Conclusions and recommendations
The negotiations: deal
1.The adoption by the Government and the EU of the Withdrawal Agreement and Political Declaration on the future relationship is a significant moment. Since the Government triggered Article 50, the negotiations have been conducted against a hard deadline and in circumstances of great political sensitivity, reflecting their critical importance to the UK and its place in the world. Parliament will now vote on whether to give its consent to the deal the Government has brought back from Brussels. In this report, we assess what the deal would mean, and we set out what might happen next, depending on the result of the vote in the House of Commons. However, it is clear that after 20 months of intense negotiations, only the terms of the UK’s exit are fully known; the nature of the future relationship with the European Union is not, and therefore does not provide long-term certainty. (Paragraph 5)
Citizens’ rights
2.We recommend that in addition to a digital code, the Government should also provide EU citizens with a physical document. (Paragraph 15)
3.The Citizens’ Rights part of the Withdrawal Agreement is largely unchanged from the version that was published in March 2018. There remains significant uncertainty for UK citizens living and working in EU countries, as the questions of their right to ongoing free movement and recognition of their professional qualifications remain unresolved. This uncertainty will therefore continue into the transition/implementation period and the negotiations on the future relationship. (Paragraph 16)
4.Uncertainty remains for EU citizens in the UK, over whether the Home Office has the capacity to process potentially over three million applications for settled status efficiently and fairly. (Paragraph 17)
5.We note that the proposed structure of the future negotiations includes the ‘mobility’ of citizens in a separate section on ‘socio-economic cooperation.’ We urge the Government and the European Union to prioritise the settlement of these issues as early as possible in the future relationship negotiations, to give clarity and certainty to all those people affected. The Government has not yet set out how UK immigration policy will apply to EU citizens arriving in the UK after December 2020 when the current transition/implementation period is due to end. Despite repeated promises, Ministers have still not published their planned White Paper on future immigration policy, which will form the basis of the negotiations on the socio-economic cooperation part of the future relationship. It would be unacceptable for the Government not to publish the White Paper before the vote on 11 December 2018. (Paragraph 18)
Backstop
6.The backstop derives from the joint declaration agreed by the UK and the EU in December 2017 which set out three mechanisms for avoiding a hard border between Northern Ireland and Ireland. It has been negotiated to ensure that in all circumstances the border between Northern Ireland and Ireland remains as it is now with no checks and no infrastructure. The backstop would involve an EU-UK Single Customs Territory including provisions to ensure a level playing field between the EU and the UK. Northern Ireland would be bound by the full EU Customs Code. This would be the default relationship between the UK and the European Union after the end of the transition/implementation period, unless and until a future economic relationship is agreed that can maintain an open Ireland/Northern Ireland border and protect all parts of the Belfast (Good Friday) Agreement. The proposals put forward so far by the Government to maintain in future both frictionless trade and an open border on the island of Ireland, the ‘Chequers proposals’, have previously been rejected by the European Union as unacceptable. (Paragraph 35)
7.In December 2017, we said that we did not see how it would be possible to reconcile maintaining an open border on the island of Ireland with leaving the Single Market and Customs Union, which would inevitably make the Northern Irish border the UK’s customs and regulatory border with the European Union. Since then, we have seen no realistic, long-term proposals from the Government that would address this. (Paragraph 36)
8.The agreement on a UK-wide backstop is in line with the commitment made in the December 2017 Joint Report to ensure “the same unfettered access for Northern Ireland’s businesses to the whole of the United Kingdom internal market.” Nevertheless, the fact that there will be greater adherence to single market rules in Northern Ireland under the backstop compared to the rest of the UK means that some checks will be necessary for certain goods moving from Great Britain to Northern Ireland, although the UK will have the power not to apply checks on goods travelling in the other direction. We also note that some checks already exist for goods crossing the Irish Sea and both sides have agreed that any additional checks should be conducted in the least intrusive way possible. (Paragraph 37)
9.The backstop Protocol in the Withdrawal Agreement means that a Northern-Ireland only backstop would effectively remain in place as the ultimate fall-back, should both sides agree to terminate the EU-UK Single Customs territory. Should the UK decide to leave the Single Customs Territory and seek to negotiate a trade agreement with another country during the operation of the backstop or if the UK were to negotiate a looser CETA-style free trade agreement with the EU after the end of the transition/implementation period, neither agreement would include Northern Ireland and both would result in more checks between Northern Ireland and the rest of the UK. As we noted in our September 2018 report, a CETA-style agreement with the EU would not, on its own, ensure the type of friction-free trade with the EU that many UK companies with just-in-time supply chains need. We do not consider this to be a viable option. The commitment to avoiding a hard border enshrined in the Withdrawal Agreement will continue to shape the future relationship between the UK and the EU because it will not be possible for the UK to decide on customs and regulatory arrangements which negate that commitment. (Paragraph 38)
Review clause: transition/implementation or the backstop?
10.We note the extension clause for the transition/implementation period, which we called for in March 2018. While we agree with the Government that the best outcome would be to conclude the agreement, ratification and implementation of the future relationship before the end of 2020, this timeframe is likely to be unrealistic. Negotiations on withdrawal issues have lasted 18 months. The future relationship negotiations will have to cover a far wider range of issues, including trade in goods and services, foreign policy coordination, policing and information sharing, participation in EU agencies, agriculture, fisheries, data, labour mobility and the recognition of professional qualifications, broadcasting, intellectual property, public procurement, consumer safety, aviation, freight, energy, medicines, and scientific co-operation. Furthermore, the future relationship negotiations will be interrupted in 2019 by the European Parliament elections and the appointment of a new European Commission. The negotiations will be further complicated and could take significantly longer because the Government has still not yet set out clear objectives for the future relationship that are realistic, workable and have the support of Parliament. In addition, each of the 27 individual EU Member States, their national and, where applicable, regional Parliaments, will be able to exercise a veto on the overall outcome. (Paragraph 45)
11.The review clause in the Withdrawal Agreement gives the Government a choice of whether to extend the transition/implementation period or to activate the backstop, if more time is needed to negotiate, ratify or implement the future relationship. The Government will have to decide whether either of these options are necessary by 1 July 2020. Both choices come with costs. An extension to the transition/implementation period would mean the UK making additional payments to the EU at a level as yet undetermined, and, with no say in EU decision-making, remaining a rule taker at least for a further one or two years. Alternatively, activating the backstop would result in immediate barriers to UK-EU trade in goods and services. As a result, the UK faces a pivotal choice in July 2020 if the future EU-UK relationship is not in place, and a further cliff edge either one or two years later if the transition/implementation period is extended. At any of these points, the UK could face the threat of significant economic disruption that would reduce its leverage in the negotiations, the longer that they continue. The Withdrawal Agreement and the Political Declaration therefore do not provide certainty. (Paragraph 46)
Financial settlement
12.The UK’s agreement to the financial settlement will be legally binding under international law once the Withdrawal Agreement has been ratified. We recommended previously that, if the Government wished to make the payment of the financial settlement conditional on reaching a binding agreement on the future relationship, it would need to secure the agreement of the EU27 to include text to this effect in the Withdrawal Agreement. This provision is not contained explicitly in the final Withdrawal Agreement, despite assurances from previous Secretaries of State that they would seek to include such a clause. We note that Article 184 of the Withdrawal Agreement commits both sides to negotiate the future relationship in good faith, but this does not guarantee that the next phase of negotiations will lead to a successful outcome. We do not conclude that Article 184 of the Withdrawal Agreement represents the kind of conditionality that would allow the UK to suspend payments under the financial settlement once these have been agreed in the Withdrawal Agreement. (Paragraph 51)
13.The Government has estimated that the Financial Settlement will cost between £35 billion and £39 billion. Since that estimate was made, the Government has agreed that the transition/implementation period can be extended for either one or two years. Before Parliament votes on whether to approve the Withdrawal Agreement and Political Declaration, the Government should set out its estimates of possible UK liabilities that would arise if the transition/implementation period is extended. It should also make clear whether the money the UK owed under international law would be different in the event of a no deal outcome and provide a breakdown of relevant comparable liabilities and costs for each scenario. (Paragraph 52)
Governance and dispute resolution
14.We welcome the pragmatic agreement on the governance arrangements for the Withdrawal Agreement. It ensures that neither the EU nor the UK is bound by the other jurisdiction’s courts, which in previous reports we said would be unacceptable, and the two sides have agreed to use independent arbitration to resolve relevant disputes that cannot be resolved in the Joint Committee. However, we note that any matters of EU law must be referred to the CJEU. In these cases, its interpretation of the EU’s rules will ultimately prevail and the CJEU will therefore have an ongoing role in overseeing the Withdrawal Agreement, including after the end of the transition/implementation period. (Paragraph 60)
Government view
15.We were told throughout our scrutiny of the negotiations by successive Secretaries of State for Exiting the European Union, and by Michel Barnier and other interlocutors from the European Union, that the Political Declaration would be detailed and substantive. We deeply regret that it is neither. The document only sets out a series of options for the UK’s trade with the European Union, its closest and largest trading partner, and establishes a framework for ongoing conversations across a range of areas. We note that the Political Declaration expresses a high level of ambition about the nature and scope of the future relationship, but ambition is no guarantee of success, nor is it clear how it would deliver at least the same outcomes as we have under our current relationship with the EU. People, businesses and institutions will therefore continue to face significant uncertainty about the future terms of EU-UK trade, which will affect future investment in the UK economy. (Paragraph 79)
16.There is insufficient detail in the Political Declaration for us to judge whether our tests have been met, with the exception of the one relating to tariffs. What is clear from the Political Declaration is that our degree of market access to the European Union will be related to the degree to which we adhere to its rules. We welcome the fact that both sides have said there should be no tariffs or quotas. There is also an indication that burdensome rules of origin checks might be unnecessary, and there are measures which, if agreed, would facilitate trade in services and allow for the free exchange of data. However, outside the Single Market and Customs Union there cannot be frictionless trade. This will mean additional costs and bureaucracy for many UK businesses, however ambitious any future arrangement outside the Single Market and Customs Union may be. The Government needs to be frank and open about how far it is willing to align with EU rules, at the expense of UK regulatory autonomy, if its main priority is to secure EU-UK trade that is as frictionless as possible. This is not a choice the Government has so far been willing to make. The Political Declaration makes clear, that because of the number of issues crucial to the future of the EU-UK relationship which are still to be decided, the Brexit process will not be concluded by March 2019. Indeed, negotiations on the future relationship are likely to go on for a number of years. (Paragraph 80)
17.We note that the Government’s analysis of EU exit indicates that, over a 15-year period, the UK will be economically poorer under all possible scenarios than it would have been under current arrangements. The Government has also said that the Political Declaration allows for a “spectrum” of options. However, we note that the Government is seeking an economic relationship that would enable frictionless trade to continue. The Government must be honest that this will entail trade-offs, specifically, adhering to rules over which we no longer have a say, and will limit the number of options it has to choose from in the future relationship negotiations. (Paragraph 85)
Security and foreign policy
18.The Political Declaration includes objectives for the future EU-UK internal and external security relationships. These include the UK’s participation in cross-border data sharing agreements, continued cooperation with the EU’s law enforcement and criminal justice agencies and securing the UK’s place in Europe’s foreign policy and defence structures, as we judged would be essential in our key tests on future security and foreign policy cooperation. As the dispute over UK participation in Galileo has demonstrated, however, the depth of cooperation will, in many cases, depend on what the EU decides it wishes to allow under EU rules. It is imperative that negotiations on these issues are settled as early as possible. The overall level of EU-UK cooperation will be less than it is now, as will be the UK’s influence on the strategic direction of EU foreign and security policy. (Paragraph 91)
The role of the House
19.If the Withdrawal Agreement is approved, it is essential that Parliament has a central role in the scrutiny of the negotiations on the future relationship that take place after the UK has left the EU. Consideration of the legislation implementing the Withdrawal Agreement will provide an opportunity to set out the role that the House should have in agreeing a mandate for the Government for the future relationship negotiations; maintaining oversight of the progress and conduct of the negotiations; and ensuring that the House is given a meaningful and timely role in approving any agreements reached, including the circumstances in which the UK will opt to extend the implementation/transition period. This is a matter to which we will return in more detail. (Paragraph 95)
The role of the devolved administrations
20.If the Withdrawal Agreement is approved by the House, negotiations on the future relationship between the UK and the EU will profoundly affect the devolved administrations. For the sake of the future of the United Kingdom, it is essential that the voices of the devolved administrations are heard. We have previously noted that intergovernmental arrangements will only work if they work for all the nations of the UK and have previously expressed concern at perceived shortcomings. We will continue to engage with our counterparts in the devolved assemblies to assess whether the arrangements made to ensure that the devolved administrations are able to inform the UK’s negotiating position during negotiations on the future relationship between the EU and the UK are effective. (Paragraph 99)
Select Committee scrutiny
21.We reiterate our previous recommendation that in order to ensure appropriate scrutiny of the negotiations on the future relationship there must be a select committee dedicated to this task, regardless of any future changes in the machinery of Government. (Paragraph 103)
Parliament’s role in approving the deal
22.The decision of the House of Commons on whether to approve the Withdrawal Agreement and framework for the future relationship negotiated with the European Union will not simply reflect a binary choice between leaving the EU with the deal that has been negotiated or leaving without a deal. This “meaningful vote” will provide an opportunity for Parliament to express its view by potentially placing conditions on approval or giving reasons for rejection. In the event of a rejection, section 13 of the EU (Withdrawal) Act 2018 sets out requirements that the Government must make a statement within 21 days and, subsequently, schedule a debate on a motion in neutral terms, which will now be amendable. (Paragraph 111)
23.Regardless of the procedures set out in section 13 of the EU (Withdrawal) Act, a range of options will remain open to the Government as to how to proceed in the event of the Withdrawal Agreement being rejected. These include bringing a motion to approve the deal, with or without further negotiation, back to the House. Only the Government is able to make this decision; it cannot be compelled by a resolution of the House to bring the approval motion back for further consideration. If the House of Commons does not approve a deal and if no agreement were made to extend the Article 50 process, the UK would leave the EU without a deal on 29 March 2019. However, there is probably no majority in Parliament for leaving with no deal and as Parliament has given itself the opportunity to consider and vote on other options, these may include the extension of Article 50. (Paragraph 112)
Published: 9 December 2018