistent with the position that the CJEU and EU law must not constrain the UK’s legal system.

In his speech the same day the Prime Minister did not expand on this, repeating the aim for a “pragmatic deal” that does not trespass “on the autonomy of our respective legal systems”.187

The Government’s negotiating mandate of 27 February provides further detail of its priorities in this area. It states that this should be a separate agreement with its own “appropriate and proportionate” governance mechanism. It envisages no role for the CJEU in resolving disputes.188

On specific measures, it states that the agreement should cover the following capabilities:

• Exchange of criminal records, through capabilities similar to ECRIS;

• Exchange of DNA, fingerprint and vehicle registration data, through capabilities similar to Prüm;

• Exchange of PNR data, going beyond existing third party precedents “in some respects”;

• Real-time alerts on persons and objects that are wanted, missing or otherwise of interest, to replace capabilities currently provided for by SIS II;

187 PM Speech in Greenwich: 3 February 2020, gov.uk 188 Para 30

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• Cooperation with Europol which could go beyond existing third party precedents “given the scale and nature of cooperation between the UK and Europol”;

• Cooperation with Eurojust based on existing third country precedents;

• Fast-track extradition arrangements based on the EU’s Surrender Agreement with Norway and Iceland;

• Mutual legal assistance, building on relevant Council of Europe Conventions;

• Prisoner transfer arrangements, building on the relevant Council of Europe Convention.

EU position The EU’s negotiating mandate states that the security partnership should provide for close law enforcement and judicial cooperation in the prevention, investigation, detection and prosecution of crime.189

On data exchange, this includes specific arrangements for the exchange of PNR data; access to the Prüm framework; and, a mechanism for the simplified and efficient exchange of law enforcement intelligence and information.

The mandate also envisages:

• Cooperation through Eurojust and Europol, in line with other third countries;

• Streamlined extradition arrangements;

• Mutual legal assistance though relevant Council of Europe Conventions, supplemented by additional arrangements where necessary, with a view to delivering capabilities that approximate equivalent EU measures, so far as technically and legally possible;

• Exchange of criminal records information via the relevant Council of Europe Convention, supplemented with a view to achieving equivalence with EU measures, as above.

It also proposes commitments to support international efforts to prevent and fight against money laundering and terrorist financing.

Likely difficulties in the negotiations Political and legal considerations are likely to impact on the negotiations and the scope of the agreement.

As in other areas, the EU has stated repeatedly that the UK cannot enjoy the same benefits as a third country as it did as a Member State. It has also linked some cooperation measures to other aspects of EU law, for example linking the EAW to freedom of movement.

The EU is unlikely to agree to closer cooperation arrangements with the UK as a non-Member State without freedom of movement than those

189 Paras 117-126

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currently in place with Member States such as Denmark, which has an opt out from full participation in this area,190 or those with Schengen countries that allow freedom of movement.191

The UK has indicated that in some areas it would like the agreement to go beyond existing third country precedents. The extent to which the EU will agree to this remains to be seen.

A potential legal obstacle is the UK’s ongoing adherence to the European Convention on Human Rights (ECHR). The EU’s negotiating mandate states that the partnership should provide for automatic termination of cooperation if the UK were to denounce the ECHR. It also proposes that cooperation should be suspended if the UK repealed domestic legislation (the Human Right Act 1998) which enables individuals to invoke ECHR rights in domestic courts.

The 2019 Conservative Party manifesto committed to “updating” the Human Rights Act 1998. The details of this proposal are yet to be revealed and it is unclear whether it would be compatible with the EU’s position on the ECHR and the requirement that individuals be able to invoke their rights in the domestic courts.192

The Government’s negotiating mandate states that cooperation will be underpinned by the importance attached by the UK and EU to safeguarding human rights. But it goes on to say that “the agreement should not specify how the UK or the EU Member States should protect and enforce human rights and the rule of law within their own autonomous legal systems”.193

Linkage to data adequacy decision As noted in section 4.7 agreement on internal security cooperation is likely to be linked to the Commission granting a data adequacy decision.

The EU’s negotiating mandate states that adequate protection of personal data is a “necessary condition” for cooperation in this area, and that the “level of ambition” of the partnership will depend on the level of protection for personal data. Cooperation will be suspended if the Commission’s adequacy decision is repealed or suspended by the Commission or declared invalid by the CJEU.194

190 Denmark has opted not to be a full member of Europol but has an agreement that

allows operational cooperation. This includes some data exchange but does not “in any way equal full membership”: Declaration by President Juncker, President Tusk and Prime Minister Lokke Rasmussen, Press release 15 December 2016.

191 A ‘surrender’ agreement between Norway and Iceland and the EU recently came into force which was intended to replicate so far as possible the capabilities of the EAW. However, limitations were placed on the scope of the agreement because Norway and Iceland are not Member States.

192 Conservative Manifesto 2019, page 48 193 Para 31 194 Para 118

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4.9 Security partnership: foreign, security and defence policy

Issues to be discussed195 The revised Political Declaration envisages the creation of a “Framework Participation Agreement” that will go beyond existing EU-third party agreements and establish an unprecedented relationship between the EU and UK in foreign policy and defence matters.

Its main guiding principle is the need for “close, flexible and scalable cooperation” that respects the decision-making autonomy of both Parties. It envisages structured consultation and regular thematic dialogue between the UK and EU at different levels, the exchange of information, and the need for “close cooperation in Union-led crisis management missions and operations, both civilian and military”. It also envisages close consultation and cooperation on sanctions and the sharing of intelligence.

The document’s detail on how such principles will be delivered is limited, however, and will be the subject of forthcoming negotiations.

The Withdrawal Agreement (Article 127 (2)) made provision for the early implementation of any agreement on foreign policy and defence, should the UK and EU so decide.

UK Position The British Government has made it clear that despite Brexit, the UK is not withdrawing from Europe and that it is fully committed to European security.196 The UK Government had previously indicated a desire to see an unprecedented UK-EU defence and security relationship going beyond any existing third country arrangements with the EU. However, Government statements since leaving the EU have indicated that it is no longer seeking an institutionalised future UK-EU relationship in foreign affairs and defence.

In the Political Declaration and in previous statements, the UK had indicated its willingness to engage, as a third-party participant, in EU military operations and to consider involvement in EU capability development mechanisms such as Permanent Structured Cooperation (PESCO) and the European Defence Fund, albeit on a case-by-case basis and where it is in the UK national interest to do so. Any deployment of military forces would remain a sovereign decision by the British Government.197

Going forward the UK appears to be favouring a flexible, ad-hoc approach to foreign and defence policy cooperation. The UK

195 For further reading see House of Commons Library, CBP08676, Brexit and UK

defence: an explainer; House of Commons Library, and House of Commons Library, CBP08216, EU defence: where is it heading?

196 Most recently reiterated by the Defence Secretary in January 2020 (MOD press release, 16 January 2020)

197 See HM Government, Framework for the UK-EU Security Partnership, 9 May 2018

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negotiating objectives published on 27 February stated that foreign policy will be determined “within a framework of broader friendly dialogue and cooperation between the UK and the EU”. The document makes no direct reference to defence.

Yet the UK is a significant military power in Europe.198 It has often been noted that, in defence terms at least, the EU needs the UK more than the UK needs the EU. As such, defence cooperation could be used as a potential bargaining chip by the UK Government in the broader negotiations on a future relationship. If it does so, conclusion of an early agreement in this area would appear doubtful. The Government is also likely to want to link up any future agreement with its Integrated Security, Defence and Foreign Policy Review, the outcome of which is expected towards the end of the year.

EU Position It has been the longstanding view of the EU that, as a third country, the UK cannot “have the same rights and enjoy the same benefits as a member”.199 There will also be no standing invitation to participate in CSDP operations.

The EU also makes clear in its negotiating directives that it views any partnership agreement as a “single package”, of which foreign policy and defence will be one of three main components. Adopting this approach suggests that the EU also no longer wishes to seek an early agreement in this area, as had been mooted in the past. The EU negotiating mandate does state, however, that “structured consultations” on CFSP and CSDP, where appropriate, could be put into operation before the end of the transition period.

Potential difficulties While both sides have acknowledged the desire for a close relationship in foreign policy and defence matters, the level of unprecedented access that the UK had previously sought, particularly in military operational planning and defence capabilities development, presented some difficulties:

• Military operations - The Political Declaration suggests consultation and the exchange of information with the UK early in the planning process for those CSDP operations “open to third countries”, which would intensify at “relevant planning stages” once the UK had indicated its intention to contribute. That degree of consultation and exchange of information would remain proportionate to the level of participation by the UK, although the Declaration acknowledges that it would also allow the UK “to

198 Historically the UK has provided an estimated 20% of the EU’s force catalogue,

including strategic enablers such as airlift, refuelling and intelligence surveillance and reconnaissance. The UK’s principal contribution to EU-led operations has been at the strategic command level. The UK is one of only a few EU Member States capable of providing an operational HQ. In absolute terms, the UK also has the largest defence budget in Europe.

199 European Commission, Recommendation for a Council Decision authorising the opening of negotiations for a new partnership with the United Kingdom of Great Britain and Northern Ireland

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best tailor its contribution and provide timely expertise”. However, it is unlikely that the UK would have access to operational planning documents. Such access would go far beyond the parameters of current EU third-party arrangements and is a UK request that the EU has long resisted. For many commentators the commitment of UK military capabilities to an operation over which the UK Government would have no formal say, is an unacceptable compromise.

• Defence capabilities - The need for collaboration in capability development in order to achieve interoperability has long been acknowledged by both sides and the Political Declaration makes a commitment to enabling such collaboration, as far as possible under EU law. The details of that third-party participation are currently being discussed within the EU’s institutions. While nothing has been formally concluded, the EU is widely expected to adopt a largely protectionist approach and it is likely that regulations controlling third-party access to either mechanism will be strict.

However, in the EU’s adopted negotiating mandate, the language relating to third party involvement in the European Defence Fund has been changed from the previous draft. Whereas the draft negotiating guidelines referred to enabling “the participation of eligible United Kingdom entities in collaborative defence projects bringing together Union entities supported by the European Defence Fund”; the adopted mandate now refers to enabling “cooperation with United Kingdom entities, when carrying out collaborative defence projects…”

Without the final text of the regulations governing third party access it is difficult to know whether this change of language is meaningful, but it could indicate the EU’s willingness to compromise over the terms of participation in the EDF by non-EU states.

4.10 Governance Issues to be discussed Agreement Structure

Part IV of the Political Declaration discusses “institutional and other horizontal arrangements”. In paragraph 118, it indicates that the parties have agreed that “the future relationship should be based on an overarching institutional framework covering chapters and linked agreements relating to specific areas of cooperation”. However, paragraphs 118 and 119 also make clear that specific governance arrangements may apply to “individual areas” and some agreements may exist outside of this “overarching institutional framework”.

The Commission, on 21 January 2020, published a set of internal slides discussing the “architecture and legal nature of the partnership”. These slides highlight that in the view of the Commission, the intention is to “negotiate a new partnership in the form of a single comprehensive partnership agreement”. However, it indicates that the legal basis for

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the adoption of that agreement can only be determined once the negotiations have finished.

The UK, on the other hand, has suggested that sector-by-sector progress is desirable if not inevitable in light of the timeline constraints presented by the implementation period’s length—which would result in a number of separate deals, concluded one at a time. A UK government spokesperson thus said on 13 January 2020 that ”the approach of nothing is agreed until everything is agreed is not an approach that we are interested in taking”.

In response to this, one of Michel Barnier’s aides, Stefaan de Rynck, argued on 23 January 2020 that the agreed Political Declaration reflects the EU approach:

In terms of the singular agreement or salami kind of agreement, I prefer this kind of pasta where everything is integrated as a main course ...

Therefore I think we have an agreement with the U.K. that will go for an overarching institutional framework where chapters and agreements are linked... That is in the Political Declaration that we have agreed with the U.K.200

The UK command paper published on 27 February 2020, nonetheless, makes clear the UK is seeking separate agreements, governed individually rather than through an overarching framework:

The [Comprehensive Free Trade Agreement] should be supplemented by a range of other international agreements covering, principally, fisheries, law enforcement and judicial cooperation in criminal matters, transport, and energy, and once again this paper sets out the content of such agreements in detail. All these agreements should have their own appropriate and precedented governance arrangements, with no role for the Court of Justice (paragraph 6).

Governance Setup

On governance, the Political Declaration proposes the following:

• Regular dialogue between the parties at appropriate levels so as to provide strategic direction and discuss further cooperation where possible.

• Thematic dialogue at appropriate levels on the topics of the economic and security partnerships, as often as necessary.

• Dialogues between the EU and UK Parliaments.201

The UK and EU agreed in paragraph 126 that overall administration of the future relationship should take place via a Joint Committee, responsible for management, supervision, and dispute resolution as related to the future relationship. Further details about the work of the Joint Committee or its makeup are left deliberately vague in the Political Declaration.

200 Politico, Michel Barnier aide pushes for ‘ravioli’ Brexit deal — not salami, 23 January

2020 201 Political Declaration, paras 123-125.

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On dispute settlement, the Political Declaration sets out in paragraphs 129-132 that the parties envisage a two-step dispute resolution system that is not dissimilar from that set up by the Withdrawal Agreement:

• The first stage is discussion and consultation between the parties, including through the Joint Committee where necessary. Mediation should also be available for the parties.

• The second stage is referring a dispute to an independent arbitration panel, which will issue binding decisions. Where the arbitration panel has to interpret EU law, it must refer questions about the meaning of that EU law to the CJEU.

Where there is non-compliance with any part of the future relationship agreement, the agreement itself will stipulate what obligations under the relationship either party can suspend temporarily in response to a breach.

Finally, the Political Declaration states in paragraph 134 that parties can temporarily take measures that would ordinarily be in breach of the future relationship where “significant economic, societal or environmental difficulties” necessitate this – though a decision to take such “safeguard measures” is subject to arbitration, where necessary.

A separate set of Commission slides, published on 20 January 2020, considers the EU perspective on what kind of governance and institutional mechanisms are desirable in light of the agreed starting point in the Political Declaration. They add little to what the Political Declaration itself says, but do emphasise that the EU is seeking an overarching institutional architecture with governance provisions that apply to all agreements in the first instance—and will look for tailored provisions “where necessary”. On dispute resolution, the Commission slides add that part of dispute settlement will be “financial compensation”, and that the EU will seek to set up tailored remedies for violations of the “level playing field” conditions discussed above.202

The slides conclude by noting that the need for “monitoring and compliance mechanisms” will be determined by the depth and content of the partnership, and that above all, the autonomy of the EU legal order must be preserved.

This is also reflected in the EU’s negotiating directives adopted on 25 February 2020. Here, paragraph 7 once again stresses that:

[t]he envisaged partnership should form a coherent structure and be embedded in an overall governance framework.

This aim is elaborated on in Part IV of the negotiating directives, but Part IV does not differ in substance from what the Political Declaration or the Commission’s slides of 20 January 2020 set out.

The UK position also appears unchanged from what it was in January: on 3 February 2020, the Prime Minister addressed governance of the

202 See Jim Brunsden, ‘UK faces fines if it breaks post-Brexit EU trade rules’ (Financial

Times, 20 January 2020)

91 Commons Library Briefing, 2 March 2020

future relationship in a written statement to Parliament in the following terms:

[Respect for the sovereignty of both parties and the autonomy of their legal orders] points to a suite of agreements of which the main elements would be a comprehensive free trade agreement covering substantially all trade, an agreement on fisheries, and an agreement to cooperate in the area of internal security, together with a number of more technical agreements covering areas such as aviation or civil nuclear cooperation. These should all have governance and dispute settlement arrangements appropriate to a relationship of sovereign equals.

Future cooperation in other areas does not need to be managed through an international Treaty, still less through shared institutions. The UK will in future develop separate and independent policies in areas such as (but not limited to) the points-based immigration system, competition and subsidy policy, the environment, social policy, procurement, and data protection, maintaining high standards as we do so. Cooperation on foreign affairs and related issues is of course likely to be substantial, but does not in itself require a joint institutional framework.

This again suggests the UK is seeking separate agreements with separate governance structures—and in some cases, seeking cooperation without actually formalised governance structures in place.

The command paper of 27 February 2020 in general only references a desire for “appropriate governance arrangements” for the desired agreements, without going into any detail on what these may be. There are two exceptions. First, there is a single paragraph on the governance of the CFTA that goes into slightly more detail on the UK position:

83. The Agreement should include provisions for governance arrangements that are appropriate to a relationship of sovereign equals, drawn from existing Free Trade Agreements, such as those the EU has with Japan and Canada. These should be based on a Joint Committee to support the smooth functioning of the Agreement, and provide mechanisms for dialogue, and, if necessary, dispute resolution. The arrangements will reflect the regulatory and judicial autonomy of the UK and accordingly there will be no role for the Court of Justice of the European Union in the dispute resolution mechanism. This is consistent with previous Free Trade Agreements concluded by the EU.

This paragraph is less specific than the Political Declaration: it does not expressly refer to arbitration, and appears to wish to exclude the CJEU’s role of “interpreting EU law” that is a part of the Political Declaration’s dispute resolution proposals, as well as the EU’s negotiating directives. However, given how generally the paragraph is worded, it leaves scope for the inclusion of an arbitration mechanism that does include references to the CJEU for interpretations of EU law – in that this does not necessarily create a role for the CJEU in “dispute resolution” itself.

The second exception is in relation to the desired agreement on law enforcement and judicial co-operation in criminal matters. Here, the UK command paper states:

30. This should be a separate agreement with its own appropriate and proportionate governance mechanism. The agreement must not constrain the autonomy of the UK's legal system in any way. It

92 The UK-EU future relationship negotiations: process and issues

should not provide any role for the CJEU in resolving UK-EU disputes, which is consistent with the EU’s approach to cooperation with third countries on law enforcement and judicial cooperation in criminal matters, including between the EU and neighbouring non-EU countries on tools such as the Second Generation Schengen Information System (SIS II) and Prüm.

Compared to paragraph 83 on the CFTA, the UK objection to the involvement of the CJEU appears firmer in this paragraph 30. Also of interest is the idea introduced of an “appropriate and proportionate” governance mechanism, which is not elaborated on. The paragraph as a whole suggests that this agreement will benefit from a more remote governance setup which does not “constrain the autonomy of the UK’s legal system in any way.”

BRIEFING PAPER Number 08834 2 March 2020

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