BRIEFING PAPER Number 8289, 19 April 2018 Brexit: new guidelines on By Library subject the framework for future specialists
EU-UK relations
Contents: 1. The new guidelines: background 2. Economic relationship 3. Climate change, sustainable development and cross- border pollution 4. Reciprocal access to fishing waters 5. Free movement 6. Transport 7. UK participation in EU agencies and programmes 8. Regulatory alignment and adherence to standards 9. Enforcement and dispute settlement 10. Other areas of cooperation 11. Areas of agreement and disagreement
www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | [email protected] | @commonslibrary 2 Brexit: new guidelines on the framework for future EU-UK relations
Contents
Summary 5 1. The new guidelines: background 8 1.1 The Article 50 process 8 Drafts and revisions 8 New guidelines are adopted 9 General principles are retained 10 1.2 Political Declaration on the framework for future relations 10 What will be in it? 10 Not legally binding 11 2. Economic relationship 12 2.1 Ambitious and wide-ranging free trade agreement 12 2.2 Trade in goods 14 2.3 Appropriate customs cooperation 16 2.4 Technical barriers to trade and SPS measures 17 2.5 Voluntary regulatory cooperation 20 2.6 Trade in services 20 2.7 Public procurement markets 24 2.8 Investments 27 2.9 Protection of intellectual property rights 29 3. Climate change, sustainable development and cross- border pollution 32 UK position 32 European Parliament position 32 3.1 Climate change 33 UK position 33 European Commission position on climate change 34 3.2 Sustainable Development 35 The Sustainable Development Goals 35 EU trade policy and sustainable development 36 3.3 Cross-border pollution 37 4. Reciprocal access to fishing waters 39 4.1 Transitional Agreement Outcome 39 4.2 Fisheries in a future deal 40 5. Free movement 43 5.1 EU position 43 5.2 UK position 44 5.3 Social security 47 6. Transport 50 6.1 European Common Aviation Area (ECAA) 51 6.2 European Aviation Safety Agency (EASA) 52 6.3 Road haulage 53 7. UK participation in EU agencies and programmes 55 7.1 EU Agencies and Programmes 55 7.2 International agreements on third party participation 58 7.3 UK position 59 8. Regulatory alignment and adherence to standards 67 3 Commons Library Briefing, 19 April 2018
8.1 The ‘level playing field’ condition 67 8.2 Taxation 68 8.3 Environmental and labour standards 68 8.4 EU cherry-picking? 69 9. Enforcement and dispute settlement 70 9.1 Existing EU dispute resolution mechanisms 70 The UK position 70 9.2 CJEU legal autonomy 71 10. Other areas of cooperation 74 10.1 Law enforcement and judicial cooperation in criminal matters 74 UK position 74 EU position 76 10.2 Cooperation in foreign, security and defence policy 80 10.3 Data protection 81 The EU data protection framework 81 Third countries and adequacy 82 The UK position 82 11. Areas of agreement and disagreement 84 11.1 Agreement 84 11.2 No agreement 87 11.3 Nothing on financial services 91 How EU financial services work at present 92 What the City and the UK Government want 95
Contributing Authors: Elena Ares, Lorna Booth, Louise Butcher, Sarah Coe, Joanna Dawson, Emma Downing, Tim Edmonds, Melanie Gower, Steven Kennedy, Claire Mills, Sylvia de Mars, Vaughne Miller, Sara Priestley, Louise Smith, Richard Ware, Dominic Webb, John Woodhouse
Cover page image copyright British and European flags in front of the Berlaymont building by Lieven Creemers. Copyright: European Union, 2016 / image cropped. Source: EC - Audiovisual Service
4 Brexit: new guidelines on the framework for future EU-UK relations
5 Commons Library Briefing, 19 April 2018
Summary
New guidelines for the Brexit negotiations On 7 March new draft guidelines were published for the next phase of the negotiations on the framework for future relations between the EU and the UK, and in mid-March there were reports of an amended text. On 23 March 2018 the European Council adopted the new guidelines. The two earlier sets of guidelines will continue to apply. There are no new supplementary negotiating directives. A solution to the problem of how to avoid a hard border between Ireland and Northern Ireland remains an outstanding issue for this phase of the negotiations. The European Council will assess progress in ongoing issues and the framework for future relations at the summit on 28-29 June. The EU’s proposals for future EU-UK relations The new guidelines provide the following framework for future EU-UK relations: • “as close as possible a partnership with the UK”; • The EU “will preserve its autonomy in decision-making”, so UK will be excluded from participation in EU Institutions and decision-making of EU bodies, offices and agencies; • The role of the Court of Justice of the European Union (CJEU) will be “fully respected”; • A future free trade agreement will be “balanced, ambitious and wide-ranging” and finalised once the UK has left the EU; • Trade in goods should cover all sectors, maintain zero tariffs and rules of origin; • Reciprocal access to fishing waters and resources; • Customs cooperation, preserving regulatory and jurisdictional autonomy of parties and integrity of Customs Union; • Disciplines on technical barriers to trade, and sanitary and phytosanitary measures; • A framework for voluntary regulatory cooperation; • Market access to provide services under host state rules; • Provisions on access to public procurement markets, investments and protection of intellectual property rights; • “Close cooperation” on global challenges, e.g. climate change, sustainable development and cross-border pollution; • “Ambitious” free movement provisions: reciprocity and non- discrimination, coordination of social security, recognition of professional qualifications and adherence to human rights; 6 Brexit: new guidelines on the framework for future EU-UK relations
• Connectivity in transport services via agreements on air transport, aviation safety, security and other modes of transport; • UK participation in e.g. research and innovation, education and culture programmes, subject to conditions for third county participation; • “Robust guarantees which ensure a level playing field” by alignment of UK rules with EU and international standards; • Law enforcement and judicial cooperation in criminal matters; • Exchanges of information, operational cooperation between law enforcement authorities, judicial cooperation in criminal matters; • “Strong cooperation” in foreign, security and defence policy; • Dialogue, consultation, coordination, exchange of information, and cooperation mechanisms, including a Security of Information Agreement; • Adherence to EU rules on data protection; • Overall management and supervision, dispute settlement and enforcement mechanisms, taking into account need for legal certainty and the autonomy of the EU legal order. The Prime Minister’s Mansion House speech The Prime Minister acknowledged in her Mansion House speech on 2 March 2018 that neither side “can have exactly what we want”, but she envisaged the following for the future EU-UK relationship: • “the same regulatory outcomes over time” for when UK banks lose ‘passporting’ rights to trade across EU; • Associate membership of European Medicines Agency, European Chemicals Agency and European Aviation Safety Agency, accepting their rules and making financial contribution; • Participation in EU science, education and cultural programmes; • A “close association with Euratom”; • Possibly UK participation in EU internal energy market; • Independent arbitration mechanism for trade disputes to replace jurisdiction of the Court of Justice of the EU; • Fairer terms for UK fishermen based on reciprocal access to waters and shared stocks management; • Mutual recognition of broadcasting rules allowing UK channels to continue transmitting in the EU; • Rail, maritime, aviation and hauliers' access to EU markets; • UK regulatory standards will be “as high as the EU's”, though “not identical”, to allow continued trade.
Areas of agreement and disagreement The Prime Minister’s Mansion House speech and the European Council guidelines show that there are several broad areas of agreed pursuit, which suggest the parties will seek to agree to a future partnership that is as close as possible while recognising the autonomy of the EU legal order, and to create a ‘level playing field’ which at least covers state aid 7 Commons Library Briefing, 19 April 2018
and competition law. This would cover in substantive terms: trade in goods (with a specific commitment to no tariff barriers); customs cooperation; so-called Modes 3 and 4 of services provision (establishment abroad under ‘host state’ rules, and temporary provision of services abroad under ‘host state’ rules); inclusion of rules on the movement of people that may surpass standard trade agreement rules; recognition of respective qualifications; civil judicial cooperation in matters of family law; all forms of transport; research and innovation (suggesting Horizon2020 and other research links); education and cultural programmes (suggesting Erasmus); and law enforcement, security and judicial cooperation in criminal matters (suggesting a replacement of the European Arrest Warrant.
This leaves several matters proposed by one of the parties that the other has either not addressed in the Mansion House or the European Council guidelines, or has explicitly ruled out. The areas where there are clear disagreements on both approach and form are:
• Mutual recognition as a viable mechanism by which to govern future UK-EU trade and cooperation in both goods and services (specifically, financial services), recognition of UK workers’ rights; environmental protection, and social standards as guaranteeing a ‘level playing field’. • Data protection: the EU wants unilateral ‘adequacy’ rulings, while the UK wants a ‘firmer’ solution. • Agency participation: the UK is willing to sign up to all EU rules and institutional enforcement in order to remain a party to certain EU agencies. The EU so far appears to be ruling out agency participation for non-Member States. But some EU agencies explicitly allow for third party status. • Dispute settlement: UK wants an arbitration system; EU says a dispute settlement system must respect the depth of the partnership and the autonomy of the CJEU.
8 Brexit: new guidelines on the framework for future EU-UK relations
1. The new guidelines: background
1.1 The Article 50 process Before each phase of the Article 50 negotiations the European Council has adopted guidelines setting out the remit and broad principles for the negotiators. These have been followed by more detailed negotiating directives, which the Commission must follow in its negotiations with the UK. In phases one and two new directives were published after the guidelines, but talks between the EU and UK negotiators resumed on 18 April without any new supplementary negotiating directives. The EU Withdrawal Agreement (WA) cannot at the same time provide for UK withdrawal and the future EU-UK relationship, although it has been agreed that a transition period will be part of the WA. Future EU- UK relations will be the subject of a separate agreement (or agreements) which will be concluded and enter into force only once the UK is a third state outside the EU. However, Article 50 TEU provides that the Withdrawal Agreement should ‘take account of’ the framework for the leaving State’s future relationship with the EU. The UK has no direct input in these guidelines; they are drawn up by the European Council of the EU27 Member States, who may take into account any UK positions expressed on future relations. The Secretary of State for Exiting the EU, David Davis, said on 15 March 2018: “We are seeking to ensure that those guidelines are as broad and open as possible to allow the most constructive negotiation to deliver the close relationship we are aiming for”. Drafts and revisions On 7 March 2018 draft guidelines were published for the third phase of the Brexit negotiations - the framework for future EU–UK relations. “it should come as no David Davis had said in December 2017 that he wanted a “Canada, surprise that the only plus, plus, plus” agreement with the EU. 1 remaining possible model is a free trade The EU-Canada Comprehensive Economic and Trade Agreement (CETA) agreement. I hope is more ambitious than other EU Free Trade Agreements (FTAs). that it will be Presenting the draft guidelines, European Council President Donald Tusk ambitious and advanced – and we said “it should come as no surprise that the only remaining possible will do our best, as option is a free trade agreement”, possibly one like CETA. The UK we did with other Government does not consider CETA ambitious enough for the UK’s partners, such as future relations with the EU. Canada recently – but anyway it will only be In mid-March 2018 there were press reports of an amended text. a trade agreement”. Although a revised draft was not published, some of the main changes were reported as follows: Donald Tusk statement, 7 March 2018 • A future free trade agreement will be a “balanced, ambitious and wide-ranging” agreement;
1 Andrew Marr Show, 10 December 2017 9 Commons Library Briefing, 19 April 2018
• Clarification of future UK involvement in the work of EU agencies to make clear this refers to non-participation “in the decision-making” of those agencies;
• A mention of services, but stating only that the EU will seek to protect its financial stability and regulatory regime;
• On exchange of data, any agreement “should include adequate rules that protect data flows while facilitating trade”;
• The EU wants an agreement on road transport as well as aviation.
• A new clause about the UK and the EU facing “global challenges” together and close cooperation on climate change and sustainable development;
• On security and defence, the earlier reference to there being “no gap” in EU-UK cooperation is replaced with “there should be a strong EU-UK cooperation”. New guidelines are adopted On 23 March 2018 the European Council (EU27) adopted the new guidelines setting out the ‘model’ the EU envisages for future EU-UK relations. They include the points in the earlier leaked draft (see above). They stipulate (Article 2) that the earlier guidelines of 29 April and 15 December 2017 will continue to apply in full and that their principles must be respected in the next phase of negotiations. The guidelines also take note of the European Parliament resolution on future relations of 14 March 2018. Some EU observers expected the new guidelines to include for the first time some mention of financial services in an annex stating that the negotiations should aim for market access for UK-based financial firms via “reviewed and improved equivalence mechanisms”. 2 According to Politico, the framework outlined “falls far short of that favored by the UK government”. 3 However, the guidelines do not contain or refer to any such annex. The Brexit negotiations resumed on 16-17 April with meetings on remaining issues in the withdrawal agreement. On 18 April the Coordinators met to discuss Ireland/Northern Ireland and the future relationship. 4 The European Council will assess progress in ongoing issues and the framework for future relations at the summit on 28-29 June.
2 See Bloomberg, EU Digs In Over Banks’ Post-Brexit Access, But Divisions Emerge, 20 March 2018 3 Politico, 20 March 2018 4 Programme: EU-UK Article 50 negotiations, 16-18 April 2018
10 Brexit: new guidelines on the framework for future EU-UK relations
General principles are retained The new set of guidelines 5 add to the earlier ones; the same principles set out in the April 2017 and December 2017 guidelines apply throughout the process, namely: • “nothing is agreed until everything is agreed” (Article 1). • “as close as possible a partnership with the UK in the future” (Article 3). • The partnership “should cover trade and economic cooperation” and other areas, such as the fight against terrorism and international crime, security, defence and foreign policy (Article 3). • “Being outside the Customs Union and the Single Market will inevitably lead to frictions in trade” (Article 4). • The necessary checks and controls to uphold the integrity of the Single Market and the UK market will “have negative economic consequences”, particularly in the UK (Article 4). • The EU approach “reflects the level of rights and obligations compatible with the positions stated by the UK”. These may evolve and change (Article 7). • There must be a “balance of rights and obligations”, a “level playing field”, and a non-EU State “cannot have the same rights and enjoy the same benefits as a member” (Article 7). • No UK “cherry-picking” and “the four freedoms are indivisible” (Article 7). • The EU” will preserve its autonomy” of decision-making (Article 7) • The UK will be excluded from participating in EU Institutions and decision-making of EU bodies, offices and agencies (Article 7). • The role of the Court of Justice of the European Union will “be fully respected” (Article 7).
1.2 Political Declaration on the framework for future relations What will be in it? The framework for future relations will be contained in a Political Declaration “accompanying and referred to in the Withdrawal Agreement”. It will be the basis for detailed negotiations on the future EU-UK relationship once the UK has left the EU in March 2019 and the transition period has ended. Alex Barker, writing in the Financial Times, said: “The declaration would frame expectations of what is possible in that negotiation. The detail could vary between 20-30 pages, to something more substantial and precise”. 6
5 The first guidelines were on the broad principles for the UK’s withdrawal; the second focused on transition, and the latest set out the EU’s position on future EU-UK relations. 6 Financial Times, The EU’s plans for ties with Brexit Britain – annotated, 7 March 2018 11 Commons Library Briefing, 19 April 2018
The choice of the term ‘Political Declaration’ is determined by the shared assumption that a fully articulated draft treaty governing the future relationship between the UK and the EU could not be achieved in the time available before the anticipated withdrawal date in March 2019. British ministers have referred to the intended Political Declaration as a “framework” and while they have not defined the level of detail to be expected in the framework, the Prime Minister has said “it is essential that we have clarity about the terms of that relationship when we ask the House to agree the implementation period and the rest of the withdrawal agreement in the autumn”.
The EU has frequently made use of ‘Political Declarations’ to pave the way to more detailed and binding agreements. Political Declarations are also common in other multilateral fora such as the United Nations. They are not to be confused with the “Declarations” that are sometimes added to draft treaties during the negotiating process, and form part of those treaties, usually to clarify or assert a point of interpretation. Numerous such declarations are attached to the Treaty on the Functioning of the European Union (TFEU). Not legally binding A Political Declaration in itself is not legally binding on the signatories and the penalties for breaking such an agreement reached by way of such a declaration can only be political – political acts in reaction to the breach of faith, loss of face, loss of trust in future dealings.
While the content of the political declaration governing the future relationship between the UK and the EU will not be legally binding, it will accompany the legally binding Withdrawal Agreement which already in its latest draft form (19 March 2018) contains a draft article 4a concerned with “Good Faith”: The Parties shall, in full mutual respect and good faith, assist each other in carrying out tasks which flow from this Agreement. They shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising from this Agreement and shall refrain from any measures which could jeopardise the attainment of the objectives of this Agreement. This Article is without prejudice to the application of Union law pursuant to this Agreement, in particular the principle of sincere cooperation. While the risk of an overt breach of a political declaration may be small, the greater risk with this approach to negotiation is that “difficult” issues may be glossed over in the language of a political declaration, leading to arguments later about the meaning that was intended. Much therefore depends on “clarity” and sufficiency of detail.
In the case of the UK withdrawal deal this will be important not only for the EU institutions and governments negotiating the deal, and for business, but also for the UK Parliament when it comes to the promised “meaningful vote” on the outcome. 12 Brexit: new guidelines on the framework for future EU-UK relations
2. Economic relationship 2.1 Ambitious and wide-ranging free trade agreement
Article 8 “As regards the core of the economic relationship, the European Council confirms its readiness to initiate work towards a balanced, ambitious and wide-ranging free trade agreement (FTA) insofar as there are sufficient guarantees for a level playing field”.
Unusually for trade negotiations, the UK and EU start from a position of close integration and the negotiations will see the UK and EU diverge to a greater or lesser extent. This is the opposite of most trade negotiations, which aim to bring the parties closer together. The Prime Minister has called for a bespoke free trade agreement, covering both goods and services, including financial services. The Prime Minister’s Mansion House speech In her Mansion House speech the Prime Minister rejected an “off the shelf” model for the future UK-EU economic relationship. In particular, the ‘Norway model’ (i.e. membership of the European Economic Area) was explicitly rejected as it would mean remaining in the Single Market, automatic implementation of all new EU regulation and continued free movement of people. A free trade agreement similar to that which the EU has negotiated with Canada was also rejected, 7 as was trading on World Trade Organization (WTO) rules. These options would mean a significant reduction in market access compared to the status quo. Customs and regulatory checks would damage supply chains and be inconsistent with the Government’s (and the EU’s) policy on the Irish border. The Prime Minister also said: “the reality is that we all need to face up to some hard facts.” She continued: We are leaving the single market. Life is going to be different. In certain ways, our access to each other’s markets will be less than it is now. How could the EU’s structure of rights and obligations be sustained, if the UK - or any country - were allowed to enjoy all the benefits without all of the obligations? So we need to strike a new balance. But we will not accept the rights of Canada and the obligations of Norway. 8 The Prime Minister argued that a tailored agreement between the UK and the EU was in line with other EU trade arrangements. It was pointed out the EU’s deals with Canada and South Korea are different. The Prime Minister said:
7 The EU-Canada Treaty is known as CETA – the Comprehensive Economic and Trade Agreement. For more information, see Commons Library Briefing Paper on CETA. 8 Mansion House speech, 2 March 2018
13 Commons Library Briefing, 19 April 2018
The fact is that every Free Trade Agreement has varying market access depending on the respective interests of the countries involved. If this is cherry-picking, then every trade arrangement is cherry-picking. 9 Others have cast doubt on how flexible the EU will be. The UK Trade Policy Observatory (UKTPO) at the University of Sussex commented: The UK starts much closer to the EU than Canada – both physically and in regulatory terms – and so the EU may be more likely to agree a deeper level of integration with the UK than it offered in CETA. For example, on data protection and exchange and financial services. But a bespoke deal is not likely to be achievable. The EU genuinely believes that countries are either in or out of the Single Market, even if it grants a few derogations from the rules to members and gives some non-members member-like market access in a few cases. Professor Winters, Director of UKTPO, said: “The UK’s desired half-in half-out agreement is not on the EU’s to do list. The UK may well achieve a little more flexibility than Norway or a few more concessions than Canada, but it will have to be understood as a series of small exceptions, not a fundamentally different ‘bespoke’ deal.” 10 The blog also suggested: “The EU may agree to some exceptions but these would fall far short of a bespoke deal and would be a poor substitute for the Single Market”. The EU’s guidelines say that leaving the Single Market and customs union “will inevitably lead to frictions in trade”. The guidelines say: Divergence in external tariffs and internal rules as well as absence of common institutions and a shared legal system, necessitates checks and controls to uphold the integrity of the EU Single Market as well as of the UK market. This unfortunately will have negative economic consequences, in particular in the United Kingdom. 11 The guidelines go on to say that the FTA “cannot … offer the same benefits as Membership and cannot amount to participation in the single Market or parts thereof”. “Level playing field” 12 The EU guidelines mention the need to ensure a level playing field a number of times. The EU wants to prevent the UK gaining an “unfair competitive advantage” by undercutting EU standards in areas such as competition, state aid, regulation and environmental protection. For example, Article 12 states: Given the UK's geographic proximity and economic interdependence with the EU27, the future relationship will only deliver in a mutually satisfactory way if it includes robust guarantees which ensure a level playing field. The aim should be
9 PM’s Mansion House speech 10 Julia Magntorn and L Alan Winters, EU likely to reject bespoke Canada trade deal for UK, UKTPO blog, 22 March 2018 11 European Council, Guidelines, 23 March 2018, Article 4 12 See also section 8, ‘Regulatory alignment and adherence to standards’ 14 Brexit: new guidelines on the framework for future EU-UK relations
to prevent unfair competitive advantage that the UK could enjoy through undercutting of levels of protection with respect to, inter alia, competition and state aid, tax, social, environment and regulatory measures and practices. This will require a combination of substantive rules aligned with EU and international standards, adequate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement mechanisms in the agreement as well as Union autonomous remedies, that are all commensurate with the depth and breadth of the EU-UK economic connectedness. There would appear to be some common ground between the UK and EU objectives in this area. The Prime Minister said the UK did not wish to engage in a “race to the bottom”: The next hard fact is this. If we want good access to each other’s markets, it has to be on fair terms. 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. The UK drove much of the policy in this area and we have much to gain from maintaining proper disciplines on the use of subsidies and on anti-competitive practices. Furthermore, as I said in Florence, we share the same set of fundamental beliefs; a belief in free trade, rigorous and fair competition, strong consumer rights, and that trying to beat other countries’ industries by unfairly subsidising one’s own is a serious mistake. And in other areas like workers’ rights or the environment, the EU should be confident that we will not engage in a race to the bottom in the standards and protections we set. There is no serious political constituency in the UK which would support this – quite the opposite. 13 The Times commented: The prime minister’s Mansion House speech last month brought a welcome change of tone but offered little clarity, says a senior EU official. It had at its core cake-and-eat-it proposals for mutual recognition of regulatory standards and UK membership of EU agencies that Brussels insists are simply impossible for third countries not bound by the EU treaties and outside the jurisdiction of the European Court of Justice. 14 According to MLex, EU officials have rejected the UK’s aim to have a comprehensive system of mutual recognition and come under various EU agencies. 15
2.2 Trade in goods
Article 8(i) The FTA will address “trade in goods, with the aim of covering all sectors and seeking to maintain zero tariffs and no quantitative restrictions with appropriate accompanying rules of origin”.
13 Mansion House speech, 2 March 2018 14 Simon Nixon, We’ll find out in June if the EU really is prepared to turn the Brexit screw, The Times, 29 March 2018 15 MLex, Rival versions of a Brexit deal, March 2018, p6 15 Commons Library Briefing, 19 April 2018
On trade in goods, the Prime Minister said that the UK did not want to see any tariffs or quotas on trade between the UK and the EU. The EU also seeks to continue the current situation of zero tariffs and no quotas on UK-EU trade. This is an area of agreement between the UK and the EU. The think tank Open Europe has said that there is a “high overlap” in UK and EU positions on trade in goods but noted that “the key area for negotiation will be on regulatory barriers to trade”. 16 The EU’s guidelines explicitly mention rules of origin. These would introduce friction into UK-EU trade as there would have to be proof that goods originated in the UK (or a sufficient proportion of them did so) in order to qualify for a zero tariff. Rules of origin are required in a free trade agreement but not in a customs union. The Prime Minister also said that only a single set of approvals should be required for goods to be sold on both the UK and EU markets. This would involve “a comprehensive system of mutual recognition”. She said: The UK will need to make a strong commitment that its regulatory standards will remain as high as the EU’s. That commitment, in practice, will mean that UK and EU regulatory standards will remain substantially similar in the future. Many of these regulatory standards are themselves underpinned by international standards set by non-EU bodies of which we will remain a member – such as the UN Economic Commission for Europe, which sets vehicle safety standards. Countries around the world, including Turkey, South Africa, South Korea, Japan and Russia, are party to the agreement. […] If the Parliament of the day decided not to achieve the same outcomes as EU law, it would be in the knowledge that there may be consequences for our market access. The CBI has said that while some sectors may benefit from divergence from EU rules, these gains are “vastly outweighed by the costs of deviating from rules necessary to ensure smooth access to the EU, the UK's largest trading partner.” 17 The Institute for Government has said that the “EU seems to reject the UK’s call for a system of mutual recognition”. 18 MLex reported that EU officials had rejected the UK’s wish to replicate access to the Single Market through mutual recognition. 19 An article in the Financial Times also suggested that the EU viewed the proposal that a system of mutual recognition be a key principle of future trade between the UK and EU as “highly unrealistic”. 20
16 Aarti Shankar, The outline of a future UK-EU economic relationship is emerging, Open Europe, 23 March 2018 17 CBI Press Release, Greater costs than opportunities if UK moves away from EU rules and regulations, 11 April 2018. This is based on a CBI report, Smooth Operations, 11 April 2018 18 How do the UK and EU opening positions on the future trading relationship compare? Institute for Government, 23 March 2018 19 MLex, Rival versions of a Brexit deal, March 2018, p6 20 Alan Beattie, Trade talk tips for Brexit Britain, Financial Times, 26 March 2018 16 Brexit: new guidelines on the framework for future EU-UK relations
2.3 Appropriate customs cooperation
Article 8(ii) The FTA will address: “appropriate customs cooperation, preserving the regulatory and jurisdictional autonomy of the parties and the integrity of the EU Customs Union”
The Prime Minister’s speech The Prime Minister reiterated in her Mansion House speech that the UK would be leaving the customs union. A customs union agreement like the one the EU has with Turkey would mean the EU setting the UK’s external tariff and would be asymmetrical, giving other countries greater access to the UK market without providing reciprocal access for UK businesses. A customs union agreement would also limit the scope for the UK to have an independent trade policy. 21 Supporters of Brexit see an independent trade policy as an important advantage of leaving the EU and the Government’s customs paper stated that “establishing an independent trade policy” was one of three strategic objectives which would guide the UK’s future outside the EU customs union. 22 The Prime Minister referred to the two options for customs set out in the Government’s customs paper. 23 The first of these would be “a customs partnership between the UK and EU where goods imported into the UK but intended for the EU market would apply EU tariffs and rules of origin. This, it is argued, would mean customs checks at the UK- EU border would not be needed. The second option would be a “highly streamlined customs arrangement”. Some have cast doubt on the feasibility of the “customs partnership” option. The Financial Times reported that the technological issues involved were “challenging” and that this approach was “still widely regarded in Brussels as fanciful and probably unworkable”. 24 The Institute for Government notes that the EU guidelines show no interest in the UK’s proposal for a new customs partnership, 25 especially given the guidelines’ reference to the “integrity” of the EU customs union. 26 The EU guidelines refer to “customs cooperation” and do not mention a future “customs partnership”. Speaking at the Liaison Committee on 27 March 2018, the Prime Minister hinted that putting the required customs arrangements in place might take longer than originally thought. She said:
21 Sam Lowe, Is Labour selling the UK a Turkey? Centre for European Reform, 12 April 2018 22 HM Government, Future customs arrangements – A future partnership paper, August 2017, para 23 23 Ibid 24 “May plans ‘customs partnership’ to unlock Northern Ireland dilemma”, Financial Times, 1 April 2018 25 Jill Rutter, EU makes clear the high price of trade in its new Brexit guidelines, Institute for Government, 23 March 2018 26 How do the UK and EU opening positions on the future trading relationship compare? Institute for Government, 23 March 2018
17 Commons Library Briefing, 19 April 2018
We are looking at different potential customs arrangements for the future in order to deliver on the commitments that we have made. We are now the point at being able to look in more detail with the European commission at some of those proposals. And I think it is fair to say that, as we get into the detail and as we look at these arrangements, then what becomes clear is that sometimes the timetables that have originally been set are not the timetables that are necessary when you actually start to look at the detail and when you delve into what it really is that you want to be able to achieve. 27
2.4 Technical barriers to trade and SPS measures
Article 8(iii) The FTA will address: “disciplines on technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures”
Technical barriers and Sanitary and Phytosanitary Measures are both examples of non-tariff barriers. A non-tariff barrier is any measure, other than a customs tariff, that acts as a barrier to international trade. Other examples include: labelling requirements, pre-shipment inspection and formalities, subsidies and rules of origin as well as protected product descriptions known as Geographical Indicators (GIs). 28 The House of Commons EFRA Committee’s February 2018 report, Brexit: Trade in Food expressed concern that, following Brexit, non- tariff barriers could pose significant obstacles to trade in goods. 29 This concern was also expressed by the House of Lords EU Committee in its May 2017 report Brexit: Agriculture: 30 Non-tariff barriers could be equally if not more disruptive to trade in agricultural products and food. Products must meet the standards of the EU market in order to enter it. If UK and EU regulatory frameworks begin to differ after Brexit, there is a risk of substantial non-tariff barriers for agri-food producers. The greater this divergence, the greater the need for customs checks and certification of products and production facilities. This could be costly and time consuming for UK farmers and food manufacturers wishing to export to the EU. The Government’s response to the report indicated that the Government felt that its close regulatory alignment with the EU would help with future market access: 31
27 Liaison Committee, Oral evidence: the Prime Minister, 27 March 2018, HC 905, Q71 28 HC348, Third report of the House of Commons Environment, Food and Rural Affairs Committee, Brexit:Trade in Food, 18 February 2018 29 Ibid 30 HL Paper 169, 20th Report of House of Lords EU Committee, Brexit: Agriculture, 2 May 2017 31 Government response to House of Lords EU Energy and Environment Committee report, Brexit: Agriculture, 29 June 2017 18 Brexit: new guidelines on the framework for future EU-UK relations
A comprehensive and bold new free trade agreement should include trade in agri-food products, where the UK and EU have a mutual interest in ensuring continued high levels of market access. We start from a unique position in relation to regulatory standards in these discussions. Our close regulatory alignment, trust in one another’s institutions and a spirit of cooperation stretches back decades. In a February 2018 speech on the Future Economic Partnership in Vienna, DExEU Secretary David Davis said: The agreement we strike will not be about how to build convergence, but what we do when one of us chooses to make changes to our rules. Neither side should put up unnecessary barriers during this process. 32 Technical barriers to trade The WTO’s Technical Barriers to Trade (TBT) Agreement aims to ensure that technical regulations, standards, and conformity assessment procedures are non-discriminatory and do not create unnecessary obstacles to trade. At the same time, it recognises WTO members' right to implement measures to achieve legitimate policy objectives, such as the protection of human health and safety, or protection of the environment. The TBT Agreement strongly encourages members to base their measures on international standards as a means to facilitate trade. Through its transparency provisions, it also aims to create a predictable trading environment. 33 Chapter 4 of CETA is on Technical Barriers to Trade. The EU and Canada agree to co-operate on technical regulations for testing and certifying products. The aim is to allow regulators to exchange experiences and information, and identify areas for closer co-operation on a voluntary basis. 34 Sanitary and Phytosanitary Measures Sanitary and Phytosanitary Measures is a term that refers to the application of food safety and animal and plant health regulations. These cover areas such additives and contaminants in food and pest and disease control. These measures often form a key element of trade agreements between countries as they are the key non-tariff barrier for the food, agriculture, fisheries and timber sectors which represent a large area of trade. 35 Chapter 5 of CETA is on SPS issues. Approximately 60-65% of the UK’s more than £20 billion food and drink exports are exported to the EU. 36
32 David Davis, Foundations of the Future Economic Partnership, 20 February 2018 33 WTO, Technical barriers to trade web page [as accessed 11 April 2018} 34 European Commission, CETA chapter by chapter 35 See for example NFU, Vision for the future of farming: A new outlook on international trade, May 2017 36 Defra, Agriculture in the UK 2016, 17 July 2017
19 Commons Library Briefing, 19 April 2018
The Agriculture and Horticulture Development Board (AHDB) has highlighted that in practice these measures are often the hardest to agree in trade agreements. This was particularly the case with the EU and the US in the negotiations of the Transatlantic Trade and Investment Partnership (TTIP) where issues such as antimicrobial treatments of meat (e.g. chlorine-washed chicken) and hormone-treated beef were highly contentious. 37 The EU has high regulatory standards in this area with which the UK is currently compliant as a member of the Single Market. The EU Commission’s web page on SPS Measures provides an overview of the Commission’s approach. The WTO SPS Agreement International SPS measures are based on the World Trade Organization (WTO) SPS Agreement which encourages governments to use international standards, guidelines and recommendations where they exist and not create unnecessary non-tariff barriers to trade. The WTO agreement allows countries to set their own, higher standards and different methods of inspecting products. However, additional regulations beyond international standards must be based on science or an appropriate assessment of risks and should only be applied to the extent necessary to protect human, animal or plant life or health. They also should not arbitrarily or unjustifiably discriminate between countries where there are identical or similar conditions. 38 Such additional regulations can be the subject of trade disputes. For example, in 1998 the EU lost a dispute at the WTO with regard to its hormone-free beef standard. Consequently, in 2009, the EU chose to provide compensation to the affected countries in the form of better access to the EU market through a tariff-rate quota for hormone-free beef. 39 The EU approach to SPS The European Commission slides presented to the Council Working Party (February 2018) set out the EU’s particular FTA approach to a trade deal chapter on phyto-sanitary measures: 40 [FTA] Builds on the WTO SPS Agreement but goes beyond: • Avoids undue delays for regulatory and administrative market access procedures • Sets up the basis for recognition of SPS conditions • Sets up trade facilitation mechanisms: pre-listing of establishments, recognition of regionalisation, export
37 AHDB, Horizon Market Intelligence – What might Brexit mean for the trade in agricultural products? 12 October 2016 38 Based on WTO, Understanding the WTO agreement on Sanitary and Phytosanitary Measures, May 1998 39 See WTO, DS26: European Communities Measures concerning meat and meat products (hormones) as viewed on 11 April 2018 40 TF50 (2018)32- Commission to EU 27, Slides presented to the Council Working Party (Article 50) – Internal EU 27 preparation discussions on the framework for the future partnership ‘regulatory issues’, 15 February 2018 20 Brexit: new guidelines on the framework for future EU-UK relations
authorisation and certification procedures, limitation of audits and related costs, inspections and checks • Increases transparency and the exchange of information on SPS measures • Enhanced bilateral cooperation and consultation mechanism • Reaffirms the Precautionary principle 2.5 Voluntary regulatory cooperation
Article 8(iv) The FTA will address: “a framework for voluntary regulatory cooperation”
A European Commission presentation, 21 February 2018, sets out how the EU views regulatory co-operation. The slides state that regulatory cooperation has two objectives - to: • create opportunities for cooperation between regulators to enhance compatibility of measures • prevent unnecessary barriers to trade and investment 41 Regulatory cooperation might take the form of discussions, exchange of information and co-operation in international fora. The EU notes that a free trade agreement has “two separate regulatory spaces” and that each side preserves its right to regulate. This is in contrast to the Single Market, where there is a “regulatory union” and sovereignty is pooled. The voluntary nature of the co-operation means there can be no binding outcome. There is a chapter on regulatory co-operation in CETA, the EU’s trade agreement with Canada. According to the European Commission: This chapter builds on an existing agreement between the EU and Canada on regulatory cooperation. This chapter encourages regulators to exchange experiences and information, and identify areas where they could cooperate. All cooperation is voluntary and regulators in the EU and Canada retain their power to adopt legislation. 42 According to a Financial Times report, the EU is prepared to discuss limited “voluntary regulatory co-operation” but views UK proposals for widespread mutual recognition as “highly unrealistic”. 43
2.6 Trade in services
Article 8(v) The FTA will address: “trade in services, with the aim of allowing market access to provide services under host state rules, including as regards right of establishment for providers, to an extent consistent
41 European Commission, Slides on regulatory issues, 21 February 2018 (Note “slides are for presentational and information purposes only) 42 European Commission, CETA chapter by chapter 43 Alan Beattie, Trade talk tips for Brexit Britain, Financial Times, 26 March 2018 21 Commons Library Briefing, 19 April 2018
with the fact that the UK will become a third country and the Union and the UK will no longer share a common regulatory, supervisory, enforcement and judiciary framework”
Services are important to the UK economy. In 2017 UK service exports were equal to 45% of all exports. Taken as a single entity, the EU is the UK’s largest export market for services, accounting for £108 billion (39%) of all service exports.
Single Market and services At present, the EU Single Market offers: 1. the freedom to establish a company in another EU country […], 2. the freedom to provide or receive services in an EU country other than the one where the company or consumer is established […]. 44 It also allows freedom of movement for people, capital and goods, which supports these freedoms in relation to services. Harmonised rules, for instance on data protection, intellectual property and VAT, also ease trade in services. 45 There are various pieces of cross-cutting EU legislation that support the single market in services, including the Services Directive, 46 Mutual Recognition of Professional Qualifications Directive, the e-Commerce Directive and the Posting of Workers Directive. As well as general regulations to promote the single market in services, there is also a range of sector-specific regulations. For example, the Lawyers Establishment Directive and the Lawyers Services Directive allow lawyers to provide services on a temporary basis or to establish themselves in another EU country. 47
44 European Commission, Single Market for Services [online, accessed 26 March 2018] 45 European Commission, Slides on Internal EU27 preparatory discussions on the framework for the future relationship: Services, 6 February 2018; Digital, Culture, Media and Sport Committee, The potential impact of Brexit on the creative industries, tourism and the digital single market (HC 365, 2017-19), 23 January 2018 46 The Services Directive codified case law about on the application of the core Treaty principles. It facilitates the cross-border provision of certain services (there is a list of exceptions, including financial services) – laying down “the principle of freedom to provide services. This principle requires that EU countries do not impose nationality requirements on service providers”. Requirements may still be imposed on service providers but “only when they are non-discriminatory, justified for reasons of public policy, public security, public health or the protection of the environment and do not go beyond what is necessary to achieve their objective”. The Directive also ensured that information on requirements on service providers is available in each country through a single point of contact. Source: European Commission, The EU’s services directive: summary, updated 9 Nov 2015; European Commission, Quick guide to the Services Directive [online, accessed 26 March 2018]; European Commission, Single Market for Services [online, accessed 30 March 2018] 47 Justice Committee, Brexit: negotiating priorities for justice system, 22 March 2017 – see Chapter 4, Legal Services
22 Brexit: new guidelines on the framework for future EU-UK relations
In general Member States have the power to regulate on services, but their rules: • should not result in direct or indirect discrimination; • should not hinder market access. However, national rules may restrict access and provision of services by EU providers only if objectively justified by imperative requirements in the public interest and if the resulting restrictions are proportionate. 48 It is often noted that the single market in services is not complete – in other words, barriers to the truly free flow of services across borders remain. The GATS and a future FTA A future Free Trade Agreement could build on the commitments in the WTO General Agreement on Trade in Services (GATS) (and other relevant international agreements). As the European Commission notes, the GATS: • Covers almost all services sectors (155 defined sectors) • Does not cover services supplied in the exercise of government authority and air transport services related to traffic rights, • Does not cover sensitive services specifically excluded by Members – the EU excludes audio-visual services, public utilities, and some other sectors (mainly in relation to cross-border trade, from the territory of one country into the territory of any other Member, and, the ‘presence of natural persons’, when a service is supplied by people from one country in another country) and there is a “specific prudential carve-out for financial services” In covered sectors, the GATS requires market access (prohibiting new quantitative barriers to suppliers from other states) and national treatment (suppliers from other states receive no less favourable treatment than domestic suppliers, within the host state’s rules). In practice services markets in many countries are actually more open that they have committed to be under GATS – FTAs can include commitments to maintain (some of) the current levels of openness. EU FTAs generally assume that host state rules apply (as opposed to the Single Market, where there is more freedom to operate across borders in many sectors). Openness under a FTA would be greater than that under GATS alone, but less than that under the Single Market. 49
48 European Commission, Slides on Internal EU27 preparatory discussions on the framework for the future relationship: Services, 6 February 2018 49 Ibid 23 Commons Library Briefing, 19 April 2018
Box 1: Ways that services can be supplied between countries The four classic GATS modes of supply show different ways that services can be supplied – the classification can be useful to illustrate some of the variety and challenges for different types of services, and to understand the different kinds of commitments that countries can make: Mode 1 — Cross border trade • Trade is from the territory of one country into the territory of any other Member • Services are provided, for example, via email or post. Examples include consultancy or market research reports, distance training, or architectural drawings Mode 2 — Consumption abroad • Services are provided in one country to a consumer from another country • Nationals of one country move abroad, for example as tourists or students Mode 3 — Commercial presence • A service supplier from one country has a commercial presence in another country • A supplier sets up a subsidiary or office in another country, for example a bank, hotel group or construction company Mode 4 — Presence of natural persons • A service is supplied by people from one country in another country • A national of one country provides a service in another country, either as an independent supplier (for example a self-employed consultant) or an employee of a service supplier (e.g. consultancy firm, construction company). 50
The UK position The Prime Minister talked about her vision for services in an FTA in her Mansion House speech – including limiting barriers that would prevent UK firms setting up in the EU and allowing services to be provided across borders: Just as our partnership in goods needs to be deeper than any other Free Trade Agreement, so in services we have the opportunity to break new ground with a broader agreement than ever before. We recognise that certain aspects of trade in services are intrinsically linked to the single market and therefore our market access in these areas will need to be different. But we should only allow new barriers to be introduced where absolutely necessary. We don’t want to discriminate against EU service providers in the UK. And we wouldn’t want the EU to discriminate against UK service providers. So we want to limit the number of barriers that could prevent UK firms from setting up in the EU and vice versa, and agree an appropriate labour mobility framework that enables UK businesses and self-employed professionals to travel to the EU to provide services to clients in person and that allows UK businesses to provide services to the EU over the phone or the internet. And we want to do the same for EU firms providing services to the UK. Issues for particular sectors The EU’s guidelines are limited in their detail on particular sectors – for example, they do not mention financial services (see also section 11.3
50 WTO, GATS training model: 1.3 Definition of Services Trade and Modes of Supply [online, accessed 28 March 2018] 24 Brexit: new guidelines on the framework for future EU-UK relations
below). EU FTAs do, however, generally include particular agreements on a (limited) number of sectors. The Prime Minister talked about the UK’s aims in relation to broadcasting and financial services, while noting that these two areas “have never been covered in a Free Trade Agreement in any meaningful way before”. Elsewhere in the Mansion House speech she discussed possible agreement(s) relating to other sectors, including energy, transport and digital. 51 While there are cross-cutting issues for an FTA that are relevant to a wide range of sectors (for example, freedom to establish and provide services across borders, freedom of movement of people) and types of challenge common to various sectors (for example, recognition of qualifications, authorisations), different sectors have different issues – the range of services is wide. An analysis of the recent UK-Canada trade agreement (CETA) found that some EU services sectors are effectively completely open under the agreement but some sectors that are important to the UK, such as financial services and transport services, remain very restricted. 52 A huge amount has been published about Brexit and particular service sectors, and this briefing does not explore all of these. Useful starting points to find information on particular industries include Parliament’s Brexit report pages and the government’s sectoral reports (published by the Exiting the European Union Committee).
2.7 Public procurement markets
Article 8(vi) The FTA will address: “access to public procurement markets”
At present the UK applies a range of EU rules in relation to public procurement. UK and EU public procurement markets are generally open to each other. The Government has already said that it wants to continue to be a part of the WTO Agreement on Government Procurement (GPA), which would mean that it and the EU continue to open up certain of their public procurement markets to each other (along with other countries). A FTA could mean the UK and EU opening further markets (beyond those committed in the GPA), or agreeing other measures that would encourage the two markets to be open to each other in practice – for example, advertising procurement opportunities in a common place. Background – the current situation
51 PM’s Mansion House speech 52 This report gives a useful comparison of how different service sectors are treated – see Trade Policy Observatory, Can CETA-Plus Solve the UK’s Services Problem? March 2018. 25 Commons Library Briefing, 19 April 2018
Most public procurement in the UK is currently subject to a range of EU- derived rules – in particular: • EU Treaty principles – general principles which apply to much procurement. These lead to general requirements such as advertising procurement opportunities and opening up procurement opportunities to suppliers located in other EU Member States. • EU directives and the UK regulations that implement them – these are detailed rules that apply to much procurement above certain thresholds. They set out for example what procedures must be followed, the criteria that can be used to select suppliers and where procurement opportunities must be advertised. They offer businesses opportunities for challenge and remedies where rules have not been followed, via the High Court. The EU (Withdrawal) Bill, as currently drafted, would allow both the principles and the regulations to continue to apply in the UK after Brexit (as EU retained law). They might then be changed through UK legislation. WTO Agreement on Government Procurement The Agreement on Government Procurement (GPA) is a voluntary (plurilateral) agreement between the EU and 18 countries to open up their public procurement markets to each other, under the WTO. 53 Under the GPA, many large public sector procurement opportunities must be opened up to suppliers in certain other countries (the parties to the agreement), and this procurement must be subject to open, fair and transparent conditions of competition. 54 For procurement that it covers, the GPA’s general rules and obligations guarantee: • national treatment and non-discrimination – in other words, public authorities must treat potential suppliers from all parties equally, • minimum standards regarding national procurement procedures, • transparency of procurement-related information. 55 The UK is currently a part of the GPA only through its EU membership. The Government is taking steps intended to ensure that the UK continues to be part of the GPA – becoming an independent member –
53 The Government Procurement Agreement is a WTO plurilateral agreement – in other words one that is optional for WTO members. The current parties to the GPA are: Armenia, Canada, the EU, Hong Kong, Iceland, Israel, Japan, South Korea, Liechtenstein, Moldova, Montenegro, Netherlands with respect to Aruba, New Zealand, Norway, Singapore, Switzerland, Chinese Taipei, Ukraine and the United States. Ten more WTO members are in the process of acceding, including China and Russia. 54 WTO Integrated Government Procurement Market Access Information (e-GPA) Portal, The Agreement in brief [online, accessed 10 November 2017] 55 WTO Integrated Government Procurement Market Access Information (e-GPA) Portal, The Agreement in brief [online, accessed 10 November 2017]
26 Brexit: new guidelines on the framework for future EU-UK relations
as the UK leaves the EU. 56 In a joint letter, representatives of the EU and UK stated that: The UK and EU will work together on the UK's objective of remaining, upon leaving the EU, subject to the rights and obligations it currently has under the Government Procurement Agreement as an EU Member State on the basis of the commitments currently contained in the EU schedule of commitments. The EU and the UK will also cooperate in a spirit of transparency with regard to the UK's intentions to establish its own separate UK services schedules. 57 The EU directives and the UK regulations (mentioned above) implement the GPA commitments that the EU has made. The rules in the EU directives and the regulations are generally more specific and detailed than those in the GPA, and they have slightly wider coverage. 58
Relationship between the coverage of EU and GPA rules
UK procurement covered by the EU treaty rules
UK procurement covered by the EU directive rules and the UK regulations that implement them
UK Procurement covered by the GPA rules
Note: this picture is highly stylised For more information on the GPA, see the Library briefing on the Trade Bill. What could be in a UK-EU FTA on procurement? The gap between the openness of procurement markets in the current model and that under the WTO GPA offers a range of possibilities for the future.
56 Department for International Trade, Preparing for our future UK trade policy, 9 October 2017 57 Letter dated 11 October 2017 from UK and EU Permanent Representatives to all Permanent Representatives to the World Trade Organization 58 The differences are usefully summarised by Prof Sue Arrowsmith: “The scope of procurement covered for the EU/UK under the GPA is narrower than the scope of covered procurement under the EU procurement directives in relation to a few utility sectors, coverage of private utilities, the defence sector, some services, (possibly) concessions, and certain private contracts subsidised by government. The GPA also does not include below-threshold procurement. However, some of these differences are of limited importance in the UK context. Further, the procurement that does fall into the gaps between the directives and GPA, at least above the directives’ thresholds, could easily be added to the GPA UK if desired. […]” Source: Summary to Chapter 4 of Sue Arrowsmith, Consequences of Brexit in the area of the public procurement, April 2017 27 Commons Library Briefing, 19 April 2018
An FTA could promote cooperation, open markets not opened under the GPA and / or make trade more likely (compared with the GPA). This leads to a range of options, as one expert describes: • Even if the UK does not remain fully part of the Single Market, an option for an EU-UK agreement in procurement (the « EEA-minus » approach) is to apply the current EU procurement directives, as has been done in the DCFTAs with, for example, Ukraine (the EEA-minus approach). This would maintain EU access to above-threshold UK markets on the same basis as at present as regards scope of coverage, award procedures and remedies. The common advertising system could also easily be retained in an agreement with the UK, although not applied in the DCFTAs, as could use of tools such as e-Certis. • The application of the EU directives in light of future developments in legislation and case law is an issue that is both important and difficult, however. • Another option is a GPA-plus approach (which is being pursued in TTIP negotiations), whereby access is governed primarily by the GPA but supplemented by additional rules and commitments on coverage, award procedures and/or remedies for undertakings, to address the most important « gaps » between the EU and GPA systems - for example, through rules on modifications to concluded contracts, rules on arrangements between public bodies, rules on framework agreements and other recurring purchasing arrangements, and rules to address some of the differences in the area of qualifications (criteria, evidence and use of EU tools, such as e-Certis) • Consideration would also need to be given under an EEA- minus or GPA-plus approach to whether to include transparency rules on below-threshold procurement • The design of enforcement mechanisms additional to remedies for undertakings, including inter-governmental enforcement, might be a significant consideration in EEA- minus or GPA-plus agreements. 59
2.8 Investments
Article 8(vi) The FTA will address: “investments”
Investment provisions in FTAs give investors certain rights, such as the right to establish and invest in another country and the right not be discriminated against relative to local firms. They can also include investment protection, which aims to protect against governments carrying out actions such as seizing the assets of overseas investors. Investors are allowed to seek compensation where
59 Source: Summary to Chapter 5 of Sue Arrowsmith, Consequences of Brexit in the area of the public procurement, April 2017 28 Brexit: new guidelines on the framework for future EU-UK relations
they believe they have been unfairly treated, and these claims can be brought using forms of international arbitration. Investment in the Single Market Within the EU people and businesses have various rights relating to investment – including to establish businesses elsewhere in the EU and to provide services elsewhere. Associated rights such as freedom of movement and capital are also protected. Investment protection – controversy Investment protection provisions have become increasingly controversial and have been one of the main reasons for opposition to EU trade agreements with the US and Canada (TTIP, now on hold, and CETA). Concerns include the possibility that legal action (or the threat of such action by companies) may deter governments from legislating in the public interest. The investment provisions have been criticised for giving corporations access to a separate legal system, not open to domestic companies and citizens. The tribunals have been criticised for lack of transparency. The EU argues that it has made improvements in the area of investment protection – including through a new model of Multilateral Investment Court to deal with disputes – although critics of these deals remain unconvinced. There is more on this issue in the Library’s note on CETA. What could be in a UK-EU FTA on investment? One model for an investment chapter in an UK-EU FTA is the EU- Canada agreement, CETA. 60 This contains, for example: Establishment of investments - Market access The Market Access article prohibits the Parties from imposing certain quantitative restrictions that may inhibit the ability of an investor to establish an investment. Specifically, measures may not be adopted or maintained that restrict: the number of enterprises that may carry out an economic activity; the total value of transactions or assets; the number of operations or the total quantity of output; or the number of individuals that may be employed in a particular sector. Additionally, the Market Access article includes disciplines on measures that restrict the forms of legal entity an enterprise may take, such as a requirement for a joint venture, or the participation of foreign equity. Establishment of investments – Performance requirements This article prohibits Canada and the EU from imposing certain trade distorting performance requirements such as requiring local content, or restricting the volume or value of an enterprise’s imports to the volume or value or its exports. […] Non-discriminatory treatment – National treatment The National Treatment article requires the Parties to provide each other’s investors and their investments with treatment that is no
60 CETA is currently being applied provisionally. Some of the investment provisions are not yet in force. 29 Commons Library Briefing, 19 April 2018
less favourable than that granted to their domestic counterparts in like situations. […] Non-discriminatory treatment – Most-favoured-nation treatment (MFN) The MFN article obliges the Parties to provide each other’s investors and their investments with treatment and protections no less favourable than those granted to investors from a third country in like situations. […] Investor protection – Investment and regulatory measures Among others, this article reaffirms the Parties’ right to regulate to achieve legitimate policy objectives, such as the protection of public health, safety and the environment. Investor protection – Treatment of investors and of covered investments This article obliges Parties to provide covered investments of the other Party treatment in accordance with the customary international law principles of fair and equitable treatment and full protection and security. The article sets out what constitutes a breach of fair and equitable treatment, including denial of justice, fundamental breaches of due process, manifest arbitrariness, targeted discrimination on manifestly wrongful grounds such as gender, race, and religious belief, and abusive treatment of investors. Investor protection – Expropriation The Expropriation article prohibits governments in either Party from nationalizing or expropriating investments, except when carried out for a public purpose, in accordance with due process of law, in a non-discriminatory manner and upon payment of prompt, adequate and effective compensation. […] Investor protection - Transfers The Transfers article governs capital transfers by investors in and out of their host countries; it requires Parties to permit all transfers without restriction or delay and in a freely convertible currency. […] The Parties may still restrict transfers where required by their domestic law, such as in cases of bankruptcy, securities trading, criminal offences, and for record keeping purposes meant to assist legal or regulatory authorities, as long as such restrictions are applied in an equitable and non-discriminatory manner. Reservations and exceptions The Reservation and exceptions article enables the Parties to exclude measures from certain obligations of the investment chapter, as well as to maintain future policy flexibility in key areas. 61
2.9 Protection of intellectual property rights
61 Government of Canada, [CETA] Chapter Summaries, last modified 14 July 2017 30 Brexit: new guidelines on the framework for future EU-UK relations
Article 8 (vi) The FTA will address the: “protection of intellectual property rights, including geographical indications, and other areas of interest to the Union”.
EU position A position paper transmitted to the EU27 in September 2017 set out the Commission’s approach to intellectual property (IP) rights, including geographical indications. An updated draft was subsequently published prior to the 4th round of negotiations with the UK. 62 The paper noted that the withdrawal of the UK from the EU will create uncertainty for stakeholders as to the scope of protection in the UK of intellectual property rights, and that this will affect the continued circulation of good placed on the market before withdrawal. It set out General Principles that should apply on entry into force of the Withdrawal Agreement: • The protection of intellectual property rights in the UK on the basis of EU law should not be undermined by the UK’s withdrawal. This includes international registrations of trade marks or designs under the Madrid and Hague systems. With respect to protected geographical indications, protected designations of origin and other protected terms in relation to agricultural products, the UK should put in place the necessary domestic legislation for their continued protection. • With respect to applications for IP rights which are still pending at the date of withdrawal, procedural rights of priority should not be lost when applying for an equivalent IP right in the UK after withdrawal. • Applications for supplementary protection certificates or for an extension of their duration in the UK still pending at the withdrawal date should be processed in accordance with EU law. • Databases protected in the EU and the UK before the withdrawal date should continue to be protected after that date. • The exhaustion of rights in the EU before the withdrawal date should not be affected by the UK’s withdrawal. UK position The Government’s Technical Note on other separation issues, published in March 2018, briefly sets out the UK’s approach: 42. In many areas, the UK’s position is closely aligned to that set out by the EU in their September position paper. Where the UK and EU agree that intellectual property rights are within the scope of separation discussions, the UK’s overall objective is to provide maximum clarity and legal certainty for users, applicants and right holders by agreeing arrangements appropriate to each of the different types of right.
62 Position paper on Intellectual property rights (including geographical indications), European Commission, 20 September 2017 31 Commons Library Briefing, 19 April 2018
43. In the future, where the UK does not have existing domestic legislation to protect certain types of rights, it will establish new schemes. This approach will help form the basis for a strong ongoing cultural and economic relationship with the EU. 63 The paper reiterates that the UK has ambition for a substantial future relationship that will supersede the need for wind down provisions.
63 Technical note: other separation issues – phase 2, Department for Exiting the European Union, 6 March 2018 32 Brexit: new guidelines on the framework for future EU-UK relations
3. Climate change, sustainable development and cross-border pollution
Article 9 “The future partnership should address global challenges, in particular in the areas of climate change and sustainable development, as well as cross-border pollution, where the Union and the UK should continue close cooperation”.
The new guidelines add this Article requiring, for the first time, continued close cooperation in relation to global challenges – in particular climate change, sustainable development and cross-border pollution. This adds to the general principle of the “level playing field” condition in Article 12, which specifically picks out environmental standards (see more in section 9 below). For more information and background on environmental law and policy see the House of Commons Library briefing paper on Brexit and the environment. UK position The Prime Minister did not directly reference global challenges and continuing EU/UK cooperation in relation to environmental issues or climate change in her Mansion House speech. However, ongoing dialogue and regular consultation were referred to in a wider context: Third, given the close relationship we envisage, we will need to have an ongoing dialogue with the EU, and to ensure we have the means to consult each other regularly. In particular we will want to make sure our regulators continue to work together; as they do with regulators internationally. This will be essential for everything from getting new drugs to patients quickly to maintaining financial stability. We start from the place where our regulators already have deep and long-standing relationships. So the task is maintaining that trust; not building it in the first place. We will also want to explore with the EU, the terms on which the UK could remain part of EU agencies such as those that are critical for the chemicals, medicines and aerospace industries: the European Medicines Agency, the European Chemicals Agency, and the European Aviation Safety Agency. We would, of course, accept that this would mean abiding by the rules of those agencies and making an appropriate financial contribution. European Parliament position The European Parliament’s resolution of 14 March 2018 on the framework of the future EU-UK relationship stated that the best option for the environment, climate change, public health and food safety would be full alignment, but if that were not the case the EP called for 33 Commons Library Briefing, 19 April 2018
“arrangements between the EU and the UK to ensure close cooperation and high standards”. The EP: Believes that the best option for the environment, for action against climate change, and for public health and food safety would be for the UK to remain fully aligned with current and future EU legislation, including adherence to commitments and targets for 2030 already agreed under the EU’s Clean Air package and Clean Energy package; should this not, however, be the case, calls for arrangements between the EU and the UK to ensure close cooperation and high standards on those issues and to deal with trans-boundary environmental issues; stresses that any cooperation with the EU agencies in those areas must be based on bilateral agreements. 64
3.1 Climate change The international community agreed a climate deal in Paris in December 2015. The aim of the Paris agreement is: to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. 65 The EU ratified the Paris Agreement in October 2016 and the UK ratified it in November 2016. More information is set out in the Library Briefing Paper on the Paris Agreement and the Marrakech Climate Conference. UK position The UK Government’s future partnership paper on Foreign policy, defence and development 66 sets out the Government’s commitments to future collaboration and cooperation in relation to foreign policy. Commentators such as environmental think tank E3G raised concerns that the Paris Agreement was not included in a list of international agreements the UK is committed to, commenting that “in terms of foreign policy, it feels like the Paris Agreement is probably the most important multilateral agreement for the EU for quite a number of years”. 67 In response to concerns raised by MPs, Energy Minister Claire Perry stated that “whatever the nature of the future UK-EU relationship, the UK will remain committed to international efforts to tackle climate change, and working closely with the EU will remain very important”. She continued: The UK is a world leader in climate change and has always been a party to the United Nations Framework Convention on Climate Change (UNFCCC) individually as well as through the EU and we are bound by all the obligations of the Paris Agreement under international law.
64 EP resolution 14 March 2018 on framework of the future EU-UK relationship (2018/2573(RSP)) 65 See UNFCCC webpage on the Paris Agreement [accessed 6 April 2018] 66 HM Government, Foreign Policy, defence and development, A future partnership paper, 12 September 2017 67 Climate Home News, UK omits climate change from post-Brexit foreign policy plan, 12 September 2017 [accessed 6 April 2018] 34 Brexit: new guidelines on the framework for future EU-UK relations
The UK’s commitment to action to tackle climate change and to the UNFCCC process is not in doubt; we remain firmly committed to the Paris Agreement and to our emissions reduction and climate finance efforts under it. We have demonstrated our commitment domestically – we were the first country to introduce legally binding emissions reduction targets through the Climate Change Act, and we have recently published our highly praised Clean Growth Strategy, which is ambitious and robust in setting out how we will decarbonise the UK economy through the 2020s. The UK is also committed to phasing out unabated coal power generation by 2025, and at the recent twenty-third Conference of the Parties (COP23) the UK, joint with Canada, announced the Powering Past Coal Alliance which gained the support of more than 20 partners. Internationally, through our International Climate Finance we have committed to provide at least £5.8bn between 2016 and 2020 to developing countries, to help them mitigate and adapt to the impacts of climate change. Whatever the nature of the future UK-EU relationship, the UK will remain committed to international efforts to tackle climate change, and working closely with the EU will remain very important. 68 European Commission position on climate change In February 2018, EU Trade Commissioner Cecilia Malmstrom was reported to have confirmed that a binding reference to the Paris Agreement on climate change would be needed in all EU trade agreements from now on. 69 This echoed a 2017 blog post in which the Commissioner commented on the connections between sustainable development, climate change and trade policy: Furthermore, trade policy is also connected to sustainable development and efforts to combat climate change. Trade policy can cover measures to spur the transition to a greener economy. The fight against climate change can only succeed if we join our efforts […]. 70 A requirement to work together to implement the UNFCCC and the Paris Agreement was included in the Japan FTA, 71 and a similar requirement is expected to be included in upcoming trade deals with Mexico and the Mercosur countries. 72
68 PQ 115262 [on climate change convention] 28 November 2017; see also PQ 116768 [on climate change convention] 5 December 2017 69 Independent, EU to refuse to sign trade deals with countries that don’t ratify Paris climate accord, 12 February 2018 [accessed 6 April 2018] 70 European Commission blog post, Talking globalisation in Paris, Cecilia Malmstrom, 8 June 2017 [accessed 6 April 2018] See also: European Commission blog post, TTIP – what’s in it for labour, environment and sustainable development? Cecilia Malmstrom, 6 November 2015 [accessed 6 April 2018] 71 European Commission statement, Joint Statement by the President of the European Commission Jean-Claude Juncker and the Prime Minister of Japan Shinzo Abe, 8 December 2017 [accessed 6 April 2018] 72 Independent, EU to refuse to sign trade deals with countries that don’t ratify Paris climate accord, 12 February 2018 [accessed 6 April 2018] 35 Commons Library Briefing, 19 April 2018
3.2 Sustainable Development Sustainable development is an internationally recognised approach that seeks to simultaneously advance economic, social and environmental goals across generations and across the globe. The Sustainable Development Goals The UN Sustainable Development Goals (SDGs) were agreed in 2015 – successors to the Millennium Development Goals (MDG). They comprise of 17 goals, with 169 associated targets for human development, to be achieved by 2030. Commons Library briefing The Sustainable Development Goals and the post-2015 development agenda (September 2015) provides further background. The goals cover issues from poverty and gender equality to waste reduction and achieving sustainable consumption and production patterns. They are broader in scope than the MDGs in an attempt to integrate the UN’s Sustainable Development agenda which had tended to run in parallel with little overlap. The SDGs seek to take a more holistic approach to development, addressing the root causes of poverty and inequality in order to bring transformative change that will ‘leave no one behind’. 73 The Office of National Statistics (ONS) leads on UK reporting against the SDGs and Government departments are also required to embed SDGs in their Single Departmental Plans (SDPs) and associated reporting mechanisms. The Cabinet Office has provided an overview document – The Implementation of the Sustainable Development Goals (14 December 2017) which pulls out the relevant targets from the different plans under each Goal. In the UK Parliament, the cross-departmental House of Commons Environmental Audit Committee is tasked with ensuring that sustainable development is reflected in all Government activities and policy-making. The UK Government said in its 2017 Future Partnership paper that it will continue to work with EU partners to uphold the principles and values behind the Sustainable Development Goals. 74 In a March 2018 Westminster Hall Debate, International Development Minister Harriet Baldwin said: 75 Where it makes best sense, we will continue to work closely with the EU on development and to implement the sustainable development goals side by side—the difference is that this time we will work with the EU where we choose to, and where it is in our mutual interest. We will be able to ensure better value for money through that choice and through tracking the impacts of our development spending. We will ensure that we continue to engage with the EU strategically, to direct our UK funds, but also on those global public benefits that we are both deeply
73 UN, Transforming Our World: the 2030 Agenda for Sustainable Development, 25 September 2015 74 HM Government, Foreign Policy, defence and development, A future partnership paper, 12 September 2017, para 8 75 HC Deb 21 March 2018 c208WH 36 Brexit: new guidelines on the framework for future EU-UK relations
committed to, such as global health security or mitigating the impacts of climate change. EU trade policy and sustainable development EU law requires all relevant EU policies, including trade policy, to promote sustainable development. To do this, the Commission has said that EU trade policy aims to ensure that economic development goes ‘hand in hand’ with: • social justice • respect for human rights • high labour standards • high environmental standards The Commission’s 2015 strategy Trade for all: Towards a more responsible trade and investment policy stated that it would: 76 promote an ambitious and innovative sustainable development chapter in all trade and investment agreements. A responsible trade and investment policy is viewed by the EU Commission as means to implement the SDGs. 77 Modern EU trade agreements e.g. with Canada and Singapore contain rules on trade and sustainable development (TSD). The EU-Korea FTA (2011) was the first time a TSD chapter was included. 78 The EU FTA sustainable development chapter typically sets out a range of areas where there will be ‘soft measures’ relating to overall co- operation and promotion. However, as per the recent EU Council guidelines, TSD requirement are also set in the overall context of ‘sufficient guarantees for a level playing field’. The EU Commission Services non-paper, Trade and Sustainable Development (TSD) Chapters in EU Free Trade Agreements (July 2017) describes the level playing field as: not lowering labour and environmental standards for the purpose of improving trade or attracting investment and ensuring effective implementation. In the EU Agreement with Canada (CETA), for example, the overall approach to environmental standards is described in the interpretative document as follows: 79 CETA explicitly recognises the right of Canada and of the European Union and its Member States, to set their own environmental priorities, to establish their own levels of environmental protection and to adopt or modify their relevant laws and policies accordingly, mindful of their international
76 European Commission, Trade for all: Towards a more responsible trade and investment policy, 27 October 2015 77 EU Commission Services non-paper, Trade and Sustainable Development (TSD) Chapters in EU Free Trade Agreements, July 2017, p1 78 Ibid, p2 79 13541/16, Joint interpretive instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its Member States, 27 October 2016 37 Commons Library Briefing, 19 April 2018
obligations, including those set by multilateral environmental agreements. At the same time in CETA the European Union and its Member States and Canada have agreed not to lower levels of environmental protection in order to encourage trade or investment and, in case of any violation of this commitment, governments can remedy such violations regardless of whether these negatively affect an investment or investor's expectations of profit. In the EU’s TSD agreements, there are a range of binding commitments. The EU and its trade partners must: 80 • follow international labour and environment standards and agreements • effectively enforce their environmental and labour laws • not deviate from environmental or labour laws to encourage trade or investment, …thereby preventing a 'race to the bottom' • sustainably trade natural resources, such as timber and fish • combat illegal trade in threatened and endangered species of fauna and flora • encourage trade that supports tackling climate change • promote practices such as corporate social responsibility The EU also uses its trade agreements to: • promote sustainable public procurement • remove barriers to trade and investment in renewable energy The EU meets its partners regularly to discuss how they and the EU are implementing trade and sustainable development rules in the trade agreement between them. Special civil society advisory groups in the EU and partner countries bring together environmental, labour, and business organisations. The EU and its partner countries consult the advisory groups on how trade and sustainable development rules are being implemented. TSD provisions in an FTA are subject to a dispute settlement mechanism and these differ from other areas in that there is an explicit role in the settlement for civil society and international organisations. 81
3.3 Cross-border pollution In its 2017 Report on Brexit: environment and climate change, the House of Lords EU Energy and Environment sub-committee highlighted the need for co-operation between the UK and EU in relation to cross-
80 European Commission, Sustainable Development page (from DG Trade) [as viewed on 9 April 2018] 81 EU Commission Services non-paper, Trade and Sustainable Development (TSD) Chapters in EU Free Trade Agreements, July 2017, p4 38 Brexit: new guidelines on the framework for future EU-UK relations
border pollution. This was particularly highlighted as a practical issue for the land boundary on the island of Ireland: The transboundary nature of most environmental pollution means that failure to co-operate with the EU post-Brexit could have significant consequences for both the UK’s and the EU’s natural environment. Marine conservation, air quality and climate change are three key areas where the UK and EU environments will be conjoined as much after Brexit as before. The Government will need to co-operate with the EU in these areas, among others, to ensure environmental protection is maintained. 133. The land boundary in the island of Ireland presents particular and significant environmental challenges. We urge the UK Government to work with the Northern Ireland Executive, the Irish Republic and EU partners to enable effective long-term management of the environment on both sides of the border. 82 In response to concerns raised by the Lords sub-committee, the Government committed to continued cooperation with the EU “especially where those issues have effects across borders”: Post-EU exit we will continue to cooperate and work with the EU on certain policy areas where it will be important to do so, especially where those issues have effects across borders. We will continue to liaise closely with EU Member States and other international partners on issues that demand multilateral action, recognising the desire for coordinated efforts to tackle issues. 83 Separately, the UK Government has committed to upholding its obligations under international environmental treaties, such as the Montreal and Gothenburg Protocols, the Stockholm Convention, the Convention on Biological Diversity (CBD) and the Convention on International Trade in Endangered Species (CITES). 84
82 House of Lords, European Union Committee, 12th Report of Session 2016-17, Brexit: environment and climate change, 14 February 2017, HL Paper 109 83 Defra, Government response to House of Lord’s EU Energy and Environment Sub- Committee’s report on Brexit: Environment and climate change, 16 April 2017 84 Department for Exiting the European Union, The Repeal Bill: Factsheet 8 Environmental Protections, 8 September 2017 39 Commons Library Briefing, 19 April 2018
4. Reciprocal access to fishing waters
Article 8(i) “In the overall context of the FTA, existing reciprocal access to fishing waters and resources should be maintained”
Following Brexit, the UK will become and independent coastal state and take full responsibility for fisheries in the UK’s Exclusive Economic Zone, including setting total allowable catches. 85 However, it will still have to comply with any agreement reached with the EU for access for EU vessels to UK waters, and vice versa. It will also have to reach agreement with the EU on setting sustainable quotas on shared fish stocks, of which there are around 100. 86
4.1 Transitional Agreement Outcome The EU’s negotiating position on the transitional arrangements was that fisheries should form part of any transition agreement, with the UK complying fully with the Commons Fisheries Policy (CFP) until the transition period ends. 87 Quotas are set on a calendar year basis. The agreed 21-month transition period coincides with the 2019 quota year end, and removes the need for reaching agreement on how to set quotas for the first three months of 2020. In the final draft of the transition agreement, approved by the EU Council, the Government accepted that the UK will comply with the CFP until the end of the transition period. 88 In the agreement the section on fisheries was flagged as falling under the category of agreed at negotiators' level, subject to technical legal revisions. Michael Gove explained the outcome in response to an urgent question in the House of Commons as follows: I think people not just in Buckie and Portsoy but across the north- east of Scotland—indeed, across the United Kingdom—will be disappointed that the proposal we sought to ensure would apply for 2019 does not apply for that year. However, it is important to recognise that this is a 12-month additional extension to the maintenance of the EU acquis and that we accept that the greater prize, which my hon. Friend is quite right to remind the House of, is available only if we ensure that we leave the common fisheries
85 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.” 86 EU Commission, Internal EU27 preparatory discussions on the framework for the future relationship: "Fisheries", TF50 (2018) 23 - Commission to EU 27, 17 January 2018 87 The Guardian, EU to hold Britain to fishing quotas during Brexit transition, 11 January 2018 88 Financial Times, UK set to back down over fishing quotas during Brexit transition, 17 March 2018 40 Brexit: new guidelines on the framework for future EU-UK relations
policy, take back control and make it absolutely clear to other countries that access and quotas will be in our hands. Stakeholders where unhappy with the outcome. The National Federation of Fishermen's Organisations set out its view: Just over three weeks ago, in her Mansion House speech, the Prime Minister couldn’t have been clearer on fishing. As the UK leaves the EU on 29th March next year, the UK would leave the Common Fisheries Policy. Quota shares would be rebalanced. It is still the case that in March next year under international law the UK will become a coastal state, separate from the EU; but the transition arrangement agreed in Brussels last week will ensure that we will be far from independent during the transition And: There is no escaping […] that the transitional agreement is a reverse and a humiliation for the UK on fishing. Annual decisions on quotas will be made next year by the EU with only a notional obligation to consult the UK, although much of the fish will be caught in UK waters and the UK is, by far, the largest net contributor to the pot of resources. Decisions made with the UK outside the room will apply to the UK, in their entirety, for the period of the transition. However, other commentators where less surprised at the outcome, warning that there may be further disappointment for UK fishermen in a future trade deal: The transition deal always had an air of inevitability about it. Despite all the promises made by government ministers, the impact that fishing has on the UK’s GDP relative to other member states has meant that it was always likely to be a card that could be traded off for a better deal elsewhere. As for the ultimate end goal for the UK government on fisheries, independent coastal state status will come the UK’s way eventually. It is just not going to be as quickly as some would have hoped. The government should be wary of making further promises to the fishing industry which cannot be guaranteed. The terms and conditions that the UK accepts for the relationship with the EU after the transition period may represent further disappointment for the UK fishing industry. After Greenland voted to leave the European Economic Community in 1982, it spent three years negotiating its exit and had to settle for very little change in access rights to its fisheries for European vessels. This example suggests that UK fishermen may yet be in store for more disappointment down the line. 89
4.2 Fisheries in a future deal Beyond the transition period, the maintenance of current arrangements for sharing fisheries resources after Brexit was referred to in the European Council’s draft negotiating guidelines for a future trade deal.
89 The Conversation, How the Brexit transition deal let the UK’s fishing industry down, 21 March 2018 41 Commons Library Briefing, 19 April 2018
This linked continued existing reciprocal access to fisheries to the proposal for a zero-tariff trade agreement: Trade in goods, with the aim of covering all sectors, which should be subject to zero tariffs and no quantitative restrictions with appropriate accompanying rules of origin. In this context, existing reciprocal access to fishing waters and resources should be maintained. 90 A zero-tariff trade agreement is important to the UK fish processing industry and exports, as noted by the House of Lords European Union Select Committee report Brexit: Fisheries: Trade in fish and seafood is essential to the wider seafood industry, which relies heavily on importing raw goods at reduced or zero tariffs for domestic consumption, and on exporting domestic catches and production. Any disruptions to the current trading patterns could have profound effects on both the catching and processing sectors. 91 And indication of the EU’s aims for a future agreement where set out it summary of preparatory discussions on fisheries published in January 2018 by the Commission: • ensure continued reciprocal access to waters, resources and markets • define modalities on determining fishing • opportunities, having regard to historic fishing patterns and past records of activity • establish modalities for cooperation on joint management of transboundary stocks • seek the highest level of convergence in management regimes. 92 The European Parliament resolution on the framework set out its view that a novel form of third party agreement was required which allowed for a “high level of cooperation, coherence and convergence”: Considers, with respect to fisheries, that a novel form of third country-type of bilateral partnership agreement should be negotiated with the aim of maintaining a high level of cooperation, coherence and convergence, ensuring stable and continued mutual access to waters and resources in accordance with common fisheries policy principles and governance provisions, and sustainable management of shared stocks in order to restore and maintain populations of these stocks above levels which can produce the maximum sustainable yield; underlines that the common management of shared stocks requires the continuation of the UK’s contribution to the scientific assessment of those stocks; stresses, however, that reciprocal market access for fishery products has to be negotiated as part of the future agreement, and that the access to the EU domestic market must
90 European Council, European Council (Art.50) (23 March 2018) Draft guidelines, XT 21022/18, 7 March 2017 91 House of Lords, EU Committee, Brexit: Fisheries, 17 December 2016 - HL Paper 78 92 EU Commission, Internal EU27 preparatory discussions on the framework for the future relationship: "Fisheries", TF50 (2018) 23 - Commission to EU 27, 17 January 2018
42 Brexit: new guidelines on the framework for future EU-UK relations
be conditional on the access for EU vessels to the UK fishing grounds and their resources, as well as on the level of cooperation in the management of shared stocks; 93 The Parliament also referred to the importance of preparing EU business trading in fisheries products, amongst others, having to deal with extra customs and labelling procedures when exporting to the UK. What these might entail for both EU and UK businesses, and including boats landing fish, was set out by the EU in a document, Withdrawal of the United Kingdom and EU rules on fisheries and aquaculture, published 9 April 2018. Griffin Carpenter from the New Economics Foundation, set out the implications for the UK fishing and processing sector of free trade agreement and fishing access being linked in the negotiations: In the months since the Brexit vote, it has become clear that the twin issues of catching and selling fish are bound up in the minds of EU negotiators just as they are bound up in the financial prospects for the UK fishing industry. Most UK-produced seafood is exported, and most of that ends up in supermarkets and restaurants in the EU. This is why, at the same time as fishermen would like more quota, they have also been clear that a “no deal” Brexit disrupting trade to the EU would be a disaster. This prospect is particularly alarming for small fishing communities that specialise in shellfish rather than quota species (these rights are mostly owned by large trawlers) but do sell their catches to the EU market. This was one of the key findings from my economic impact assessment of Brexit scenarios for UK fisheries. To deliver the largest quota gains possible while keeping tariffs as low as possible will not be straightforward. Walking away from negotiations will deliver neither. On tariffs, the UK would default to higher World Trade Organisation rates as well as face the worrying prospect of non-tariff barriers at EU ports. On quota, the UK going it alone and setting a higher level only works in the longer term if the EU agrees to a lower share. The reality is that over 100 fish stocks will be shared, post-Brexit, and both sides deciding their own quota limit will inevitably harm fish stocks and the communities that rely on them. A good deal for the fishing industry requires co-operation. 94
93 European Parliament, Resolution of 14 March 2018 on the framework of the future EU-UK relationship (2018/2573(RSP)) 94 The Guardian, Rees-Mogg’s hard Brexit won’t do anything for fishing communities, 21 March 2018 43 Commons Library Briefing, 19 April 2018
5. Free movement
Article 10 “The future partnership should include ambitious provisions on movement of natural persons, based on full reciprocity and non-discrimination among Member States, and related areas such as coordination of social security and recognition of professional qualifications. In this context, options for judicial cooperation in matrimonial, parental responsibility and other related matters could be explored, taking into account that the UK will be a third country outside Schengen and that such cooperation would require strong safeguards to ensure full respect of fundamental rights”.
5.1 EU position A February 2018 presentation prepared by the European Commission gives an indication of the EU’s position on future mobility rights for UK and EU citizens. The default position for UK citizens travelling/moving to the EU after the end of the transition period is that: • They will be classed as ‘third country’ nationals (Annex F). • They will be subject to the entry requirements specified in the Schengen Borders Code (Annex G). • They will be subject to either EU legal migration law (where applicable) or Member States’ national migration laws (Annex H). The presentation goes on to identify which immigration categories are covered by existing EU legal migration laws (which do not apply in the UK): Who is covered by the EU legal migration acquis? • Family members – Directive 2003/86/EC • Long-term residents – Directive 2003/109/EC • Single Permit holders – Directive 2011/98/EU • Students and researchers – Directive (EU) 2016/801 (recast) • EU Blue Card holders – Directive 2009/50/EC • Seasonal workers – Directive 2014/36/EU • Intra-corporate transferees – Directive 2014/66/EU Who is NOT covered by the EU legal migration acquis? Other categories (self-employed, low and medium skilled economic migrants (except seasonal workers), international service providers (except ICTs), jobseekers, family members of non-mobile EU citizens, retired persons …) will be covered by national law, as well as rules on regularisation. The conditions attached to the various legal migration directives vary. For example, they do not all allow for intra-EU mobility and the entry of family members. Whilst the directives specify the equal minimum rights applicable to third country nationals, these can be built on through bilateral agreements. 44 Brexit: new guidelines on the framework for future EU-UK relations
There is no requirement for reciprocity in terms of the immigration rules applicable to third country nationals in the EU and EU nationals in those countries. The slides also detail the default position for service providers under GATS Mode 4, and examples of mobility agreements in existing third country co-operation models (specifically, the EEA, Switzerland, Free Trade Agreements and Turkey models).
5.2 UK position Thus far, the Government has given little indication of its preferences for EU immigration controls post-Brexit, or whether it is willing to negotiate these as part of discussions on the UK’s future relationship with the EU. Furthermore, there is a tension between the Government’s timetable for deciding and implementing post-Brexit immigration controls and the timescale for negotiations on future relations with the EU. The Prime Minister’s Mansion House speech explicitly ruled out maintaining free movement of persons rights post-Brexit, but recognised that some alternative arrangements will be needed: We are clear that as we leave the EU, free movement of people will come to an end and we will control the number of people who come to live in our country. But UK citizens will still want to work and study in EU countries – just as EU citizens will want to do the same here, helping to shape and drive growth, innovation and enterprise. Indeed, businesses across the EU and the UK must be able to attract and employ the people they need. And we are open to discussing how to facilitate these valuable links. A few sector-specific ideas were alluded to later in the speech, notably: • “an appropriate labour mobility framework that enables UK businesses and self-employed professionals to travel to the EU to provide services to clients in person and that allows UK businesses to provide services to the EU …” (and vice versa); • “a far-reaching science and innovation pact with the EU, facilitating the exchange of ideas and researchers”; and • “a similar approach to educational and cultural programmes”. The Government has not provided further information about its policy preferences. For example, it is not known whether it intends to offer EU nationals continued privileged immigration access to the UK compared to non-EU countries, which is an area of potential controversy. The Government has said that it will not publish its own proposals until after it has considered the report and recommendations from the Migration Advisory Committee (MAC), which has been commissioned to advise on 45 Commons Library Briefing, 19 April 2018
the labour market implications of the UK leaving the EU and a future immigration system. 95 The Government’s timeframe for developing and legislating for a post- Brexit immigration policy stretches into next year, based on the following sequence of events: • Final report and recommendations from MAC – due in September 2018 (Annex F). • White Paper – the Home Secretary recently confirmed to the Home Affairs Committee that she expected it to be published “at the end of this year”. It is not known if it will be followed by a formal consultation period (Annex G). • Immigration Bill – expected “at the start of next year sometime”. It will cover immigration controls for EU nationals following the end of the transition period in 2020 (Annex H). In an evidence session with the Home Affairs Committee on 28 March, the Home Secretary confirmed that the Prime Minister and David Davis will decide whether to include immigration controls in the negotiations on the future EU-UK relationship, and that neither she nor the Cabinet had taken a position on the issue: Q210 Stuart C. McDonald: To what extent is our future immigration system part of ongoing negotiations with the EU and to what extent might there be a trade-off between allowing greater freedom of movement for EU nationals in exchange for better access to the single market? Amber Rudd: Well, Mr McDonald, it is my job to come forward with proposals and alternatives for the Prime Minister and David Davis to decide whether to have as part of the negotiations or not. It will be up to them to decide whether that is going to be the case or not. Q211 Stuart C. McDonald: There is certainly not a red line that says, “We decide our immigration system and this is absolutely definitely not part of negotiations”? It is possible that there could be a trade-off there? Amber Rudd: As I say, it is for me to make sure that there are different options available, because there are many different ways of delivering on a future immigration policy, and I will leave the negotiations at the coalface, as it were, for the Prime Minister and David Davis. […] Q224 Chair: Does the Cabinet have a position on whether immigration will be included in the future partnership or not? Amber Rudd: It is for the Prime Minister to decide what the state of the negotiations are going forward. We have achieved a lot in the past few months and going forward it is going to be for the Prime Minister to decide. The Chair of the Committee pressed the Home Secretary on the issue of the timings for the White Paper and Immigration Bill, the timescale for
95 An interim update reporting on the MAC’s work and submissions received so far was published on 27 March 2018. 46 Brexit: new guidelines on the framework for future EU-UK relations
negotiations with the EU, and the related implications for public and Parliamentary scrutiny: Q228 Chair: What is your proposal in terms of handling Parliament and scrutiny of Parliament about what the Government’s objectives might be? You just set out for Mr McDonald a timetable for a White Paper and for an Immigration Bill that do not seem to fit at all with the negotiation timetable. If you are going to need options for the negotiations within the next six months, how will Parliament ever see what those objectives are? Amber Rudd: I think that there are obviously many opportunities for the Brexit Secretary to come to Parliament and be challenged on issues or to give statements. I am sure he will be able to take those as the negotiations advance. […] Q231 Chair: If there has been no discussion at all, no decisions made within the Cabinet and no public discussion or parliamentary discussion of immigration, how on earth do you expect to get a consensus around some immigration proposals for the future partnership negotiations? Amber Rudd: I think there will be plenty of opportunity for discussions as the negotiations go forward, as I have said. The Brexit Secretary is often in front of Parliament. There are often opportunities for Opposition Day debates and statements about subjects to do with the European Union and I fully expect that to continue. Q232 Chair: But you will still be doing so without the advice from the MAC, without a White Paper, without any proper debate and process. Given that immigration was one of the biggest issues certainly that I heard on the doorstep during the referendum campaign, do you not think it is a problem? There have been huge debates about the customs union and the single market but no discussion either, it appears, in the Cabinet or in Parliament or in the country about what future immigration arrangements should be. Amber Rudd: I think that these negotiations with the European Union have been sequenced in a way that has not allowed that debate to take place yet. […]. Q233 Chair: Just to confirm, the White Paper will come out after the future partnership has been agreed and the future partnership may well include immigration arrangements? Amber Rudd: I do not know whether that is going to be the case because those negotiations have not yet started. That was the EU’s decision on the sequencing and David Davis and the Prime Minister will be taking that forward. On future cooperation in civil judicial matters, the UK Government published a future partnership paper on Providing a cross-border civil judicial co-operation framework in August 2017. Annex A to the document set out the Government’s position, which included the following: In response to the principles stated in the EU position paper, the UK proposes the following general approach. • Applicable law: the existing EU rules governing the applicable law for contractual and non-contractual 47 Commons Library Briefing, 19 April 2018
obligations should continue to apply to contracts concluded before the withdrawal date, and in respect of non- contractual liability, to events giving rise to damage which occur before withdrawal date. This will be necessary to avoid uncertainty or confusion as to which rules apply, which could cause disadvantage to families, businesses and individuals. • Jurisdiction: the existing EU rules governing jurisdiction to determine disputes should continue to apply to all legal proceedings instituted before withdrawal date. • Choice of court: where a choice of court has been made prior to withdrawal date the existing EU rules should continue to apply to establishment of jurisdiction, and recognition and enforcement of any resulting judicial decision, where a dispute arises to which such a choice applies, whether before or after withdrawal date. • Recognition and enforcement of judicial decisions: the existing EU rules governing recognition and enforcement of judicial decisions should continue to apply to judicial decisions given before the withdrawal date, and to judicial decisions given after the withdrawal date in proceedings which were instituted before that date. • Judicial cooperation procedures and requests for information: judicial cooperation procedures and requests for information within the European Judicial Network in civil and commercial matters which are pending on the date of withdrawal should continue to be governed by the existing EU rules. The UK agrees that there is a need to identify the appropriate procedural stage that has to have been reached for the procedure to continue in accordance with those rules. 8. References to ‘judicial decision’ in this approach includes reference to authentic instruments formally drawn up or registered, and court settlements approved or concluded, as appropriate. Material scope 9. The UK largely concurs with the Commission’s position on material scope, which is reflected in Box 1 of the main paper. In addition, it will be necessary to discuss certain conventions in this area, including the 2005 EU–Denmark agreement.
5.3 Social security In the event of no agreement being reached between the UK and the EU on the future mobility rights, as noted above the default position would be that UK citizens travelling/moving to the EU after the end of the transition period would be classed as ‘third country’ nationals subject to entry requirements under the Schengen Borders Code, and to EU and national legal migration rules. EU citizens coming to the UK would be subject to UK immigration rules and to related restrictions on access to welfare benefits. 96
96 For the current rules on access to benefits for non-EEA nationals coming to the UK see Commons Library briefing SN06847, People from abroad: what benefits can they claim? 48 Brexit: new guidelines on the framework for future EU-UK relations
By default, the provisions in EU law on the co-ordination of social security schemes for people between Member States – in EC Regulation 883/2004 – would also cease to apply. The co-ordination rules support freedom of movement by, for example, providing for equal treatment as regards access to benefits with nationals of the host state, clarifying which state is responsible for paying benefits, allowing aggregation of insurance periods across countries, and enabling certain benefits to be ‘exported.’ 97 Bilateral, reciprocal social security agreements between the UK and some individual EU Member States that pre-date the UK’s EC entry would become applicable again, but these agreements are far more limited in scope than the EU co-ordination rules, and may well be outdated. 98 While the EU wants the future partnership with the UK to include ‘ambitious provisions’ on mobility based on full reciprocity and non- discrimination in related areas, including social security co-ordination, the UK has not yet set out its position on future social security co- ordination. In a report published on 20 November 2017, the Commons European Scrutiny Committee (ESC) sought clarification from the Government on whether it would seek a new social security agreement with the EU. It noted: 15.43 There is no reference in the Government’s position paper on citizens’ rights with respect to its objectives for a new UK-EU framework to govern relations in the field of social security following Brexit for citizens not within the scope of the Withdrawal Agreement, or indeed whether it is seeking to establish such a framework at all. We have therefore asked the Minister to confirm whether, in addition to seeking “an ongoing arrangement akin to the EHIC scheme as part of negotiations on our future arrangements with the EU”, the Government will also seek to extend the regime created by Regulation 883/2004 more generally for UK and EU nationals who are outside the scope of the Withdrawal Agreement. 15.44 We note in this respect that the existing precedent for such an arrangement with a country outside the Single Market, the EU- Switzerland agreement which we described above in paragraph 0.34, was concluded as part of a broader treaty which extended the EU’s principle of free movement of persons to the Swiss. It is unclear if the EU would agree to a social security agreement with the UK which in essence preserved the effects of Regulation 883/2004 between the two sides unless the UK also accepted the wider principle of free movement, the abolition of which is one of the Prime Minister’s “red lines” in the negotiations. We have asked the Minister to confirm the Government’s negotiating objectives for the post-Brexit economic relationship with the EU in this area. 99 The Committee asked:
97 For further information on social security co-ordination see section 13 of Commons Library briefing CBP-7213, Brexit: impact across policy areas, 26 August 2016 98 Herwig Verschueren, ‘Scenarios for Brexit and social security’, Maastricht Journal of European and Comparative Law, 2017, Vol. 24(3), pp367-381 99 ESC, First Report of Session 2017-19, HC 301-I 2017-19
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1. Is it the Government’s objective to negotiate a comprehensive new EU-UK agreement on coordination of social security? If so, would this be similar to the provisions of the EU-Switzerland Agreement on free movement which deal with social security? 2. Does the Government believe it could negotiate a social security agreement without a wider treaty with the EU on continued freedom of movement? 100 In a letter to the Committee Chair dated 16 February, DWP Minister Alok Sharma replied: Future co-ordination with the EU on social security matters after exit for those outside the scope of the Withdrawal Agreement is a matter for the UK Government and Parliament to consider in due course. These social security matters include the payment of contributions and the aggregation of relevant periods of insurance, work or residence within the EU. The Government will also want to discuss these issues with EU partners. While noting that the Minister was unable to provide clarity on this point, the Committee acknowledged that agreement on a transition period would provide further time for the details of any new EU-UK social security agreement to be negotiated. 101 The Prime Minister has made it clear that when the UK leaves the EU free movement of people will end, but acknowledges that people will still move between the UK and EU. As such, some form of social security co-ordination will be necessary. The EU-Switzerland agreement is cited as a possible model for future relations, but other solutions are possible. Whatever model is chosen, it seems likely that, rather than starting from a ‘blank sheet’, negotiations will start from the basis of the existing social security co-ordination regulations and examine to what extent these could be applied to future situations. 102 Ultimately, the solution will depend on whatever is agreed on the movement of persons. Negotiations on future arrangements for social security co-ordination would have to address a whole range of issues including how future changes to the rules should be agreed, how case law should be recognised, appropriate arbitration arrangements to rule over cross- border EU-UK cases, and a dispute resolution mechanism. There will also have to be necessary administrative arrangements to underpin the new system. 103
100 ESC, First Report of Session 2017-19, HC 301-I 2017-19, para 15.14 101 ESC, Ninth Report of Session 2017-19, HC 301-ix 2017-19, para 7.11 102 Herwig Verschueren, ‘Scenarios for Brexit and social security’, Maastricht Journal of European and Comparative Law, 2017, Vol. 24(3), pp367-381 103 See Directorate General for Internal Policies Policy Department A, Coordination of Social Security Systems in Europe: A study prepared at the request of the Committee on Employment and Social Affairs, IP/A/EMPL/2017-03, November 2017, pp20-21 50 Brexit: new guidelines on the framework for future EU-UK relations
6. Transport
Article 11(i) “regarding transport services, the aim should be to ensure continued connectivity between the UK and the EU after the UK withdrawal. This could be achieved, inter alia, through an air transport agreement, combined with aviation safety and security agreements, as well as agreements on other modes of transport, while ensuring a strong level playing field in highly competitive sectors”
The new guidelines represent a shift in tone from that previously set out in Commission documents. 104 While this would appear to look ahead to a future in which the UK and the EU could reach air and land transport agreements, the statement remains at a high level and there is no detail on those issues where there may be friction or disagreement. At this stage it is impossible to say what these future agreements might contain. A good guide, however, may be the land and air transport agreements that Switzerland signed with the EU in 2002. The Swiss agreements broadly apply the rules, regulations and their associated costs and benefits of the European Common Aviation Area to Switzerland and much of the common rules on road and rail without the market pillars. 105 The UK Government’s transport priorities have not been set out in any single policy paper or place. However, we do know from various comments by the Secretary of State for Transport and others that the key priorities are air transport rights to fly, continuing membership of the European Aviation Safety Agency (EASA) and road haulage permits. 106 A summary of these three key issues is given below. There are other areas which are potentially controversial in the framework of domestic politics – such as the market pillar of the EU rail packages, which a Conservative Government may be happy to accept as part of a wider deal but which might be unacceptable to the Labour Party. These issues are examined in more detail in HC Library briefing paper Brexit and transport, CBP 7633, updated on 16 April 2018.
104 See: Internal EU27 preparatory discussions on the framework for the future relationship: "Transport", TF50 (2018) 34; Commission to EU 27, 21 February 2018; and Internal EU27 preparatory discussions on the framework for the future relationship: "Aviation", TF50 (2018) 24; Commission to EU 27, 17 January 2018 105 Agreement between the European Community and the Swiss Confederation on Air Transport, and Agreement between the European Community and the Swiss Confederation on the Carriage of Goods and Passengers by Rail and Road, both 30 April 2002 106 See, e.g. HC Deb 23 November 2016, c952; Transport Committee, Departmental priorities and annual report and accounts, HC 745, 17 October 2016; and DExEU, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, 2 February 2017, paras 8.32-33
51 Commons Library Briefing, 19 April 2018
6.1 European Common Aviation Area (ECAA) The advent of cheap short haul flights across Europe in the early 1990s has revolutionised both the way people travel and the airline industry. It owes a large part of its success to the liberalisation of air transport across the EU and the single aviation market, or European Common Aviation Area (ECAA). 107 Airlines clearly want the UK Government to negotiate continuing access to this liberalised regime. The most obvious way of doing this would be by remaining a member of the ECAA, post- Brexit. However, membership of the ECAA effectively requires acceptance of EU aviation law across all areas, so where the UK might want to move away from current EU rules with which it is not entirely satisfied, compromise would be required. The Government has remained consistently optimistic that a deal can be done. Appearing before the Transport Select Committee in October 2017 the Secretary of State for Transport, Chris Grayling expressed confidence in a deal: There is absolutely no benefit to anybody in having a situation where the current international aviation structures are weakened as a result of problems between us and the European Union. I am sure that is not what they want. I have a very good relationship with the European Transport Commissioner. I am absolutely certain that over the coming months we will have mutual sensible arrangements put in place, but we are obviously preparing for all eventualities, as you would expect […] The day after we have left the European Union, the world from our airports will look very similar to the day before. 108 As time has passed, the industry has also become increasing confident that a deal will be done. For example, Willie Walsh, chief executive of International Airlines Group (IAG), told the Transport Committee in October 2017 that: I think the Secretary of State is optimistic and I share his optimism that the world will continue as it has. There are issues to be dealt with, and I am confident that they can be dealt with well in advance of the beginning of April 2019. 109 Also, in November 2017 witnesses representing the aviation sector before the House of Lords European Union Committee “expressed confidence that a deal would be reached to cover the sector”. 110 Not everyone in the industry is as optimistic. For example, the Chief Executive of Ryanair, Michael O’Leary, and the Chief Financial Officer,
107 More details are given in HC Library briefing paper CBP 182; the ECAA was extended to the Balkan countries in the mid-2000s and already applied to Norway and Iceland. It covers 36 countries and more than half a billion people, for more information see: European Commission, International Aviation – ECAA [accessed 12 April 2018] 108 Transport Committee, Oral evidence: Policy priorities for the Department for Transport, HC 430, 16 October 2017, Qq118 & 126 109 Transport Committee, Oral evidence: Aviation and Brexit, HC 531, 30 October 2017, Q2; Sophie Dekkers, UK director for easyJet agreed with this assessment 110 HL European Union Committee, Brexit: deal or no deal (7th Report of Session 2017– 19), HL Paper 46, 7 December 2017, Box 5, p15
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Neil Sorahan, have consistently argued that there is little evidence of progress towards an agreement being reached. 111
6.2 European Aviation Safety Agency (EASA) The European Aviation Safety Agency (EASA) develops common safety and environmental rules at the European level. It monitors the implementation of standards through inspections in the Member States and provides the necessary technical expertise, training and research. 112 The UK’s involvement with EASA and the standards and safety regulation it is responsible for is a key issue which will need to be resolved in any Brexit negotiations. There is widespread agreement that continued membership of EASA would benefit the UK and the EU. For example, in a September 207 paper the Royal Aeronautical Society (RAS) said: Far from diminishing UK influence in global aviation, the EASA regime has provided a conduit for UK influence on aviation safety and security within Europe and beyond on behalf of the UK passengers flying on airlines around the world; indeed, the UK has been a major driver of ever-closer alignment on regulatory matters across Europe and the negative impacts of its withdrawal would be felt across the continent, to such an extent that EASA would likely be diminished in stature as an organisation. 113 The Government has explicitly stated that it would like to negotiate some sort of ongoing membership of EASA after Brexit. 114 Specifically, in her speech on 2 March 2018 the Prime Minister said: We want to explore with the EU, the terms on which the UK could remain part of EU agencies such as … the European Aviation Safety Agency. We would, of course, accept that this would mean abiding by the rules of those agencies and making an appropriate financial contribution. 115 As to the likelihood of such an arrangement being agreed, in its March 2018 paper on Brexit, MLex Market Insight interprets the March 2018 European Council negotiating guidelines as follows: … it foresees a bilateral aviation safety agreement, with the UK’s Civil Aviation Authority taking on responsibility for testing and licensing aircraft and components in the country. A streamlined system that simplifies the certification of UK products would be possible with “sufficient trust” in the UK regime, the European Commission said. 116
111 See, e.g. “Fears flights between Britain and the EU could be halted after Brexit”, The Independent, 5 July 2017 112 EASA, About EASA [accessed 12 April 2018] 113 RAS, Civil Aviation Regulation: What Future After Brexit?, 28 September 2017, pp5- 6 114 See, e.g. “UK wants to remain in EU aviation safety agency”, Financial Times, 1 December 2017 115 PM’s Mansion House speech, 2 March 2018 116 MLex Market Insights, Rival Visions of a Brexit Deal, March 2018, p8
53 Commons Library Briefing, 19 April 2018
6.3 Road haulage There are potentially a lot of uncertainties for UK haulage companies as a result of Brexit, particularly in terms of employment, drivers’ hours rules, access to markets and border controls. The Agreement on the European Economic Area (EEA) basically extends the EU internal market to Norway, Iceland and Liechtenstein. As regards road transport, this entails that these three countries apply the EU road transport rules just like EU Member States. The EU has a separate agreement with Switzerland. 117 The UK might find itself in a similar situation to one of these countries after Brexit. In a debate on Brexit and transport in November 2016 the Secretary of State for Transport, Chris Grayling, said that road haulage was one of his Department’s two top priorities. He pointed to the fact that about 85% of the lorries operating between the UK and the continent belong to EU-owned businesses. 118 In its July 2017 paper the Independent Transport Commission (ITC) stated: The impact on road freight must also be considered, since such traffic transports more than 85% of what we eat, drink, wear or build. Under existing EU agreements simplified processes mean that it is as straightforward to ship goods to Manchester from Milan as from Margate. This will change after leaving the EU and a significant risk exists for supply chains that deal with exports and imports by road if new customs controls are imposed at border points. The Road Haulage Association (RHA) has recently called for a comprehensive Land Transport Agreement between the UK and EU that would allow unfettered road haulage for licensed operators across the UK and EU to continue.4 Such an agreement would also help to maintain vehicle standards and avoid lengthy checking processes. Without seamless customs across ports and borders it is feared that massive queues of lorries could build up at UK ports, causing time sensitive goods to deteriorate alongside potential knock on effects on production. 119 The Government has introduced the Haulage Permits and Trailer Registration Bill [HL] 2017-19 into Parliament in order to ensure that UK haulage can continue to operate in the EU27 in the event of a ‘no deal’ Brexit. It is not yet clear what this might look like and the Government is taking wide-ranging powers to enable it to create a suitable permit scheme should such be required. As described by the House of Lords Library in their briefing paper on the Bill: • The Government aims to negotiate a deal with the EU to maintain current levels of access to the European road freight market, which might result in a new permit scheme. Part 1 of the Bill would enable the Secretary of State to make secondary legislation introducing a new international haulage permit scheme if necessary. • The Government is also considering ratifying the 1968 Vienna Convention on Road Traffic to ensure that after Brexit the UK has
117 EC, Roads: non-EU countries [accessed 29 June 2016] 118 HC Deb 23 November 2016, cc953-4 119 ITC, How will leaving the EU affect UK transport? Key issues, ITC Occasional Paper No. 10, July 2017, para 2.3.7; the ITC is a land use and transport think tank. 54 Brexit: new guidelines on the framework for future EU-UK relations
a mutual legal basis for road traffic with EU countries that are not party to the 1949 Geneva Convention. One consequence of ratification would be that unregistered trailers could be turned away at the border of other countries that are party to the 1968 Convention (which includes the majority of EU member states). Part 2 of the Bill would therefore give the Secretary of State powers to make secondary legislation introducing a trailer registration scheme. The Bill does not address other aspects of Brexit that may have an impact on the road haulage industry, such as future customs arrangements. 120
120 HL Library, Haulage Permits and Trailer Registration Bill [HL]: Briefing for Lords Stages, LLN 2018-0025, 20 February 2018; a Commons Library briefing paper on this Bill will be produced in time for Second Reading in the Commons. 55 Commons Library Briefing, 19 April 2018
7. UK participation in EU agencies and programmes
Article 6 “The European Council further reiterates that the Union will preserve its autonomy as regards its decision-making, which excludes participation of the United Kingdom as a third-country to EU Institutions, agencies or bodies”. Article 11(ii) “regarding certain Union programmes, e.g. in the fields of research and innovation and of education and culture, any participation of the UK should be subject to the relevant conditions for the participation of third countries to be established in the corresponding programmes”.
7.1 EU Agencies and Programmes Agencies There are around 45-50 EU agencies, which are separate from the EU’s decision-making institutions. They assist the European Commission and the Council in the implementation of EU policies and most come under the general jurisdiction of the CJEU.
The EU position set out in Article 6 is that the UK will be excluded from participation in EU Institutions, agencies or bodies, while under Article 11 it may be able to participate in certain EU programmes on a conditional basis.
However, the UK could seek to participate in the work of those EU agencies where third-party participation is allowed under founding regulations. In this case it would have to contribute to the agency budget and accept the jurisdiction of the CJEU. 121
A Centre for European Policy Studies publication lists the following EU agencies and programmes which are open to non-EU membership:
Annex 3. Agencies of the EU open to participation by non-member states European Agency for Safety and Health at Work (EU-OSHA) European Fisheries Control Agency (EFCA) European Monitoring Centre for Drugs and Drug Addiction (EMCDDA) European Union Institute for Security Studies (EUISS) European Centre for Disease Prevention and Control (ECDC) European Aviation Safety Agency (EASA) European Defence Agency (EDA) European Foundation for the Improvement of Living and Working Conditions (EUROFOUND) European Union’s Judicial Cooperation Unit (EUROJUST)
121 A Commons Briefing Paper, EU Agencies and post-Brexit options, 28 April 2017, includes a list of the different kinds of EU agencies, what they do, how they are governed and whether third party participation is possible. 56 Brexit: new guidelines on the framework for future EU-UK relations
European Agency for the Management of Operational Cooperation at the External Borders (FRONTEX) European Environment Agency (EEA) European Asylum Support Office (EASO) European Chemicals Agency (ECHA) European Police College (CEPOL) European Maritime Safety Agency (EMSA) European Food Safety Authority (EFSA) European Institute for Gender Equality (EIGE) European Police Office (EUROPOL) European GNSS Agency (GSA) European Network and Information Security Agency (ENISA)
Annex 4. Programmes of the EU open to non-member states Competitiveness of Enterprises and SMEs (COSME) Asylum, Migration and Integration Fund Copernicus, European Earth Observation Programme Erasmus+ Creative Europe, Programme for the cultural and creative sectors Customs 2020 European Maritime and Fisheries Fund European Statistical Programme European Territorial Cooperation Health for Growth Fiscalis 2020 Galileo and EGNOS Programmes Global satellite navigation system Horizon 2020 Hercule III, Anti-fraud Internal Security Fund Life Programme, Environment and climate change Pericles 2020, Programme for the protection of the euro against counterfeiting SESAR JU, Air Traffic Management modernisation European Union Civil Protection Mechanism Ukraine is likely to participate in around 10 (we don’t think 30 is likely), as it has not signed agreements will all the relevant institutions. 122
Programmes To support research in the European Research Area (ERA), the EU has established several Framework Programmes for Research and Technological Development, which are known by their abbreviated titles FP1 to FP8. FP8 is the Horizon 2020 programme. 123
122 CEPS, Which model for Brexit? Michael Emerson, October 2016 123 Horizon 2020 is the Framework Programme for Research and Innovation established by EP and Council Regulation (EU) No 1291/2013 integrating the ‘knowledge triangle’ of higher education, research and innovation. Joint technology initiatives and Joint Undertakings are described in FAQs.
57 Commons Library Briefing, 19 April 2018
Many EU programmes are open to the participation of third countries. Horizon 2020, for example, declares itself “Open to the World” 124 which means “that participants from all over the world, regardless of their place of establishment or residence, can participate in most of the calls of Horizon 2020”. 125 Preparations for its successor, FP9, are already underway, 126 but the Lords Science and Technology Committee report on Brexit, science and innovation commented: 15.We are concerned that the Government’s default position does not appear to be that the UK will participate in Framework Programme 9. While the details of the Programme have not yet been agreed, the Government should state clearly that it intends to participate unless there is a material unfavourable difference between the new Programme and its predecessor, and that the UK is ready to pay a fair ‘entry fee’ to secure this. If the price is too high, or the focus on excellence is diluted, a change in approach might be warranted, but the Government’s explicitly stated assumption must be to participate fully. Specifically, the Government should state clearly in its response to this Report that it intends to secure Associated Country status for Framework Programme 9. 127 The Report also notes:
71. In 2019 and 2020, all EU funding programmes—including Horizon 2020, the Cohesion Fund and the Regional Development Fund—will remain open to UK participants.109 This will entitle UK beneficiaries to payments from those programmes for projects that were agreed to before 31 December 2020, even if actual payments are made after that date. Although the provisional agreement takes note of the UK’s intention to participate in some EU programmes after 2020, it does not make any specific provision for such participation. It is expected that this will be included in the negotiations on the transition/implementation period.
Joint undertakings There are also six joint undertakings (JUs) in which the UK might seek to participate: 128
• BBI Joint Undertaking Bio-based Industries • IMI 2 Joint Undertaking (IMI 2 JU) Part of Innovative Medicines Initiative, the EU's partnership for health • Fusion for Energy (F4E) is the EU’s Joint Undertaking for ITER and the Development of Fusion Energy. Joint European Torus (JET) is part of the European Consortium for the Development of Fusion Energy (EUROfusion).
124 European Commission, Research & Innovation, H2020 online manual, International cooperation. 125 Ibid 126 For information on Horizon 2020 and FP9, see https://www.scienceeurope.org/policy/policy-areas/framework-programmes/ 127 Lords 2nd Report 2017-19, Priority areas for a science and innovation agreement, 21 March 2018 128 A joint undertaking is a “legal entity established under [Article 187 of] the TFEU … used to describe any collaborative structure proposed for the ‘efficient execution of Union research, technological development and demonstration programmes’”. 58 Brexit: new guidelines on the framework for future EU-UK relations
• Clean Sky 2 Joint Undertaking (Clean Sky 2 Joint Undertaking) Research programme • Electronic Components & Systems for European Leadership ECSEL Joint Undertaking • Single European Sky ATM Research. SESAR Joint Undertaking was set up in 2004 as the technological pillar of the Single European Sky initiative.
The transition/implementation period Under Article 6 of the proposed transition agreement, which will be part of the withdrawal agreement, there would be some scope for UK participation in EU agencies, but without voting or decision-making rights. When the transition period ends the picture is less clear, as VOXEurop acknowledged with regard to the Erasmus exchange programme beyond 2020. 129
The Exiting the EU Committee, in its report published in March 2018, called on the Government “to make specific proposals for how it envisages continuing to make an important contribution after exit. Clarity must also be provided on what the UK’s role will be in EU agencies during the transition period”. 130
7.2 International agreements on third party participation The EU has concluded international agreements on scientific and technological cooperation with some 20 third countries; these create a framework for participation in joint projects and events, sharing facilities and staff exchanges, for example.
The UK may be able to participate in the activities of an agency or programme where its founding legislation provides for third party participation, but the Government has suggested the UK may also be able to participate if an international agreement - such as the withdrawal agreement - makes provision for this even in the absence of such provision in any founding legislation. In a letter of 1 December 2017 the Home Office Minister Nick Hurd told the Chair of the European Scrutiny Committee, Sir William Cash: … we note that a third country agreement concluded by the EU may provide for an EU measure, or provisions within such a measure, to apply to that third country, with or without modifications or adaptations, even where the EU measure being applied does not itself expressly provide for participation by non- Member States. For example, the 2013 Eurodac Regulation does not on its face provide for or permit direct access by a third country to the Eurodac system. Nevertheless, Norway applies that regulation and has access to the system it governs, under that country’s agreement with the EU of 19 January 2001 [OJ L 93, 3 April 2001 P. 40 – 47].
129 VOXEurop, How Brexit will impact study exchanges, 29 March 2018 130 Exiting the EU Committee Third Report, HC 884, 18 March 2018 59 Commons Library Briefing, 19 April 2018
Funding Although the UK is a net contributor to the EU budget overall, it is a net receiver of EU funding for research. For information on funding for EU programmes, see Commons Library Briefing Paper 7886, The UK's contribution to the EU Budget, 23 March 2018. Some third-party participants in EU programmes are eligible for EU funding. Associated states (there are 16) have been automatically eligible for Horizon 2020 funding, while Ukraine and Switzerland have been automatically eligible for Euratom programme funding. 131 Other third countries have co-funding agreements with the EU (e.g. Mexico, Russia, Australia, China, Russia, Japan), and some have no EU funding (US, New Zealand). The Commission provides information on the criteria in a Guidance note, Funding of applicants from non-EU countries & international organisations, 22 August 2017.
7.3 UK position The Government has not made clear which agencies or programmes it will seek to continue in after Brexit. The Government has insisted that it is committed to continuing “close co-operation” with the EU and its agencies. But the extent of cooperation cannot be decided unilaterally, and will be for both negotiators to agree. Lord Callanan said in a Lords debate on the EU (Withdrawal) Bill on 21 February (c 252): “the UK’s future relationship with EU agencies, including those under the Euratom treaty, is a matter for negotiations”. Speaking to Lord Whitty’s amendment, 132 he said (c 256) it “would require the Government to publish a report on how we will engage with a number of EU and Euratom agencies before negotiations had concluded. We believe this would be neither helpful to Parliament nor in the national interest”. It would also not be possible until the negotiations have at the very least progressed, with clear signs of mutual agreement on UK participation. In her Mansion House speech Theresa May outlined the benefits of the UK participating as “associate” members in the work of some EU agencies after Brexit: We will also want to explore with the EU, the terms on which the UK could remain part of EU agencies such as those that are critical for the chemicals, medicines and aerospace industries: the European Medicines Agency, the European Chemicals Agency, and the European Aviation Safety Agency. We would, of course, accept that this would mean abiding by the rules of those agencies and making an appropriate financial contribution. She outlined possible benefits of this approach “both for us and the EU”:
131 For further information on Euratom agencies, see Commons Briefing Paper 8036, Euratom, 12 March 2018. 132 Amendment 114, which sought to add a clause to the Bill after Clause 7, with an accompanying schedule which lists those agencies in which the UK would continue to participate. 60 Brexit: new guidelines on the framework for future EU-UK relations
First, this associate membership of these agencies is the only way to meet our objective of ensuring that these products only need to undergo one series of approvals, in one country. Second, these agencies have a critical role in setting and enforcing relevant rules. And if we were able to negotiate associate membership we would be able to ensure that we could continue to provide our technical expertise. Third, associate membership could permit UK firms to resolve certain challenges related to the agencies through UK courts rather than the ECJ. For example, in the case of Switzerland, associate membership of the European Aviation Safety Agency means that airworthiness certifications are granted by its own aviation authority, and disputes are resolved through its courts. Without its membership, Swiss airlines would need to gain their certifications through another member state or through the Agency, and any dispute would need to be resolved through the ECJ. Fourth it would bring other benefits too. For example, membership of the European Medicines Agency would mean investment in new innovative medicines continuing in the UK, and it would mean these medicines getting to patients faster as firms prioritise larger markets when they start the lengthy process of seeking authorisations. But it would also be good for the EU because the UK regulator assesses more new medicines than any other member state. And the EU would continue to access the expertise of the UK’s world-leading universities. And, of course, Parliament would remain ultimately sovereign. It could decide not to accept these rules, but with consequences for our membership of the relevant agency and linked market access rights. 133 In a statement on 5 March the Prime Minister said the Government wanted “to explore the terms on which the UK could remain part of EU agencies, such as those critical to the chemicals, medicines and aerospace industries”. But she added “That would mean abiding by the rules of those agencies and making an appropriate financial contribution, and the UK would also have to respect the remit of the ECJ in that regard”.
On Euratom, Theresa May said both the UK and the EU wanted to maintain “a close relationship with Euratom in the future”, and that “we are making arrangements to ensure that we can maintain that close relationship”. She also reminded the House that “if we chose to be a member of any agencies, such as on the security front - I have cited Europol in the past - we would of course expect to pay some costs of membership of those agencies”. 134
Committee evidence on EU agencies
133 For further comment, see Financial Times, 6 March 2018, Can Britain stick with the EU regulators? 134 The Prime Minister’s replies do not add much to earlier Government responses to the question about future UK membership of EU agencies. See, for example, Lord Callanan’s reply to a Lords parliamentary question on 3 January 2018.
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The Exiting the European Union Committee took oral evidence 135 on Brexit and EU agencies on 13 December 2017 for its report on the progress of the UK’s negotiations on EU withdrawal. Professor Alexander Türk et al gave their views on which EU agencies the UK should continue to participate in:
• European Chemicals Agency • European Aviation Safety Agency (EASA) • European Food Safety Authority • European Medicines Agency European Banking Authority • Insurance authority • Railway agency • European Maritime Safety Agency • Frontex • European standardisation organisations: CEN, CENELEC and ETSI 136 • Agency for the Cooperation of Energy Regulators • Body of European Regulators for Electronic Communications • European Defence Agency • Europol
Cassels study A study of EU agency membership after Brexit by John Cassels et al concluded that around 28 EU agencies would continue to be relevant for the UK, of which membership of seven would be essential and around 21 would become redundant: The functions (or some of the functions) of around 28 EU agencies will need to be repatriated to equivalent authorities in the UK. In these cases, the UK authorities will be required to introduce new remits and/or will pick up regulatory responsibility currently held by EU agencies. In some cases, the UK agencies may be required to maintain compliance with EU regulation through adopting changes to relevant EU law into the UK. Our analysis suggests around 21 EU agencies will be completely redundant for UK purposes following Brexit, representing about £471 million in UK budgetary contributions annually. In some instances, existing UK agencies may establish formal information sharing arrangements with some of these EU agencies, but for the most part there would be no need for active participation by the UK agency into the activities of the EU agency (or vice versa). 137 EU (Withdrawal) Bill gives powers to establish new UK bodies
135 Witnesses were Professor Alexander Türk, Professor of Law, King’s College London, Dr Scott Steedman, Director of Standards, BSI and Vice President (policy), International Standards Organisation, John Cassels, Partner, Competition, Regulatory and Trade Law, Fieldfisher LLP 136 95% of what the UK adopts as national standards are international and European (not strictly EU). 137 Transposing the Bureaucracy of the EU into the UK Civil Services, John Cassels, George McLellan and Anatol Poyer-Sleeman, 1 Dec 2017 62 Brexit: new guidelines on the framework for future EU-UK relations
Clause 7(5) of the European Union (Withdrawal) Bill (EUW Bill) provides for delegated legislation to establish new public bodies using the affirmative procedure. It will:
(a) provide for functions of EU entities or public authorities in member States (including making an instrument of a legislative character or providing funding) to be - (i) exercisable instead by a public authority (whether or not newly established or established for the purpose) in the United Kingdom, or (ii) replaced, abolished or otherwise modified, or (b) provide for the establishment of public authorities in the United Kingdom to carry out functions provided for by regulations under this section. In the second reading debate on the EUW Bill on 7 September David Davis said at c 350 the Government hoped “to minimise” the need for domestic bodies to be set up from scratch to carry out a function currently exercised by the EU. A number of amendments were tabled to the EU (Withdrawal) Bill seeking to maintain the UK’s membership of EU agencies, UK participation in EU programmes and access to EU systems and databases. These included amendments 196 to 199, 241 to 261, 276, 224 and 225. They were debated on 12 December 2017.
“20 plus” new UK public bodies? The Government has not yet given details about which new institutions will need to be created to deal with the impact of Brexit or how much they will cost. Some existing UK institutions will probably need to be strengthened and new ones will need to be created. The Cabinet Office Minister Chris Skidmore said in July 2017: “There are several organisations that will be created through Brexit. […] “You’re looking at 20 plus public bodies being created through Brexit – and the commitment there is getting those outside of London”. 138 The prospect of a transitional period also raises questions about whether new institutions will be needed in the short, medium or long term. No Government estimates of cost The Government has not published information on the costs of any new agencies to replace or replicate EU ones, as Lord Wallace pointed out in a Lords debate on 28 June 2017 (c 444). Subsequent questions from Mary Creagh in October 2017 about the Government’s plans to replicate certain EU agencies received rather vague replies on the cost. 139
138 Civil Service World, Over 20 public bodies will be created by Brexit, says Cabinet Office minister, Richard Johnstone, 28 July 2017. 139 See, for example, Shipping: Safety: Written question 106107 and Aviation: Safety: Written question 106108 63 Commons Library Briefing, 19 April 2018
Presenting his autumn budget to Parliament on 22 November 2017, Chancellor Philip Hammond announced that an extra £3 billion would be set aside to prepare for “every possible outcome” in the Brexit negotiations. This would be in addition to the £700 million already pledged for Brexit preparations, and he said he was ready “to allocate further sums if and when needed”. The Financial Times commented, 1 December 2017: Ministers have not drawn up official costings to replace the EU’s regulatory functions. But any costs are likely to form part of the £3bn which Philip Hammond, the chancellor, set out for Brexit planning over the next two years in last week’s Budget. Last week, it emerged that the government had not calculated the staff, investment and buildings needed for the UK to maintain standards. Cassels et al have estimated the cost of agency membership now and after Brexit: We have estimated that the UK's budgetary contributions to the administrative functioning of the EU institutions and agencies identified in our table totals around £620 million annually. Of this total, around £471 million may be considered redundant expenditure for UK purposes following Brexit. The UK contributes about £35 million annually towards the administrative budgets of EU agencies with which strategic partnership will be necessary following Brexit, and it is likely that the UK will need to continue making substantially similar contributions. The remaining administrative expenditure, comprising £114 million annually, constitutes the UK's contribution to EU agencies whose functions will need to be repatriated to their UK counterparts. 140 The transition period Operational participation but no decision-making The Government has said it wants full participation in all the EU regulatory agencies during the transition period. The EU’s position is that the UK can have “operational participation” but not “decision- making participation”. In its December Guidelines for phase two of the negotiations, the European Council stated that during a transitional period the UK would have no political representation in the EU institutions. This means the Government would “no longer participate in or nominate or elect members of the EU institutions, nor participate in the decision-making of the Union bodies, offices and agencies”. The January 2018 negotiating directives confirm the EU position that the transition period will preclude the UK from having representatives in the EU institutions and agencies because it will not be a Member State.
Effects of not having voting rights How would not having voting rights affect the UK? Professor Türk told the Exiting the EU Committee on 13 December 2017 (Q 307): One has to differentiate between what formal voting rights and influence mean. These are different things. Voting rights mean
140 Transposing the Bureaucracy of the EU into the UK Civil Services, John Cassels, George McLellan and Anatol Poyer-Sleeman, 1 Dec 2017 64 Brexit: new guidelines on the framework for future EU-UK relations
you have a right to vote on whatever is decided, but, in practice, matters are conducted mainly by consensus. What matters is the expertise that you bring to the table. Take medicines. The UK has considerable expertise in this area. Whether you have voting rights or not, how you influence the debate and how you say, “We are accepting this or not” are two different things. Not having voting rights is never a good thing. At least you need to be sitting around a table and making your influence felt. Within the agencies you need to be clear where you want to sit. There is a management board that does the work programme and the budget, but then there are scientific committees. Norway might make quite an interesting point and say, “On the management board, we are relaxed about being observers. In the scientific committees, where the decisions are actually made, we want to be fully participating. We might not have a voting right, but we can influence the discussion through our expertise”. One needs to be very careful to analyse where within an agency you want to be influential. Court of Justice jurisdiction The Government initially insisted that Brexit would mean the end of the jurisdiction of the CJEU. But in November 2017 David Davis conceded that there could be a role for the CJEU during a “time-limited transition period”: And that would mean access to the UK and European markets would continue on current terms. Keeping both the rights of a European Union member and the obligations of one, such as the role of the European Court of Justice. 141 John Cassels told the Exiting the EU Committee: It is fair to say anything beyond a sliver of participation is likely to involve submitting to the Court of Justice, certainly if we take the EU’s position as a position with which it will continue, at least in respect of your participation and the treaty or agreement by which you participate in that agency. That certainly would be subject to the Court of Justice of the European Union. Professor Türk pointed out (Q 308) that CJEU jurisdiction depended on a country’s relationship with the agency and the nature of its work: One needs to distinguish between participation and general acceptance of the outcome of an agency. Not all agencies make decisions. Take, for example, medicine. The agency in a scientific committee basically gives an opinion, which the Commission then translates into a decision. There are other agencies like EASA that actually make decisions on airworthiness certificates, for example. They would always be subject to the jurisdiction of the court, regardless of whether Britain participates or not, because it is an agency decision and EU agencies are subject to the jurisdiction of the court. Whether the UK accepts the decision or not, that is a different proposition. The decision of the agency will, directly or indirectly, always be reviewable by the Court of Justice, so participation is irrelevant on this point. Lord Callanan clarified on 1 March 2018 that mutual respect and pragmatism would be needed:
141 BBC News, 16 November 2017. 65 Commons Library Briefing, 19 April 2018
To be fully effective, this treaty must be respectful of both the UK and EU’s sovereign legal orders. For example, when participating in EU agencies the UK will respect the remit of the European Court of Justice and a principled but pragmatic solution will be needed to respect the UK's status as a third country with our own sovereign legal order.
Box 2: Case study - Ukraine
The EU-Ukraine Association Agreement (AA), Chapter 28, Article 450 states: Ukraine shall be allowed to participate in EU agencies relevant to the implementation of this Agreement and other EU agencies, where their establishing regulations permit, and as laid down by these establishing regulations. Ukraine shall enter into separate agreements with the EU to enable its participation in each such agency and to set the amount of its financial contribution.
The table below lists EU agencies and programmes in which Ukraine participates and where possible the basis for this participation (sources include Ukraine-EU Mission website, CEPS and individual EU agency websites)..
Agency Basis for Further information participation European Monitoring Memorandum of Comes under European Neighbourhood Policy and revised EU–Ukraine Centre for Drugs and Understanding Action Plan on Freedom, Security and Justice, June 2007 Drug Addiction between Ukraine (EMCDDA) Ministry of Health and EMCDDA, signed 2010. European Agency for Operational Cooperation between Ukraine State Border Guard Service and Frontex began Management of cooperation under a in 2007. Cooperation activities include exchange of information, risk analysis, Operational Working joint operations and personnel training. Training projects include detection Cooperation at the Arrangement; not of stolen vehicles and falsified documents, training dog handlers, learning External Borders of considered to be an English, implementation of a common core curriculum for border guards and EU Member States international treaty. preparation of common web platform for border guards training. (FRONTEX) European Global Cooperation Covers satellite navigation (EGNOS / Galileo) and remote sensing (GMES). Navigation Satellite Agreement on Civil Systems Agency of Global Navigation the Galileo Satellite System navigation system (GNSS), concluded in (GSA) November 2013. European Cooperation since Aim is deeper cooperation, including harmonisation of Ukrainian and EU Environment Agency 2009. Focus is to law, developing infrastructure in Ukraine under Shared European (EEA) implement provisions Environmental Information System (SEIS) and identifying priorities of Strategy of AA of State Environmental Policy to 2020. Occupational Safety In 2014 became Ukraine has participated in work of Agency after establishing a country and Health partner country in contact point and platform for sharing information and future cooperation. Administration project for (OSHA) neighbouring countries. European Maritime Cooperation Ukraine is developing cooperation between EMSA and the State Maritime Safety Agency and River Transport Safety Inspection. (EMSA) European Aviation Working State Aviation Service of Ukraine has been EASA Pan-European Partner since Safety Agency Arrangement in 2015 2009. Working Arrangements cover all aspects of regulation of civil aviation (EASA) replacing 2006 safety and environmental protection of products, organisations and 66 Brexit: new guidelines on the framework for future EU-UK relations
Working personnel. Ukraine's participation in EASA was precondition for proceeding Arrangement. with Common Aviation Area Agreement (CAA Agreement) between Ukraine and EU. European Centre for In action plan of AA Implementation of Decision 851/2004/EC of 21 April 2004. Disease Prevention 2014-17. and Control (ECDC) European Railway In action plan of AA Cooperation in framework of work of the group on interoperability in the Agency (ERA) 2014-17. railway system space 1520. European Training Partner country http://www.etf.europa.eu/web.nsf/pages/Ukraine Foundation (ETF) European Defence In action plan of AA Conclusion of Administrative Arrangement followed mandate of EDA Agency (EDA) 2014-17: Steering Board on 3 December 2015. European Council approved Administrative Arrangement 30 November 2015. It formalised relationship between EDA Arrangement. and Ukraine Ministry of Defence, allowing participation in EDA’s military- technological projects and programmes, including training, logistics and Single European Sky. EU Institute for In action plan of AA Security Studies 2014-17 EU Satellite Centre In action plan of AA 2014-17 European Food Cooperation EFSA started to cooperate with EU neighbouring countries via the Safety Authority agreements Programme funded from the European Neighbourhood Policy Instrument (EFSA) (ENPI) in February 2014. European Space Cooperation See State Space Agency of Ukraine website. Agency agreement since 2008; extended in February 2014 to 2019 in amending Protocol
European Fisheries In action plan of AA Contacts to be established. Control Agency 2014-17.
EU programmes in which Ukraine participates EU programme Basis for participation Further information
Erasmus + Partner country since 2014 http://ec.europa.eu/programmes/erasmus- plus/index_en.htm
Horizon 2020 In action plan of Association Officially joined 20 March 2015 Agreement 2014-17.
Eurostudent Participant in the project since http://www.eurostudent.eu/ 2013
Competitiveness of International agreement signed Ukraine does not participate in COSME financial Enterprises and SMEs 4 May 2016; entered into force instruments. (COSME) 21 March 2017. Health for Growth ?
Creative Europe EU-Ukraine Agreement, signed EU programme which supports the cultural and Programme 19 November 2015 creative sectors.
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8. Regulatory alignment and adherence to standards
Article 12 “Given the UK's geographic proximity and economic interdependence with the EU27, the future relationship will only deliver in a mutually satisfactory way if it includes robust guarantees which ensure a level playing field. The aim should be to prevent unfair competitive advantage that the UK could enjoy through undercutting of levels of protection with respect to, inter alia, competition and state aid, tax, social, environment and regulatory measures and practices”.
8.1 The ‘level playing field’ condition Article 12 contains what has become known as the ‘level playing field’ condition, already alluded to in Article 20 of the European Council’s April 2017 guidelines on the Brexit negotiations: Any free trade agreement should be balanced, ambitious and wide-ranging … A level playing field must be ensured, notably in terms of competition and state aid, and in this regard encompass safeguards against unfair competitive advantages through, inter alia, tax, social, environmental and regulatory measures and practices. This insistence on a ‘level playing field’ is not standard in EU agreements with third parties; the Commission’s preparatory materials make clear that the EU is seeking it in the future UK-EU relationship because of the ‘specificities’ of that relationship. These specificities include the depth and breadth of economic integration, and the geographic proximity of the UK to the rest of the EU. Should the UK diverge from the ‘level playing field’ substantially, and particularly, choose to deregulate in areas where the EU has significant regulation, this would make the UK competitive vis-à-vis the EU in a way that the EU deems unacceptable. Particular concerns relate to possible regulatory choices like significantly lowering corporate tax, offering extensive state aid to UK companies, or reducing the social and environmental standards currently applicable under EU law: such choices would make the UK attractive to business at the expense of the EU. The Commission’s preparatory work on the ‘level playing field’ makes clear what it wishes to pursue during negotiations about the future relationship: clauses that preclude the lowering of currently existing standards. This includes a ‘non-regression’ clause for environmental and labour standards; continued information exchanges on tax; and a general commitment to good governance by both parties. Specifically, the Commission notes that the international regime on state aid does not “adequately address the (potential) distortive effects of subsidies on investment, trade and competition” in light of the specificities of the UK relationship. As a consequence, the future relationship agreement will have to include “robust provisions” on State aid. The Commission’s preparatory work makes clear that obliging the 68 Brexit: new guidelines on the framework for future EU-UK relations
UK to continue to comply with the EU’s State aid framework is one possible, suitably ‘robust’ solution.
8.2 Taxation On taxation, the Commission notes that the UK’s future tax policy is “undefined” but that risks are visible; it currently already has a low corporate tax rate, and according to the Commission has plans to lower this rate further. Tax is a way the UK can “gain competitiveness” and, the Commission notes, there are very limited “legal/political restrictions to prevent this”. It highlights that the US may exert pressure on the UK to enact the kinds of tax reforms the US is also considering. As there are no strictly legal or political restrictions in place to prevent the UK using tax as a means to gain competitiveness, what the Commission proposes is that the future EU-UK relationship should contain provisions that will embed a principle of “non-lowering of existing standards”. These include a good governance clause, information exchange requirements, anti-tax avoidance measures, and a code of conduct that mirrors the EU’s on business taxation. Finally, it highlights that – if all else fails – the EU can resort to its “unilateral listing process for uncooperative tax jurisdictions”.
8.3 Environmental and labour standards On environmental and labour standards, the Commission’s preparatory work notes clearly that multilateral conventions governing these are of “limited scope and enforceability”, and so there is a real risk that in returning regulatory powers on environmental and labour standards to the UK post-Brexit, the ‘level playing field’ will disappear. 142 The UK could impose new costs on EU citizens and companies, or reduce environmental protection in order to increase competitiveness; and it could similarly diminish workers’ rights and undermine Europe as an ‘area of high social protection’. To prevent this, the Commission notes that various of the EU’s existing trade agreements already have in place commitments to environmental and labour standards, either by references to requirements to implement relevant international agreements, or by specific provisions in those agreements to address concerns about sustainable development and conditions of work. The FTA the EU has with Japan goes further still than this and contains a specific ‘non-regression’ clause: The Parties shall not encourage trade and investment by relaxing or lowering the level of protection provided by their respective domestic environmental or labour laws and regulations. To this effect, the Parties shall not waive or otherwise derogate from such laws and regulations or fail to effectively enforce them through a sustained or recurring course of action or inaction, in a manner affecting trade or investment between the Parties. 143
142 For further discussion, see the Commons Briefing Paper on Brexit and the Environment, 19 January 2018. 143 EU-Japan FTA, Text as of 6 December 2017, Trade and Sustainable Development, Article 2, Right to regulate and levels of protection 69 Commons Library Briefing, 19 April 2018
The Commission’s preparatory work considers that this type of non- regression clause, and a general principle to not lower standards of protection below the pre-Brexit level is a key element to ensuring a level playing field, but has no specific solutions for achieving such a level playing field, beyond a general commitment to high standards being desirable.
8.4 EU cherry-picking? The EU’s position on the ‘level playing field’ has been criticised in the UK; the FT reports that British officials have noted that such “special” restraints on British competitiveness can only be possible in exchange for “special” levels of access to trade. In other words, Article 12 arguably is demanding that single market-level standards continue in the UK without granting full Single Market membership to the UK. David Davis described this imbalance as the EU’s own version of ‘cherry picking’. However, the Institute for Government notes that the EU’s position suggests that the EU has real fears of the UK deregulating post- Brexit – and that this could be a useful lever for the UK in negotiations, as a UK without a ‘deal’ is significantly more likely to seek such radical divergence.
70 Brexit: new guidelines on the framework for future EU-UK relations
9. Enforcement and dispute settlement
Article 12 “This will require a combination of substantive rules aligned with EU and international standards, adequate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement mechanisms in the agreement as well as Union autonomous remedies, that are all commensurate with the depth and breadth of the EU-UK economic connectedness”.
Article 15 The governance of our future relationship with the UK will have to address management and supervision, dispute settlement and enforcement, including sanctions and cross-retaliation mechanisms. Designing the overall governance of the future relationship will require to take into account: i) the content and depth of the future relationship; ii) the necessity to ensure effectiveness and legal certainty; iii) the requirements of the autonomy of the EU legal order, including the role of the Court of Justice of the European Union, notably as developed in the jurisprudence.
9.1 Existing EU dispute resolution mechanisms Dispute resolution (or dispute settlement) is the process for resolving disagreements about the meaning of international treaties. The EU has included a dispute settlement mechanism based on the WTO mechanism in all its Free Trade Agreements since 2000, and since 2009 the EU has included investor-to-state dispute settlement mechanisms in trade and investment agreements. 144 The European Commission has been working since 2015 on a project to establish a permanent Multilateral Investment Court to decide investment disputes. The Institute for Government has written about issues in dispute resolution in international treaties: Treaties between countries must also be applied, interpreted and enforced if they are to be worth making. However, upholding the rule of law internationally is more complex, as treaties cut across different legal jurisdictions. The institutional mechanisms for this tend to be more ad hoc. […] The resolution mechanisms for certain disputes in some recent trade treaties have proven highly controversial, as they have sometimes allowed private companies to take governments to court. Dispute resolutions could be a sticking point in the Brexit negotiations too. 145 The UK position In her Mansion House speech, the Prime Minister said: […] in the future, the EU treaties and hence EU law will no longer apply in the UK. The agreement we reach must therefore respect
144 European Commission, Dispute settlement 145 IfG, Dispute Resolution 71 Commons Library Briefing, 19 April 2018
the sovereignty of both the UK and the EU’s legal orders. That means the jurisdiction of the ECJ in the UK must end. It also means that the ultimate arbiter of disputes about our future partnership cannot be the court of either party. 146 She also identified an independent arbitration mechanism as one of the five foundations underpinning the future relationship. MLex has argued that a CETA-type dispute settlement arrangement is unlikely to be acceptable to the EU as the EU does not allow committees of this kind to interpret EU legal principles. 147 The EU has suggested, however, that the arrangements contained in its association agreement with the Ukraine might be acceptable. 148 The Institute for Government has argued that the UK’s proposal is more likely to be acceptable to the EU if the trade deal is relatively shallow. The “deeper” the agreement, the less likely the EU is to accept it. 149
9.2 CJEU legal autonomy The final provision in Article 15 makes clear that whatever supervisory mechanism underpins the future relationship agreement, it must “take into account the requirements of the autonomy of the EU legal order, including the role of the Court of Justice of the European Union”. This provision alludes to the fact that, as the Commission notes, it is “in principle” possible for the EU to conclude a future relationship agreement with the UK that establishes judicial bodies in a supervisory and enforcement function, but the nature of the EU legal system places some constraints on the specific powers such judicial bodies can have. In particular, the CJEU has interpreted its own role as ‘guardian’ of the EU’s ‘autonomous legal order’ in a restrictive way that limits the scope of international dispute settlement involving the EU as a party. In a series of opinions on the EU’s powers in external relations, the CJEU has made clear that it alone has the power to determine the meaning of EU law concepts and, by proxy, the division of competences between the EU and its Member States, as the EU’s external relations cannot affect the ‘autonomy of EU law’. 150 First, according to the CJEU interpretation of the EU’s Treaties, any form of dispute settlement that involves the EU but does not take place before the CJEU cannot bind the EU (internally) to a particular interpretation of EU law. 151 Similarly, but introducing further restrictions, a judicial body overseeing the future UK-EU agreement may not interpret “provisions in substance identical to EU law”. 152 These two conditions work together to ensure that concepts of EU law (or
146 PM’s Mansion House speech, 2 March 2018 147 MLex Special Report, Rival visions of a Brexit deal, March 2018, p5 148 See European Commission slides, Internal EU27 preparatory discussions on the framework for the future relationship: ‘Governance’, 19 January 2018. 149 IfG, How do the UK and EU opening positions on the future trading relationship compare? 23 March 2018 150 See, seminally, Opinion 2/13 ECLI:EU:C:2014:245 151 Opinion 2/13 ECLI:EU:C:2014:245 [184] 152 Opinion 1/91 ECLI:EU:C:1991:490 [31-36] and Opinion 1/00 [2002] ECR 1-3493 [5]
72 Brexit: new guidelines on the framework for future EU-UK relations
even different concepts that have an identical function to EU law concepts) are not interpreted by, for instance, a future UK-EU Dispute Settlement Body in a way that either overrides or conflicts with the CJEU’s interpretation of those EU law concepts. A third, and again similar, overriding condition is that any Joint Committee set up to govern any international agreement to which the EU is party can take decisions, but those decisions cannot have any effect on CJEU case law. 153 If a Joint Committee overseeing such an agreement is thus faced with interpreting, for instance, an aspect of free movement of goods under such an agreement, any decision it takes about how the free movement of goods functions under the agreement must not override CJEU case law in this area. A second set of concerns stemming from the ‘autonomous legal order’ doctrine relates to the authority of the CJEU more generally. First, there can be no judges sitting in a double capacity; 154 this is to maintain CJEU independence as much as it is to maintain the independence of the dispute settlement body overseeing the agreement. 155 Second, the CJEU has determined that its rulings must be binding “in any case”; 156 turning the CJEU into an advisory body instead of one with binding jurisdiction has also been declared contrary to the EU’s legal order. The consequences of these conditions placed on judicial involvement in the EU’s international agreements is that, in practice, no judicial bodies are established as part of those agreements. The fact that the European Court of Human Rights would indeed challenge the CJEU’s jurisdiction and authority in any EU accession to the ECHR was the fundamental reason why the CJEU rejected the accession protocol agreed in Opinion 2/13. Instead, international agreements concluded by the EU tend to follow the more traditional model in which Joint Committee negotiations are the primary mode of dispute settlement. 157 If agreement cannot be found within a Joint Committee structure, arbitration is a common alternative or ‘last resort’. At first glance, arbitration does appear to resolve many of the problems the CJEU finds in the EU’s status as an ‘autonomous legal order’, in that the primary job of an arbitration panel is resolution of a particular disagreement; and while findings of an arbitral tribunal are binding on the parties, they do not impact on how the CJEU would deal with separate (if similar) concepts of EU law at stake in the arbitration. 158 However, arbitration and the inter-party negotiation model of dispute resolution also have significant downsides: the Swiss example demonstrates that where agreement cannot be found, the parties end
153 Opinion 01/00 [2002] ECR 1-3493 [43-44] 154 Where a judge sits on both the 'dispute settlement body' overseeing the UK-EU agreement and on the CJEU 155 Opinion 1/91ECLI:EU:C:1991:490 [47-52] 156 Opinion 1/91ECLI:EU:C:1991:490 [61]; the proposals for the EEA Court had suggested an ‘advisory’ rule for the CJEU, where its opinions given to EFTA States would not be binding. 157 See, for instance, the EEA and the Swiss Bilaterals I and II. 158 See Opinion 1/92 ECLI:EU:C:1992:189 [5] 73 Commons Library Briefing, 19 April 2018
up in an endless stalemate; and the more complex an international agreement, the more pressing the need for quick dispute resolution becomes. Arbitration, meanwhile, must be very specifically constructed in order to meet the CJEU test: the CJEU in Achmea ruled that if an arbitral tribunal could be called upon to interpret EU law in a dispute between investors and States, but its interpretation could not be effectively challenged via the court process, then its role as the exclusive interpreter of EU law was infringed. 159 Exceptions do exist to the general observation that the EU cannot sign up to agreements with comprehensive international dispute settlement bodies. For example, the CJEU ended up accepting a proposal for an EFTA Court after initially rejecting an EEA Court; but this was on the condition that the EFTA Court’s jurisdiction be limited only to disputes within the EFTA states, and consist only of judges from EFTA states. 160 Similarly, the EU does accept the jurisdiction of the WTO’s Dispute Settlement Understanding – and rulings by WTO Panels and the Appellate Body are binding on the EU and its Member States. However, they are not directly effective in the Member States, preventing them from being enforced against EU law by private parties in domestic courts. 161
159 C-284/16 Achmea ECLI:EU:C:2018:158 160 Opinion 1/92 ECLI:EU:C:1992:189 [18-19] 161 Christina Eckes, International Rulings and the EU Legal Order: Autonomy as Legitimacy? accessed 9 April 2018 74 Brexit: new guidelines on the framework for future EU-UK relations
10. Other areas of cooperation 10.1 Law enforcement and judicial cooperation in criminal matters
Article 13(i) “In other areas than trade and economic cooperation, where the Union has already signalled its readiness to establish specific partnerships, the European Council considers that: (i) law enforcement and judicial cooperation in criminal matters should constitute an important element of the future EU-UK relationship in the light of the geographic proximity and shared threats faced by the Union and the UK, taking into account that the UK will be a third country outside Schengen. The future partnership should cover effective exchanges of information, support for operational cooperation between law enforcement authorities and judicial cooperation in criminal matters. Strong safeguards will need to be established that ensure full respect of fundamental rights and effective enforcement and dispute settlement mechanisms”;
UK position Future partnership paper The UK position is set out in a Future partnership paper, Security, law enforcement and criminal justice, 18 September 2017. The paper sets out the UK’s view of the current position with respect to cooperation on security, law enforcement and criminal justice: At present, the UK works with other EU Member States through a range of EU tools and measures that help facilitate cooperation in the area of security, law enforcement and criminal justice, including data sharing tools, practical cooperation arrangements, and a number of EU agencies. EU cooperation is undertaken in accordance with a shared commitment to ensure the protection of rights and liberties. The UK has been instrumental in the development and operation of many of these tools. It is through pooling expertise and resources with EU partners that the UK has been able to develop some of the world’s most sophisticated cross-border systems and arrangements in the fight against crime. This close relationship has produced a comprehensive and sophisticated suite of mutually reinforcing arrangements that help protect citizens and the continent. The basis on which the UK cooperates at the EU level will evidently be affected by the UK’s withdrawal, raising the question of how that partnership should be shaped in the future. (para 3) It notes that “it is in the clear interests of all citizens” that the UK and EU continue to cooperate in this area, and envisages “a partnership that goes beyond the existing … arrangements for EU third-country relationships” (para 4). The paper reiterates the UK Government’s previous commitment to protecting the security and safety of EU citizens and to a “deep and special partnership” in this area. It proposes that future arrangements should “build on, and where possible enhance” the existing cooperation arrangements, and identifies three core objectives: • protect the safety and security of citizens and uphold justice in the UK and across the EU; 75 Commons Library Briefing, 19 April 2018
• maintain the closest and most cooperative of partnerships, continuing the longstanding traditions of friendship between the 27EU and the UK; and • continue to cooperate on the basis of shared democratic values and respect for the rule of law. These arrangements should be supported by a dispute resolution mechanism and provision for the free flow of information. The paper suggests that the focus of future negotiations in this area should be on areas of cooperation that deliver the most significant operational benefit, and sets out examples of cooperation that currently delivers such benefit: • Measures to facilitate the exchange of law enforcement data, including fingerprints, DNA and Vehicle Registration Data, such as Prüm and the Second Generation Schengen Information System; • Measures enabling practical operational cooperation, such as the European Investigation Order. • Measures enabling multilateral cooperation through agencies, such as Europol and Eurojust, which support Joint Investigation Teams. The paper summarises the existing models for cooperation between the EU and third countries but concludes that using these existing models would “result in a limited patchwork of cooperation falling well short of current capabilities”. The UK Government believes that the geographical proximity between the UK and the EU, the high volume of cross border movements, and shared threats, necessitate a more ambitious model for cooperation. It notes that in other areas the EU has more comprehensive arrangements with third countries, such as in relation to trade and under the Schengen agreement. It proposes a treaty between the UK and the EU on future security, law enforcement and criminal justice cooperation, which could include provisions on: • scope and objectives; • the obligations for each side; and • dispute resolution mechanisms Finally, the paper suggests that the Withdrawal Agreement will eventually need to be amended to reflect the outcome of future negotiations in this area. An annex to the paper sets out the UK’s position with regard to police and judicial cooperation in criminal matters that are ongoing on the day the UK withdraws from the EU. Munich Speech In her speech at the Munich Security Conference in February 2018, 162 the Prime Minister again expressed a desire for a “deep and special partnership between the UK and the EU” with respect to security. She suggested that it would be necessary for the UK and the EU to do
162 PM speech at Munich Security Conference: 17 February 2018, Gov.uk 76 Brexit: new guidelines on the framework for future EU-UK relations
“whatever is most practical and pragmatic in ensuring our collective security.” She highlighted the importance of existing measures in ensuring the EU’s internal security, including the European Arrest Warrant and mutual legal assistance, law enforcement cooperation, and data exchange. Pointing out the consequences of abolishing these measures, the Prime Minister suggested that the EU should reject ideological opposition to a new form of cooperation with a country outside the EU. The Prime Minister repeated the Position Paper proposal for a new Treaty which would preserve operational capabilities, and set out three requirements that it must fulfil: • It must be respectful of the sovereignty of the UK and the EU’s legal orders. So when participating in EU agencies the UK would respect the remit of the CJEU, but the UK’s status as a third country with a sovereign legal order must be respected; • There must be comprehensive and robust data protection arrangements; and • The Treaty must ensure the flexibility to respond to evolving threats. EU position Commission presentation A Commission presentation prepared in January 2018 to support discussions on the future relationship sets out the foundations of its position on police and judicial cooperation in criminal matters: • The default position for future cooperation between the EU27 and the UK would be based on: ─ International conventions, either Council of Europe or UN, covering matters such as extradition, joint investigation teams, and the fight against cyber crime; ─ Interpol; ─ Bilateral relations; ─ ‘soft’ measures (such as exchanges of non-personal data and global initiatives). • During the transition period, the following principles should apply: ─ The UK would be bound by measures applicable to it upon withdrawal (taking account of the UK’s opt-out in this area) and may choose to participate in measures amending, replacing or building on those measures; ─ The UK would not be permitted to opt in to any completely new measures; ─ The UK would no longer participate in EU institutions or in decision-making or governance of Union agencies; ─ EU institutions, agencies and bodies would retain full competence in relation to the UK. • ‘Visions’ of the future partnership include: 77 Commons Library Briefing, 19 April 2018
─ Partnership on the fight against terrorism and international crime; ─ EU’s interest; ─ Non-members cannot have the same rights as members; ─ Balance of rights and obligations; ─ Autonomy of the Union decision-making process. • Factors determining the degree of EU cooperation with third countries include: ─ EU security interest; ─ Shared threats and geographic proximity; ─ Existence of a common framework of obligations with third countries (such as Schengen, free movement); ─ Risk of upsetting relations with other countries; ─ Respect for fundamental rights, essentially equivalent data protection standards; ─ Strength of enforcement and dispute settlement mechanisms. The presentation sets out the “building blocks of the future relationship” as: • Exchange of security relevant data; • Support for operational cooperation; and • Judicial cooperation in criminal matters. Exchange of data The presentation considers current arrangements for data exchange with third countries and the consequences of applying the third country model to the UK: • Europol currently has cooperation agreements with Denmark (as a Member State that has opted out of Europol arrangements) and a number of third countries: ─ Denmark is an observer on the Management Board and working groups; is invited to meetings of the Heads of Europol National Units (but is not a member); exchanges data via Europol but does not have access to databases; and is able to participate in analysis projects if Member States agree); ─ Other third countries do not participate in the Management Board or working groups, but otherwise have the same access as Denmark. ─ The UK as a third country would be able to exchange data via the Secure Information Exchange Network Application (SIENA), facilitated by liaison officers, but would have no direct access to Europol databases. • Eurojust currently has cooperation agreements with a number of Schengen and non-Schengen third countries: 78 Brexit: new guidelines on the framework for future EU-UK relations
─ Third countries currently exchange data but do not have direct access to databases; ─ The UK as a third country would be able to exchange data, possibly facilitated by the appointment of contact points and liaison magistrates; would not have direct access to the Eurojust Case Management system or case-files. • Under the Passenger Name Records (PNR) Directive, EU and third country carriers currently provide PNR and there is close authority- to-authority cooperation between Member States: ─ EU carriers provide PNR to the US, Australia and Canada, and engage in country-to-country cooperation; ─ The UK as a third country could continue to receive PNR from EU carriers; could continue to exchange PNR and the results of processing of PNR with other Member States’ Passenger Information Units; would not have access to PNR on intra-EU flights; would need to comply with data protection requirement; and, the PNR Directive would apply. Support for operational control Eurojust and Europol permit third countries to participate in cases and analysis projects respectively, if Member States agree. Eurojust also permits the possible secondment of liaison prosecutors. As a third country, the UK would have access to the following arrangements: • Europol: ─ Possibility of cooperating on “live” investigations; ─ Association with an operational analysis project if the purpose of the project is relevant to the UK or if the data processed in the project concerns it, and if agreed by all participating Member States; ─ Observer status in the Heads of Europol National Units’ meetings; ─ Participation in the EU Policy Cycle supported by Europol; ─ Liaison officers. • Eurojust: ─ Cooperation in real time and multilaterally on judicial cases; ─ Liaison magistrates in UK/ Eurojust; ─ Exchange of operational data via liaison magistrates in UK/ Eurojust; ─ Coordination of judicial cooperation (extradition, mutual legal assistance); ─ Use of Eurojust’s On-Call Coordination. Judicial cooperation in criminal matters The presentation identifies the need to ensure extradition arrangements and mutual legal assistance. 79 Commons Library Briefing, 19 April 2018
With respect to extradition, the current arrangements are: • The European Arrest Warrant, for EU Member States; • Surrender Agreement with Norway and Iceland (not yet in force); • Extradition treaty with the US; and • The Council of Europe Convention on Extradition. The presentation notes that the 1957 Council of Europe Convention on Extradition would provide the fall-back position and considers whether cooperation models with third countries could be a basis for future relations. It notes certain drawbacks: • All alternative arrangements permit the parties to refuse to extradite their own nationals; • The surrender agreement with Norway and Iceland permits the parties to restrict the obligation to surrender for political offences; • Other models depend on cooperation through diplomatic rather than judicial channels and include a double criminality requirement (meaning that the conduct in question must be an offence in both the requesting and the executing states). On mutual legal assistance and cooperation: • Various EU tools based on the principle of mutual recognition, including the European Investigation Order, financial penalties, freezing and confiscation regimes; • Agreement with Norway and Iceland on the application of certain provisions of the 2000 EU Convention on mutual legal assistance; • International framework provided for by the Council of Europe and the UN; • Mutual legal assistance agreements with Japan and the US. The 1959 Council of Europe Convention on mutual legal assistance would provide the fall-back. Similar drawbacks apply to the existing third-party models as in relation to extradition: the agreement with Norway and Iceland is associated with their status as Schengen members; other models are based on cooperation through diplomatic channels. Safeguards Finally, the presentation identifies the following necessary safeguards of future cooperation: • Fundamental rights as set out in the European Convention on Human Rights; • Essentially equivalent data protection standards; • Effective enforcement and dispute settlement. European Parliament guidelines The European Parliament’s motion on the framework of future EU-UK relations, published in March 2018, stresses that: 80 Brexit: new guidelines on the framework for future EU-UK relations
it is in the mutual interest of the EU and the UK to establish a partnership that ensures continued security cooperation to face shared threats, especially terrorism and organised crime, and avoids the disruption of information flows in this field; notes that that third countries (outside the Schengen area) do not benefit from any privileged access to EU instruments, including databases, in this field, nor can they take part in setting priorities and the development of the multiannual strategic goals or lead operational action plans in the context of the EU policy cycle. 163 It also highlights the need to find alternative arrangements in relation to extradition, mutual legal assistance, data exchange and operational cooperation, and for satisfactory human rights and data protection safeguards.
10.2 Cooperation in foreign, security and defence policy
Article 13(ii) “In other areas than trade and economic cooperation, where the Union has already signalled its readiness to establish specific partnerships, the European Council considers that: ii) in view of our shared values and common challenges, there should be a strong EU-UK cooperation in the fields of foreign, security and defence policy. A future partnership should respect the autonomy of the Union's decision-making, taking into account that the UK will be a third country, and foresee appropriate dialogue, consultation, coordination, exchange of information, and cooperation mechanisms. As a pre-requisite for the exchange of information in the framework of such cooperation a Security of Information Agreement would have to be put in place”.
Given the prevailing strategic security environment, co-operation in foreign, security and defence policy has long been recognised, on all sides, as crucial in a post-Brexit world. Indeed, the draft Withdrawal Agreement leaves open the possibility that a defence and security agreement between the EU and the UK could be negotiated and agreed before the end of the transition period in December 2020. That sentiment of “strong EU-UK cooperation” is echoed in the European Council’s guidelines for a post-Brexit framework. However, there will be much to be reconciled, specifically with respect to the UK’s status as a third country. The UK has already indicated its desire to see an ambitious and unprecedented relationship that goes beyond any existing third country arrangements with the EU. In the case of mandate development and operational planning for EU-led military and civilian operations, for example, the UK has outlined its desire to see a role that “is reflective of the UK’s contribution”, 164 which many commentators have interpreted as an expectation of participation in decision making. 165 The UK is also
163 EP resolution on the framework of the future EU-UK relationship, 14 March 2018 164 HM Government, Foreign policy, defence and development: a future partnership paper, September 2017 165 There is no other partnership agreement with the EU at present in which the partner state is given such rights. Existing third party agreements on CSDP allow for the
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eager to secure third party participation in capability development initiatives such as Permanent Structured Cooperation (PESCO) and the European Defence Fund (EDF). 166 However, the guidelines emphasise the need for any future partnership to “respect the autonomy of the Union’s decision making, taking into account that the UK will be a third country…”; which is a position that has consistently been put forward by Michel Barnier. The logical consequences of being outside of the EU, he has argued, are that the UK will no longer be able to participate in CFSP/CSDP decision making structures; it can no longer be a framework nation for EU-led operations or the EU battlegroups; and it will not be able to benefit from initiatives such as the EDF, in the same way that EU Member States can. Above all he has reiterated that no third country “may lay claim to a status that is equivalent to or superior to that of a Member of the Union”, that the EU’s decision-making autonomy must be respected and that “the United Kingdom may not decide on the use of certain capacities under the European flag”. 167 Consequently, there is much to be discussed and negotiated. As the guidelines point out, going forward the emphasis must therefore be on establishing appropriate mechanisms for dialogue, consultation, coordination, the exchange of information 168 and cooperation.
10.3 Data protection
Article 14 “In the light of the importance of data flows in several components of the future relationship, it should include rules on data. As regards personal data, protection should be governed by Union rules on adequacy with a view to ensuring a level of protection essentially equivalent to that of the Union”.
The EU data protection framework From May 2018, the main elements of the EU’s data protection framework will be: • The General Data Protection Regulation (“GDPR”) 169 – this will apply from 25 May 2018 • The Police and Criminal Justice Directive (the “Law Enforcement Directive” (LED)) 170 - this has to be transposed into law by 6 May 2018
contribution of personnel and assets, once a Council Decision has been made, but decision making with respect to the operation remains within the remit of the EU Member States 166 All of these issues are examined in greater detail in Commons Library Briefing CBP08216, European defence: where is it heading? 167 Michel Barnier, Speech to the Berlin Security Conference, November 2017 168 Underpinning this would be the need for a Security of Information Agreement akin to the Agreement between the European Union and the North Atlantic Treaty Organisation on the Security of Information, Official Journal L O80, 27 March 2003 169 Regulation 2016/679 EU 170 Directive 2016/680/EU 82 Brexit: new guidelines on the framework for future EU-UK relations
The GDPR is the main piece of EU data protection law and applies to the general processing of citizens’ personal data. The LED applies to the processing of personal data for law enforcement purposes. The European Commission website has further detail on the changes. Third countries and adequacy Article 14 of the Commission’s guidelines refer to future data flows being governed by rules on “adequacy”. Under the EU’s data protection framework, any country other than EU and EEA Member States is classed as a “third country”. Personal data can only be transferred to a third country when an adequate level of protection is guaranteed. One option is for the EU to make an “adequacy decision” so that data can flow from EU/EEA Member States to third countries (or one or more specific sectors in those countries). The Commission’s website summarises what this involves: The European Commission has the power to determine, on the basis of article 45 of Regulation (EU) 2016/679 whether a country outside the EU offers an adequate level of data protection, whether by its domestic legislation or of the international commitments it has entered into. The adoption of an adequacy decision involves • a proposal from the European Commission • an opinion of the of the European Data Protection Board • an approval from representatives of EU countries • the adoption of the decision by the European Commissioners At any time, the European Parliament and the Council may request the European Commission to maintain, amend or withdraw the adequacy decision on the grounds that its act exceeds the implementing powers provided for in the regulation. The effect of such a decision is that personal data can flow from the EU (and Norway, Liechtenstein and Iceland) to that third country without any further safeguard being necessary. In other words, transfers to the country in question will be assimilated to intra-EU transmissions of data… Other options that data controllers can implement for their own data processing include: • Binding corporate rules • Standard contractual clauses Further detail on transfers to third countries and international organisations is available from the European Commission website. The UK position The Government has stressed that it wants to maintain the unhindered flow of data between the UK and the EU after Brexit. 171
171 See, for example, Matt Hancock (the then Minister for Digital), Oral evidence to the Select Committee on the European Union Home Affairs Sub-Committee, 1 February 2017, p1
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In an August 2017 position paper, the Government said that it “wanted to explore a UK-EU model for exchanging and protecting personal data that could build on the existing adequacy model”. 172 In her Mansion House speech the Prime Minister referred to the UK “seeking more than just an adequacy arrangement”: (…) the free flow of data is also critical for both sides in any modern trading relationship too. The UK has exceptionally high standards of data protection. And we want to secure an agreement with the EU that provides the stability and confidence for EU and UK business and individuals to achieve our aims in maintaining and developing the UK’s strong trading and economic links with the EU. That is why we will be seeking more than just an adequacy arrangement and want to see an appropriate ongoing role for the UK’s Information Commissioner’s Office. This will ensure UK businesses are effectively represented under the EU’s new ‘one stop shop’ mechanism for resolving data protection disputes. The Data Protection Bill The Data Protection Bill [HL] 2017-19 will, among other things, bring the GDPR and the LED into UK law and, according to the Government, “ensure that the UK is prepared for the future after we have left the EU”. 173 During debates on the Bill, the Government said that it was “absolutely committed” to obtaining an adequacy agreement to ensure the free flow of data after Brexit. 174 Further detail on the Bill is available in the following Library Papers: • The Data Protection Bill [HL] 2017-19, CBP 8214, 1 March 2018 • The Data Protection Bill [HL] 2017-19: Committee Stage Report, CBP 8251, 13 April 2018
172 HM Government, The exchange and protection of personal data: a future partnership paper, August 2017, p2 173 DCMS, Data Protection Bill Factsheet – Overview, September 2017, p1 174 Margot James, Minister of State at the Department for Digital, Culture, Media and Sport, Public Bill Committee 20 March 2018 c236; see also Margot James at Public Bill Committee 13 March 2018 c9 84 Brexit: new guidelines on the framework for future EU-UK relations
11. Areas of agreement and disagreement
11.1 Agreement European Council Guidelines PM in Mansion House Speech
Scope of the Agreement: a The European Council restates the So I want the broadest and deepest partnership as comprehensive Union's determination to have as possible partnership – covering as possible close as possible a partnership with more sectors and co-operating the UK in the future. Such a more fully than any Free Trade partnership should cover trade and Agreement anywhere in the world economic cooperation as well as today. other areas, in particular the fight against terrorism and international crime, as well as security, defence and foreign policy.
Scope of the Agreement: this The European Council reiterates in We are leaving the single market. partnership will be less close particular that any agreement with Life is going to be different. In than EU membership the United Kingdom will have to be certain ways, our access to each based on a balance of rights and other’s markets will be less than it obligations, and ensure a level is now. How could the EU’s playing field. A non-member of the structure of rights and obligations Union that does not live up to the be sustained, if the UK - or any same obligations as a member country - were allowed to enjoy all cannot have the same rights and the benefits without all of the enjoy the same benefits as a obligations? member.
Coverage of the Agreement: This agreement would cover trade When it comes to goods, a trade in goods in goods, with the aim of covering fundamental principle in our all sectors and seeking to maintain negotiating strategy should be that zero tariffs and no quantitative trade at the UK-EU border should restrictions, with appropriate be as frictionless as possible. accompanying rules of origin. That means we don’t want to see the introduction of any tariffs or quotas.
Coverage of the Agreement: This agreement would cover … we should continue our customs cooperation appropriate customs cooperation cooperation to mitigate customs … duty and security risks.
Coverage of the Agreement: This agreement would cover trade So we want to limit the number of establishment and service in services, with the aim of allowing barriers that could prevent UK firms provision abroad market access to provide services from setting up in the EU and vice under host state rules, including as versa, and agree an appropriate regards right of establishment for labour mobility framework that providers, to an extent consistent enables UK businesses and self- 85 Commons Library Briefing, 19 April 2018
European Council Guidelines PM in Mansion House Speech
with the fact that the UK will employed professionals to travel to become a third country … the EU to provide services to clients in person and that allows UK businesses to provide services to the EU over the phone or the internet. And we want to do the same for EU firms providing services to the UK.
Coverage of the Agreement: The future partnership should But UK citizens will still want to movement of persons, include ambitious provisions on work and study in EU countries – recognition of qualifications, movement of natural persons … just as EU citizens will want to do civil judicial cooperation and related areas such as … the same here, helping to shape recognition of professional and drive growth, innovation and qualifications. In this context, enterprise. Indeed, businesses options for judicial cooperation in across the EU and the UK must be matrimonial, parental responsibility able to attract and employ the and other related matters could be people they need. And we are explored… open to discussing how to facilitate these valuable links.
And given that UK qualifications are already recognised across the EU and vice versa – it would make sense to continue to recognise each other’s qualifications in the future.
We will want our agreement to cover civil judicial cooperation, where the EU has already shown that it can reach agreement with non-member states…
Coverage of the Agreement: … regarding transport services, the On transport, we will want to transport aim should be to ensure continued ensure the continuity of air, connectivity between the UK and maritime and rail services; … the EU after the UK withdrawal. This could be achieved, inter alia, through an air transport agreement, combined with aviation safety and security agreements, as well as agreements on other modes of transport,
Coverage of the Agreement: … regarding certain Union The UK is also committed to research, culture, education, etc programmes, e.g. in the fields of establishing a far-reaching science research and innovation and of and innovation pact with the EU, education and culture, any facilitating the exchange of ideas participation of the UK should be and researchers. This would enable subject to the relevant conditions the UK to participate in key 86 Brexit: new guidelines on the framework for future EU-UK relations
European Council Guidelines PM in Mansion House Speech
for the participation of third programmes alongside our EU countries partners. And we want to take a similar approach to educational and
cultural programmes, to promote our shared values and enhance our intellectual strength in the world - again making an ongoing contribution to cover our fair share of the costs involved.
Substance of the Agreement: The aim should be to prevent unfair If we want good access to each level playing field competitive advantage that the UK other’s markets, it has to be on fair could enjoy through undercutting terms. As with any trade of levels of protection with respect agreement, we must accept the to, inter alia, competition and state need for binding commitments – aid… measures and practices. 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.
Coverage of the Agreement: law enforcement and judicial In all these areas [of security law enforcement, judicial, and cooperation in criminal matters defence, and law enforcement security cooperation should constitute an important cooperation], people across Europe element of the future EU-UK are safer because of this co- relationship in the light of the operation and the unique geographic proximity and shared arrangements we have developed threats faced by the Union and the between the UK and EU institutions UK [... ] in recent years.
in view of our shared values and So it is in all our interests to find common challenges, there should ways to protect the capabilities be a strong EU-UK cooperation in which underpin this co-operation the fields of foreign, security and when the UK becomes a European defence policy. country outside the EU but in a new partnership with it. 175
Governance of the Agreement: Designing the overall governance When we leave the EU, the recognition of the autonomy of of the future relationship will Withdrawal Bill will bring EU law the EU legal order require to take into account … the into UK law. That means cases will requirements of the autonomy of be determined in our courts. But, the EU legal order, including the where appropriate, our courts will role of the Court of Justice of the continue to look at the ECJ’s European Union, notably as judgments, as they do for the developed in the jurisprudence. appropriate jurisprudence of other countries’ courts.
175 Munich Speech, 17 February 2018 87 Commons Library Briefing, 19 April 2018
European Council Guidelines PM in Mansion House Speech
And if, as part of our future partnership, Parliament passes an identical law to an EU law, it may make sense for our courts to look at the appropriate ECJ judgments so that we both interpret those laws consistently.
The table above of quotes from the Prime Minister’s Mansion House speech and the European Council guidelines, demonstrates that there are a number of broad areas of agreed pursuit, which suggest the parties will strive to agree to a future partnership that is as close as possible, while recognising the autonomy of the EU legal order, creating a level playing field that at least covers state aid and competition law – and which will cover in substantive terms: trade in goods (with a specific commitment to no tariff barriers); customs cooperation; so-called Modes 3 and 4 of services provision (establishment abroad under ‘host state’ rules, and temporary provision of services abroad under ‘host state’ rules); inclusion of rules on the movement of people that may surpass standard trade agreement rules; recognition of respective qualifications; civil judicial cooperation in matters of family law; all forms of transport; research and innovation (suggesting Horizon2020 and other research links); education and cultural programmes (suggesting Erasmus); and law enforcement, security and judicial cooperation in criminal matters (suggesting a replacement of the European Arrest Warrant. However, this leaves a number of areas proposed by one of the parties that the other has either not addressed in the Mansion House speech or the European Council guidelines, or has explicitly ruled out.
11.2 No agreement European Council Guidelines PM in Mansion House Speech
Scope of the Agreement: The European Council further We will also want to explore agency participation reiterates that the Union will with the EU, the terms on which preserve its autonomy as regards its the UK could remain part of EU decision-making, which excludes agencies such as those that are participation of the United critical for the chemicals, medicines Kingdom as a third-country in the and aerospace industries: the Union Institutions and European Medicines Agency, the participation in the decision- European Chemicals Agency, and making of the Union bodies, offices the European Aviation Safety and agencies. Agency. We would, of course, accept that this would mean abiding by the rules of those agencies and making 88 Brexit: new guidelines on the framework for future EU-UK relations
an appropriate financial contribution.
Coverage of the Agreement: [The foreseen agreement on trade [Achieving a trade agreement:] trade in goods will include:] disciplines on technical barriers We believe this can be achieved via to trade (TBT) and sanitary and a commitment to ensure that phytosanitary (SPS) measures; the relevant UK regulatory … standards remain at least as access to public procurement high as the EU’s and a customs markets, investments and arrangement. protection of intellectual We recognise this would constrain property rights, including our ability to lower regulatory geographical indications 176, and standards for industrial goods. But other areas of interest to the in practice we are unlikely to want Union. to reduce our standards…
[Specifically on trade in services:] And our agreement will also need to cover company law and intellectual property, to provide further legal certainty and coherence. Coverage of the Agreement: The future partnership should The UK has among the highest global address global challenges, in environmental and animal welfare challenges/environmental law particular in the areas of climate standards of any nation on earth. change and sustainable As we leave the EU we will development, as well as cross- uphold environmental border pollution, where the standards and go further to Union and the UK should continue protect our shared natural close cooperation. heritage. And I fully expect that our standards will remain at least as high as the EU’s. But it will be particularly important to secure flexibility here to ensure we can make the most of the opportunities presented by our withdrawal from the EU for our farmers and exporters. Coverage of the Agreement: [The ambitious provisions on No mention of social security movement of persons – social movement of persons should also coordination. security cover:] related areas such as coordination of social security Coverage of the [The commitment to a level playing Furthermore, as I said in Florence, Agreement: level playing field field should cover state aid, we share the same set of competition law and]: tax, social, fundamental beliefs; a belief in free environment and regulatory trade, rigorous and fair measures and practices. This competition, strong consumer will require a combination of rights, and that trying to beat substantive rules aligned with other countries’ industries by EU and international standards, unfairly subsidising one’s own is a adequate mechanisms to ensure serious mistake. effective implementation And in other areas like workers’ domestically, enforcement and rights or the environment, the dispute settlement mechanisms in EU should be confident that we the agreement as well as Union will not engage in a race to the autonomous remedies, that are all bottom in the standards and commensurate with the depth and protections we set. There is no breadth of the EU-UK economic serious political constituency in the connectedness. UK which would support this – quite the opposite. Coverage of the Agreement: Any future framework should No specific mention. However, the safeguard financial stability safeguard financial stability in UK government’s request for an the Union and respect its agreement of financial services as
176 The Mansion House speech discusses ‘intellectual property’ but not quite in the same terms when raising trade in services; see next column. 89 Commons Library Briefing, 19 April 2018
regulatory and supervisory regime covered in the future agreement is and standards and their one that the European Parliament application. identities as representing a potential threat to financial stability. 177 Coverage of the Agreement: In the light of the importance of Fourth, we will need an data protection data flows in several components arrangement for data protection. of the future relationship, it should I made this point in Munich in include rules on data. As regards relation to our security relationship. personal data, protection But the free flow of data is also should be governed by Union critical for both sides in any modern rules on adequacy with a view trading relationship too. The UK to ensuring a level of protection has exceptionally high standards of essentially equivalent to that of data protection. And we want to the Union. secure an agreement with the EU that provides the stability and confidence for EU and UK business and individuals to achieve our aims in maintaining and developing the UK’s strong trading and economic links with the EU. That is why we will be seeking more than just an adequacy arrangement and want to see an appropriate ongoing role for the UK’s Information Commissioner’s Office. This will ensure UK businesses are effectively represented under the EU’s new ‘one stop shop’ mechanism for resolving data protection disputes. Substance of the Agreement: The governance of our future Second, we will need an dispute resolution relationship with the UK will have arbitration mechanism that is to address management and completely independent – supervision, dispute settlement and something which, again, is enforcement, including sanctions common to Free Trade and cross-retaliation mechanisms. Agreements. [There is no further detail in the This will ensure that any guidelines beyond noting that such disagreements about the purpose a dispute settlement system will or scope of the agreement can be have to respect CJEU autonomy resolved fairly and promptly and reflect the depth of the partnership.] Approach of the Agreement: Being outside the Customs Union Our default is that UK law may mutual recognition as the basis and the Single Market will not necessarily be identical to for trade and cooperation inevitably lead to frictions in trade. EU law, but it should achieve Divergence in external tariffs the same outcomes. In some and internal rules as well as cases Parliament might choose to absence of common institutions pass an identical law – businesses and a shared legal system, who export to the EU tell us that it necessitates checks and controls is strongly in their interest to have a to uphold the integrity of the single set of regulatory standards EU Single Market as well as of the that mean they can sell into the UK UK market. and EU markets. If the Parliament of the day decided not to achieve the same outcomes as EU law, it would be in the knowledge that there may be consequences for our market access.
177 Specifically: “in order to safeguard financial stability and ensure full compliance with the EU regulatory regime and standards and their application, prudential carve-out and limitations in the cross-border provisions of financial services are a customary feature of FTAs”, in paragraph 17 of 14 March European Parliament resolution. 90 Brexit: new guidelines on the framework for future EU-UK relations
And there will need to be an independent mechanism to oversee these arrangements. Coverage of the Agreement: Being outside the Customs So we have thought seriously about customs Union and the Single Market how our commitment to a will inevitably lead to frictions frictionless border can best be in trade. delivered. And last year, we set out two potential options for our customs arrangement. Option one is a customs partnership between the UK and the EU… Option two would be a highly streamlined customs arrangement, where we would jointly agree to implement a range of measures to minimise frictions to trade, together with specific provisions for Northern Ireland. Coverage of the Agreement: [The future trade agreement should There are two areas which have financial services and cover:] trade in services, with the never been covered in a Free Trade broadcasting rights aim of allowing market access Agreement in any meaningful way to provide services under host state before – broadcasting and, despite rules, including as regards right of the EU’s own best efforts in the establishment for providers, to an Transatlantic Trade and Investment extent consistent with the fact Partnership, financial services. that the UK will become a third But we have some ideas for how country and the Union and the we can do this – and it is in all our UK will no longer share a interests to explore these. common regulatory, As in other areas of the future supervisory, enforcement and economic partnership, our goal judiciary framework; should be to establish the ability to access each other’s markets, based on the UK and EU maintaining the same regulatory outcomes over time, with a mechanism for determining proportionate consequences where they are not maintained. But given the highly regulated nature of financial services, and our shared desire to manage financial stability risks, we would need a collaborative, objective framework that is reciprocal, mutually agreed, and permanent and therefore reliable for businesses. Coverage of the Agreement: No specific comment. On energy, we will want to secure energy broad energy co-operation with the EU. This includes protecting the single electricity market across Ireland and Northern Ireland - and exploring options for the UK’s continued participation in the EU’s internal energy market. We also believe it is of benefit to both sides for the UK to have a close association with Euratom.
The above table summarises, using extracts from the Mansion House speech and the guidelines, the areas of future partnership where the parties are either saying different things at this early stage in the negotiations, or where only one party is expressing a clear view. The areas where there are clear disagreements on both approach and form, 91 Commons Library Briefing, 19 April 2018
rather than where the ‘opening gambit’ by one party has not been replicated by the other, are: • Mutual recognition as a viable mechanism by which to govern future UK-EU trade and cooperation in both goods and services (and specifically, financial services), as well as the recognition of UK workers’ rights, environmental protection, and social standards as guaranteeing a ‘level playing field’. Here, the UK is proposing that the EU recognises the outcome of distinct UK rules as being equivalent, whereas the EU position to date continues to suggest that deep access is only possible where the UK and the EU not only have identical rules but, as they put it, “common institutions and a shared legal system”. This reiteration suggests that the EU’s starting position remains that in these areas, the EU would be willing to consider granting deep access only on the condition of a shared legal and institutional structure that resembles at least the EEA. • Data protection. Here, the EU is arguing for unilateral ‘adequacy’ rulings – where the EU can determine whether or not the UK’s data protection regime remains ‘adequate’ for EU law purposes at any point in time. The UK argues that this does not provides legal certainty and that, given the starting point for negotiation is identical legal rules, a “firmer” solution should be sought. • Agency participation. The UK has indicated a willingness to sign up to the full body of EU rules and institutional enforcement in order to remain a party to certain EU agencies. The EU so far appears to be unequivocally ruling out agency participation for non-Member States. This may be an overstated position: some EU agencies explicitly allow for third party status, though many do not. 178 • Dispute settlement. The UK has explicitly requested an arbitration system, but the EU has only noted that the dispute settlement system agreed upon has to respect the depth of the partnership and the autonomy of the CJEU. As discussed in Section 9.2, the CJEU’s autonomy doctrine makes it unclear if it would find arbitration a reasonable mechanism by which to resolve disputes that are likely to require interpretation of EU law unless those determinations can be appealed to a court able to refer questions to the CJEU. Such a referral will not generally be possible from within the UK under the current design of the Withdrawal Agreement.
11.3 Nothing on financial services
Article 8(v) The agreement would address “trade in services, with the aim of allowing market access to provide services under host state rules, including as regards right of establishment for providers, to an extent consistent with the fact that the UK will become a third country and the Union and the UK will no longer share a common regulatory, supervisory, enforcement and judiciary framework”.
178 For an overview, see EU Agencies and post-Brexit options, 28 April 2017 92 Brexit: new guidelines on the framework for future EU-UK relations
Article 12 “Any future framework should safeguard financial stability in the Union and respect its regulatory and supervisory regime and standards and their application”.
Press reports on a leaked draft of the guidelines in mid-March 179 suggested financial services would be included in an annex to the new guidelines, but Article 8(v) on trade in services makes no explicit reference to financial services. Alex Barker of the Financial Times commented (in respect of the earlier draft): “They are dealt with in the same way as any other service, even though the volume of existing trade is far greater. The language makes clear that no consideration will be given to Britain’s ideas for special mutual recognition arrangements”. 180
Michel Barnier’s view on this issue has the benefit of simplicity - no deal on financial services is possible if the UK leaves the Single Market: “There is no place [for financial services]. There is not a single trade agreement that is open to financial services. It doesn’t exist.” He said the outcome was a consequence of “the red lines that the British have chosen themselves. In leaving the single market, they lose the financial services passport”. 181 However, as the Institute for Government (IfG) points out, the wording of Article 12 of the guidelines “implies that stability cannot be ensured if the EU trades openly with a third country which is not bound by the same legal framework”. 182
How EU financial services work at present Financial authorisation in one Member State means that in many markets and activities the firm can operate and sell in all EU States because it has an (authorisation) ‘passport’. Passporting With respect to financial services, non-EU financial firms like to set up in London (which is seen to have advantages over other European cities) and get authorisation from the UK authorities; then they can operate across the EU freely, or, if from an EU State, get authorisation domestically and then set up in London. The Bank of England (BoE) described the success of the arrangement in the UK as follows: The UK has the largest global share of cross-border bank lending, foreign exchange trading and interest rate OTC derivatives. It has the third largest insurance industry and the second largest asset management industries in the world. The assets of the UK banking sector are four times UK GDP and non-bank financial
179 E.g. Bloomberg, EU Digs In Over Banks’ Post-Brexit Access, But Divisions Emerge, 20 March 2018 180 Financial Times, The EU’s plans for ties with Brexit Britain – annotated, 7 March 2018 181 The Guardian, UK cannot have a special deal for the City, says EU's Brexit negotiator, 18 December 2017 182 IfG, Brexit and financial services, 10 April 2018
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institutions are a similar size. In 2012, the financial services sector accounted for 8% of UK output and around 3½% of employment. 183 The Second Banking Directive 184 established ‘passporting’ arrangements, allowing banks in the EU to set up branches freely in other Member States without requiring them to establish a UK-incorporated subsidiary. Also, in 1999 the EU Financial Services Action Plan was introduced, committing Members to improve the single market in financial services. The BoE has outlined the impact of ‘passporting’: As well as reducing the barriers to trade in financial services within Europe, it is also likely that the passporting provisions make the EU as a whole more open to other international firms. In the absence of passporting, a non-EU firm that wanted to offer services in multiple countries within the EU would have been required to satisfy the authorisation requirements for establishing a branch or subsidiary in each of those countries, subject to the approach taken by each corresponding regulator. The passporting regime reduces this burden, however, and substantially simplifies the process: after a firm has established a subsidiary in one EU country, it can notify the home regulator of its intention to open branches in, or offer cross-border services into, other member states under the passporting provisions. Consequently, internationally-owned financial firms often chose to establish a European headquarters in an EU member state as a base for offering services more broadly in Europe. 185 The UK as a financial services hub is very open and integrated with the broader EU and global market. It has a broadly common system of regulation based upon generally agreed international standards effected at the EU level by a series of directives and regulations. Due to its comparative size and influence as a financial centre in the EU, the UK has had a significant say in the post-financial crisis regulatory reform programme. The BoE believes the existing arrangements benefit the UK through an increase in market size and competition which contribute to the dynamism of the sector. In the draft EU-UK withdrawal agreement published in March 2018 on the terms of a transition period after 29 March 2019, financial services firms in the UK would keep passporting rights until 31 December 2020. Equivalence There is a secondary path by which non-EU firms can access the Single Market – equivalence. A Bloomberg article explains ‘equivalence’, with comments from former Financial Services Commissioner, Jonathan Hill: What’s involved in an equivalence decision? Equivalence refers to the European Commission’s recognition that a country’s rules and oversight of specific business lines are as tough as its own. This allows the EU to rely on firms’ compliance with those frameworks, reducing overlaps on both sides as well as reducing capital costs for EU companies exposed to equivalent third countries.
183 Bank of England; EU Membership and the Bank of England, October 2015 184 Repealed by Directive 2000/12/EC, Directive 2006/48/EC and Directive 2013/36/EU 185 Ibid 94 Brexit: new guidelines on the framework for future EU-UK relations
Most EU financial-services acts contain provisions for equivalence, including the updated markets rules known as MiFID II, which come into effect in 2018. Equivalence is also possible for some purposes in the EU’s bank capital rules and in Solvency II, which governs the insurance industry. How does it work? To see how equivalence works, take the recent agreement the commission struck with the U.S. Commodity Futures Trading Commission on central counterparties. EU law, in this case the European Market Infrastructure Regulation, allows companies based outside the bloc to “provide clearing services to clearing members or trading venues” set up in the EU on two main conditions. First, the commission has to determine that the country’s legal and supervisory systems are an “effective equivalent” to those in the EU; second, the company must be recognized by the bloc’s markets regulator. The deal with the CFTC, announced in February, enabled companies such as Chicago-based CME Group Inc. to continue providing services to EU firms. Without it, traders would have faced higher EU capital requirements to clear swaps, futures and other derivatives in the U.S. 186 The report also explains that the process of gaining equivalence can take a long time, and there is no guarantee of success. Another report by the think tank Open Europe puts more detail on the political process underlying the granting of equivalence: In theory, having been a member of the EU, the UK would have no problem obtaining equivalence on day one after Brexit. However, if EU regulations change over time the UK would have to adapt its own legislation to maintain continued market access for its financial services sector. This could become increasingly challenging if in future, with the UK no longer involved in the law- making process, the EU takes a more protectionist approach to financial regulation. Although in that scenario being able to diverge from onerous regulations may in fact prove a competitive advantage for the UK, even if access is lost. Open Europe also notes that the Commission “has never actually withdrawn an equivalence decision due to divergence of regulation”. But the report argues that equivalence is a “far more piecemeal approach than the passport” and does not cover all EU financial regulation, especially retail financial services.
The report suggests, bearing in mind the timing constraints, that the UK seek if possible “pre-emptive equivalence on financial services regulation”, so that on exit the EU would immediately treat the UK’s regulatory and supervisory framework as equivalent. This would “help minimise uncertainty, at least with regard to those pieces of EU law that make provisions for third-country access”. Or the UK could seek
186 Bloomberg, 31 August 2016, Banks in U.K. Eyeing EU Market May Find Equivalence Cold Comfort
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“interim equivalence”, which is what happens with the provisional application of some EU FTAs. 187
There appears to be a move away from the view that an unadjusted 'equivalence' will work as a stand-alone alternative to passporting. The clearest indication of this was in evidence given by the BoE’s Governor, Mark Carney, to the Commons Treasury Committee in January 2017. Asked whether ‘equivalence’ mitigated the risks of Brexit, the Governor replied that it would need to be further augmented by other bodies: There are various ways to determine how you would maintain equivalence, if that is the route that the Government and the country go down. One of them is with reference to international standards. You are equivalent if you broadly meet international standards. They are high, and, whether it is the IMF or the FSB itself through peer review, countries are judged on whether or not they meet international standards. If you meet international standards in slightly different ways—sometimes you are superequivalent—then you are still equivalent. If that is what is agreed, that is very sensible and, as a financial stability authority, we would look at that and say it is broadly okay. The second thing, though, that is likely to be necessary, if we were in a trade deal type arrangement, and I am not going to prejudge that—otherwise, we would be relying directly on the MiFID II equivalence as written, I would suggest—is some form of dispute resolution authority, which is not a UK one or an EU one but, as in a trade deal, is a separate panel of experts and is able to make judgments only in those cases where it is a matter of dispute, as opposed to generally meeting equivalence. On top of that, we should want domestic protection to have some sort of institutionalisation of regulatory co-operation between ourselves and Europeans, and they will want the converse, because if we are going to have free and seamless access in wholesale markets, we want some comfort that the rules are being applied and supervision is robust on the counterparties for your major financial institutions. One could start from equivalence, but I would suggest from a financial stability perspective that one would want to build on that equivalence with other institutional structures. 188 What the City and the UK Government want The City The main organisation speaking on behalf of the ‘City’ is CityUK, which published Brexit and UK-Based financial and related professional services in January 2017. On the future EU-UK relationship, CityUK called for Brexit to “maximise access to EU markets for the products and services offered by providers in the UK to EU customers and vice versa”. In order to preserve global markets and maintain the flow of financial services, it is clearly in the interests of both the UK and the EU to ensure continued deep and ongoing regulatory and supervisory cooperation between authorities across the globe. Where appropriate, harmonised approaches should be maintained to avoid businesses trading and operating in the UK and the EU
187 Open Europe, How the UK’s financial services sector can continue thriving after Brexit, October 2016 188 Evidence from Dr Mark Carney, Treasury Select Committee, 11 January 2017; Q137 96 Brexit: new guidelines on the framework for future EU-UK relations
having to comply with different, and possibly conflicting, regulatory obligations. Similarly, cross-border regulatory recognition which allows UK firms to provide professional services, such as audit, to EU companies should be agreed. Where harmonisation is not appropriate, activities carried out in the UK by EU business will be subject to UK jurisdiction and vice versa. This is consistent with globally accepted practice. 189 From the City’s point of view a negotiated agreement to continue with existing passports would be the ideal position. On market access it proposed the EU and UK should agree: • a framework for the mutual recognition of regulatory regimes, building on and going beyond the existing equivalence regimes • continued close cooperation between the FCA/PRA, the European Supervisory Authorities and Member States’ competent authorities, as well as the Bank of England and the ECB. This is in line with arrangements with non- EU regulators, such as the US. • the ability to market and provide agreed services to existing and new customers as applicable, transact business with them, and manage their money efficiently • acceptance of professional qualifications, practice rights, standards for regulated products and services and especially prudential regulation set by the relevant regimes • non-discriminatory access to market infrastructure and free cross-border data flows.
These proposals, the report concluded, should be “embedded in a long- term, stable framework which can only be changed by formal agreement”. And although there should be reciprocal access, this framework should not “inhibit the ability of the UK or the EU to achieve similar arrangements with other countries”.
The Government In the Government’s Brexit policy paper in May 2017, its ambitions for financial services were to aim for “the freest possible trade in financial services between the UK and EU Member States”. The paper outlined the importance of the financial services sector in the UK: The financial services sector is an important part of the European economy, contributing significantly to the funding and growth of European business. It is in the interests of the UK and the EU that this should continue in order to avoid market fragmentation and the possible disruption or withdrawal of services. […] The fundamental strengths that underpin the UK financial services sector, such as our legal system, language and our world-class infrastructure will help to ensure that the UK remains a pre- eminent global financial centre. 190 In her Mansion House speech Theresa May explicitly rejected ‘passporting’ because it is “intrinsic to the single market” which the UK
189 CityUK; Brexit and UK-Based financial and related professional services; January 2017 190 The United Kingdom’s exit from, and new partnership with, the European Union 97 Commons Library Briefing, 19 April 2018
will be leaving, and would subject the UK to “a single rule book, over which we would have no say”. She continued: As in other areas of the future economic partnership, our goal should be to establish the ability to access each other’s markets, based on the UK and EU maintaining the same regulatory outcomes over time, with a mechanism for determining proportionate consequences where they are not maintained. But given the highly regulated nature of financial services, and our shared desire to manage financial stability risks, we would need a collaborative, objective framework that is reciprocal, mutually agreed, and permanent and therefore reliable for businesses. 191 Chancellor Phillip Hammond restated the Government’s position in a speech on 7 March 2018. He began by emphasising the need for continuing close cross-border financial services and challenged the assertion that financial services could not be part of an FTA. He emphasised the importance to European businesses and savers of free access to the London market: And we should be under no illusion about the significant additional costs if this highly efficient market were to fragment. Costs that would be borne by Europe’s businesses and consumers…costs that industry bodies across Europe are beginning to recognise. The consultancy, Oliver Wyman calculates that the wholesale banking industry would need to find USD 30–50bn of extra capital if new regulatory barriers forced fragmentation of firms’ balance sheets. And LSEG estimate that the EU’s proposal on location of clearing houses, if implemented, would increase costs to EU27 firms by around $25 billion a year… 192 He countered the argument that an FTA including financial services was impossible because it had never been done before by citing the CETA and Transatlantic Trade and Investment Partnership (TTIP) negotiations, which “were intended to promote convergence between entirely separate markets…with different rules. And low levels of interconnectedness. We can do so much better…given our starting point”. The future EU-UK relationship would have the advantage of starting from the unique position of “full alignment on Day 1”: So the way forward must surely be to bank our Day 1 de facto equivalence …and shape a regime to manage future regulatory change that ensures that…while our rule systems may evolve separately… …we deliver fully equivalent regulatory outcomes…maintaining commitments to support open-markets and fair competition. Mr Hammond rejected the equivalence approach, which would be “wholly inadequate for the scale and complexity of UK-EU financial services trade”:
191 Theresa May, Mansion House speech, 2 March 2018 192 Chancellor Phillip Hammond, HSBC speech: financial services, 7 March 2018
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The EU regime is unilateral and access can be withdrawn with little to no notice. Clearly not a platform on which to base a multi- trillion pound trade relationship. But the principle of mutual recognition and reciprocal regulatory equivalence, provided it is objectively assessed, with proper governance structures, dispute resolution mechanisms, and sensible notice periods to market participants clearly could provide an effective basis for such a partnership. The Chancellor also outlined what happens to access which depends on close co-operation and unity of aim if the jurisdictions voluntarily move apart: in certain circumstances we may choose not to maintain equivalent outcomes but we will know there may be consequences…we would have to address how this future partnership would work in such circumstances…with clear institutional processes to do so. Our concern in a financial services partnership would be to ensure that any such consequences were reasonable and proportionate…applied in a predictable way that allows industry to plan with confidence…and that they were delivered through an independent arbitration mechanism that has the confidence of both parties. Such mechanisms already exist within FTAs, including CETA. The Prime Minister was clear on Friday that we have decided to leave the EU…and we accept that there will be consequences. We do not expect the same relationship we have today across all areas of activity in financial services…trade-offs should be expected…and the industry will change. But we should ensure that the future partnership strengthens European stability and prosperity…rather than weakening it.
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