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Documents considered by the Committee on 18 July 2018 Contents

8Cyprus: Brexit and UK Sovereign Base Areas

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny; drawn to the attention of the Defence and Foreign Affairs Committees

Document details

Fourteenth report on the implementation of Council Regulation (EC) No 866/2004 of 29 April 2004 and the situation resulting from its application covering the period 1 January until 31 December 2017

Legal base

Council Regulation (EC) No 866/2004

Department

Foreign and Commonwealth Office

Document Number

(39931), 10435/18, COM(18) 488

Summary and Committee’s conclusions

8.1When Cyprus joined the EU in 2004, its accession covered the entire island even though the Republic of Cyprus — recognised internationally as its sovereign authority — only controls part of the country. The northern half, invaded by Turkey in 1974, is not under its effective control.

8.2To reflect this political reality, the application of EU law in Northern Cyprus is suspended but a special regime applies to facilitate trade between the two parts of the island — across a UN buffer zone known as the ‘Green Line’. Under the so-called ‘Green Line Regulation‘, entry of goods from Northern Cyprus is subject to a more permissive regime than for formal ‘third countries’ outside the Single Market, as there are no tariffs or quotas. However, regulatory controls for food and plant safety apply, and trade in agricultural products is severely restricted in practice.

8.3The situation on Cyprus is further complicated by the existence of two Sovereign Base Areas (SBAs) on the island, remnants of its pre-1960 status as a UK Crown Colony. The Bases are British Overseas Territories administered by the Ministry of Defence, which are not part of the European Union. Dhekelia — also known as the Eastern Sovereign Base Area or ESBA — straddles the Green Line and contains two crossing points for movements of goods and people between the two parts of Cyprus.

8.4In line with the UK’s commitment “not to create customs posts or other frontier barriers between the Sovereign Base Areas and the Republic of Cyprus”, Protocols 3 and 10 to Cyprus’ 2004 Act of Accession refer specifically to the SBAs. These seek to ensure free movement of goods between the Republic of Cyprus (the area effectively controlled from Nicosia) and the Base Areas, by requiring the latter apply EU law in a number of areas, including customs, VAT, excise and food safety, and performing checks on goods entering from Northern Cyprus. The Common Agricultural Policy also covers farms within the territory of the Bases. We have described the current trade regimes that govern movements of goods and people between the EU (including Cyprus), Northern Cyprus and the SBAs in more detail in “Background” below.

8.5The UK’s decision to leave the EU complicates the situation for both Cyprus and the Bases, as goods will no longer be able to flow freely between the two once the SBAs leave the customs territory of the EU and cease to be bound by EU law on the safety of animal and plant products. Instead, EU law will require Cyprus to apply customs and regulatory controls on crossing between the two for the first time.113 This would also disrupt any movements between the Republic of Cyprus and the northern half of the island via the border crossings within the Dhekelia base. There has been no suggestion that Cyprus is seeking to formally regain sovereignty over the SBAs.

8.6To mitigate the impact of Brexit, the UK, Cyprus and the European Commission have been negotiating a specific Protocol on the Sovereign Base Areas to be annexed to the Withdrawal Agreement on the UK’s exit from the EU. Its purpose would be to “protect the interests of Cypriots who live and work in the SBAs following the UK’s withdrawal from the Union”, and in June 2018 the Government said that it had “made progress in agreeing the text of the Protocol”. However, it has not made any public statement about the likely substance of the SBA Protocol, or the extent to which the current situation — in which the Bases are part of the EU’s customs territory and apply EU law on animal and plant health — could be maintained even when the UK itself becomes a ‘third country’ vis-à-vis the EU.

8.7The Commission reports annually on the implementation of the Green Line Regulation, and its latest report was submitted for scrutiny by the Foreign & Commonwealth Office in July 2018. In his Explanatory Memorandum on the document, the Minister for Europe (Sir Alan Duncan) explains that “no decisions have been taken yet with regard to the UK’s future role in implementing the [Green Line Regulation]”.

8.8The Government has not discussed the implications of Brexit for the Sovereign Base Areas on Cyprus in any detail. Although we now clear the Green Line Report from scrutiny, we note that there has been unspecified “progress” on agreeing a Protocol on the SBAs as part of the Brexit negotiations. We ask the Minister to clarify as soon as possible what the substance of the Protocol on the Sovereign Base Areas is likely to be, and in particular whether it will in effect maintain Protocols 3 and 10 of the 2004 Act of Accession (meaning the bases would stay part of the EU’s customs territory; apply EU law on sanitary and phytosanitary measures; and remain covered by the Common Agricultural Policy).

8.9We also draw this Report to the attention of the Defence and Foreign Affairs Committees, given the potential implications of Brexit for the Sovereign Area Bases.

Full details of the documents

Fourteenth report on the implementation of Council Regulation (EC) No 866/2004 of 29 April 2004 and the situation resulting from its application covering the period 1 January until 31 December 2017: (39931), 10435/18, COM(18) 488.

Background

8.10In 1974, the Cypriot National Guard — with the backing of the Greek military junta in its dying days — overthrew Cyprus’ government, with the ultimate aim of the island’s political annexation to Greece. This prompted Turkey to invade, and occupy the northern part of the island. It has styled itself as the independent Turkish Republic of Northern Cyprus since 1983, although it is only recognised as a sovereign country by Turkey.114

8.11The Republic of Cyprus (which is recognised internationally as the sole sovereign authority over the entire island, despite only effectively controlling the southern part of Cyprus) joined the EU in 2004. The situation is further complicated by the fact that the UK also maintains two “Sovereign Base Areas” (SBAs) on the island, which are British Overseas Territories administered by the Ministry of Defence. These are remnants of Cyprus’ status as a British protectorate — and later Crown Colony — until it achieved independence in 1960.115 The Eastern Sovereign Area Base (ESBA), also known as Dhekelia, straddles the line between southern and northern Cyprus.

8.12The links between the government-controlled areas of Cyprus (and the wider European Union) on the one hand and the SBAs and Northern Cyprus on the other hand are established through two Protocols to the island’s 2004 Act of Accession, supplemented by more detailed secondary EU legislation. In particular, Protocol 10 to the Act of Accession116 provides that the application of the EU’s acquis to northern Cyprus is suspended, but the line between the two sides is not formally considered an external border of the EU.117

8.13Separately, Protocol 3 to the Act of Accession clarifies the status of the Sovereign Base Areas in relation to Cyprus as a Member State of the EU. As the House of Commons Library has noted, the purpose of this Protocol is to ensure that “those resident or working in the Sovereign Base Areas […] should have, to the extent possible, the same treatment as those resident or working in the Republic of Cyprus” and to give effect to the UK’s commitment “not to create customs posts or other frontier barriers between the Sovereign Base Areas and the Republic of Cyprus”.118 To that end, even though the SBAs are not part of the EU, the Treaty on the Functioning of the EU applies there “to the extent necessary to ensure the implementation of the arrangements set out in the Protocol”.

8.14Under secondary legislation adopted by the Council, the 2004 Green Line Regulation119 (named for the “green line” buffer zone between the island’s two halves) and a supplementary Commission Regulation,120 the law provides more detail how this complex regime is to operate in practice. In essence, it defines the terms under which the provisions of EU law apply to the movement of persons, good and services crossing between Cyprus’ two sides. Under Article 4 of the Council Regulation, goods may be introduced from Northern Cyprus into the government-controlled areas and the Sovereign Area Bases, provided that they meet certain criteria and undergo the necessary regulatory controls at the Green Line.

8.15Cumulatively, under these Protocols and Regulations:

8.16In the ESBA, the crossing points with Northern Cyprus are operated by the SBA customs authority, who have primary responsibility for implementing the provisions of the Green Line Regulation. They carry out any required checks on people and goods crossing the Line (especially regulatory controls on goods entering from Northern Cyprus). However, the UK’s decision to leave the EU has put the status of the Sovereign Area Bases in relation to Cyprus back into question, as the Protocols to the Act of Accession will cease to apply when the UK leaves the European Union.

8.17The European Commission published its latest Annual Report on the implementation of the Green Line Regulation in June 2018.126 It concludes that the Regulation “continues to provide a workable basis for allowing the passage of persons and goods” between the two parts of Cyprus. While not focused on the Brexit implications for the Bases, it does note that the Eastern Sovereign Area Base (Dhekelia) is an important crossing point for traffic between the two parts of Cyprus, with over 200,000 crossing of Cypriots and their vehicles (and over 700,000 crossings by Turkish Cypriots and their vehicles) in 2017.

8.18The Minister for Europe (Sir Alan Duncan) submitted an Explanatory Memorandum on the document on 5 July 2018. It mainly summarises the Commission’s findings.

Implications of Brexit for the UK Sovereign Base Areas on Cyprus

8.19The Minister’s Explanatory Memorandum also refers to the implications of Brexit for the UK’s Sovereign Base Areas. When the UK leaves the European Union, Protocols 3 and 10 will cease to apply. As a result, the EU’s border for the purposes of unfettered trade in goods would shift — from the boundaries of the SBAs with the sea or Northern Cyprus, to the frontier between the Republic of Cyprus and the Bases. This will be the default situation because the latter would no longer be part of the EU’s customs, VAT and excise territory, or apply EU law on agricultural goods. As such, goods entering Cyprus from the Bases would be subject to customs controls — including payment of Value Added Tax — and full regulatory controls on agricultural goods. Agricultural production within the SBAs would also no longer be covered by the Common Agricultural Policy. There is also the uncertain impact of the ability of Cypriots who live work within the territory of the Base Areas to cross freely between them and the Republic.

8.20The status of goods from Northern Cyprus would not be affected as such, as the relevant elements of Protocol 10 remain in effect irrespective of Brexit. However, goods may not be able to move through Dhekelia to or from the part of the Republic of Cyprus under effective control without undergoing UK checks on entry and exit from the Sovereign Base Area; and when entering Cyprus they would also need to be checked by Cypriot authorities to ensure the goods originated in Northern Cyprus (a function currently carried out within the Base itself), in addition to the normal regulatory border controls that apply to goods from the occupied territory.127

A Protocol on the Sovereign Base Areas in the Withdrawal Agreement

8.21The potential ramifications of Brexit are clearly of major concern to the Cypriot and UK authorities. In summer 2017, the Foreign Office told us that the Government is in discussions with both Nicosia and the EU on how to adapt the bilateral and EU arrangements governing the status of the Sovereign Base Areas “to take account of UK exit”, including how the Green Line Regulation will operate in Dhekelia, which straddles the green line between the Republic of Cyprus and Turkish Cyprus but currently applies EU law on customs, VAT, excise and food safety to allow for smooth passage of goods between the two.

8.22The draft Withdrawal Agreement on the UK’s exit from the EU, published in March 2018, contains a Protocol “relating to the Sovereign Base Areas in Cyprus”. The text of this section is yet to be agreed between the Government and the EU. The Commission’s placeholder for the Protocol reads:

“Since the arrangements applicable to relations between the Union and the Sovereign Base Areas in Cyprus will continue to be defined within the context of the Republic of Cyprus’ membership of the Union, appropriate arrangements have been determined to achieve, after the withdrawal of the United Kingdom from the Union, the objectives of the arrangements set out in Protocol 3 to the Act of Accession of the Republic of Cyprus to the Union. Those arrangements should ensure the proper implementation of the applicable Union law in relation to the Sovereign Base Areas in Cyprus following the withdrawal of the United Kingdom from the Union.”

8.23That implies the EU is seeking an arrangement under which the UK would continue to apply EU law at the bases as it does at present to prevent them from becoming regulatory and customs enclaves that would impede the movement of goods and people (especially when crossing to and from Northern Cyprus via Dekhelia). On 19 June 2018, the Government and the European Commission published a Joint Statement on progress to date in the Brexit negotiations. With respect to Cyprus, this states:

“On the Sovereign Base Areas in Cyprus, both Parties have confirmed their commitment to establish appropriate arrangements for the SBAs, in particular with the aim to protect the interests of Cypriots who live and work in the SBAs following the UK’s withdrawal from the Union, in full respect of the rights and obligations under the Treaty of Establishment. The Parties have made progress in agreeing the text of the Protocol that will give effect to this.”

8.24The draft Withdrawal Agreement would also establish a specialised committee composed of UK and EU officials on the Sovereign Base Areas to oversee implementation of the Protocol as and when agreed, and following ratification of the overall Agreement. However, it remains unclear what the substance of the Protocol will be even though there has been “progress in agreeing the text”.

8.25The Government’s Memorandum on the Commission’s latest Green Line Report, submitted by the Minister for Europe (Sir Alan Duncan) on 5 July, states that “no decisions have been taken yet with regard to the UK’s future role in implementing the [Green Line Regulation]. We will keep the Committees informed as and when these decisions are taken”. The Minister does not refer to the substance of the “progress in agreeing the text of the Protocol” that was reported in June 2018. In light of this, we have asked the Minister to provide further information on the likely substance of the Withdrawal Agreement in relation to the SBAs, in particular as regards any continued alignment of the Base with EU law in the areas covered by the current Protocols, as soon as he is able.

Previous Committee Reports

None.


113 The absence of customs and regulatory controls between Cyprus and the SBAs was strictly a bilateral matter prior to Cyprus’ accession in 2004, as the Bases are not part of the EU under the UK’s own 1973 Act of Accession. The UK’s exit from the EU, however, turns the borders between the SBAs and Cyprus into an external border of the European Union where a whole range of EU legislation on trade in goods applies.

114 The Cypriot question is also one of many stumbling blocks to Turkey’s prospective accession to the EU. Both Cyprus and Greece would veto its accession until the situation is resolved (although accession negotiations are now effectively suspended in any event because of the political situation in Turkey).

115 See for more information the Treaty of Establishment (1960), article 1.

117 See Protocol 10 of Cyprus’ Act of Accession.

118 This commitment also extends to the safeguarding of the “arrangements made pursuant to the Treaty of Establishment [of the Sovereign Base Areas] whereby the authorities of the Republic of Cyprus administer a wide range of public services in the Sovereign Base Areas, including in the fields of agriculture, customs and taxation”.

121 VAT and excise duty normally require import controls when entering a country to ensure the correct amount of tax is paid. Within the EU, the abolition of border controls has led to the creation of separate legal regimes — underpinned by shared IT systems — that allow goods to be moved between Member States without the need for VAT and excise duty to be checked when crossing intra-EU borders. See for more information our recent Reports on VAT and Brexit and on excise duty and Brexit.

122 The SBA Administration says: “Some laws of the Republic of Cyprus, primarily those relating to agriculture, excise duty and VAT are “adopted” as made by the Republic of Cyprus. Adopted laws form part of the law of the Sovereign Base Areas without the need for new SBA legislation to be made when the law of the Republic of Cyprus changes”.

123 Under article 3 of Protocol 3, Title II of Part Three of the EC Treaty, on agriculture, and provisions adopted on that basis and measures adopted under Article 152(4)(b) of the EC Treaty, apply to the SABs.

124 The UK Court of Appeal recently decided that the UN Refugee Convention extends to the SBAs. The Home Office has appealed the decision in the Supreme Court. The Foreign Office says that, although there has not been “a substantial increase in levels of irregular migration to […] the SBAs”, it “will continue to monitor the situation”.

125 As a result of the non-application of EU law in Northern Cyprus, significant barriers persist; for example, trade in live animals and animal products is prohibited, and the Cypriot authorities do not allow processed foods from Northern Cyprus to cross the Green Line out of concern over sanitary practices.

126 See Commission document COM(2018) 488.

127 Cypriot farmers who produce within the SABs would also not qualify for assistance from the Common Agricultural Policy as they would, in effect, be ‘third country’ (i.e. non-EU) businesses.




Published: 24 July 2018