The progress of the UK’s negotiations on EU withdrawal - The Withdrawal Agreement and Political Declaration Contents

2The Withdrawal Agreement

Citizens’ rights

9.Since the EU Referendum in June 2016, the status of UK citizens in the EU, and the status of EU nationals in the UK, has been unclear. This has led to uncertainty and anxiety for citizens and their families.

10.The Withdrawal Agreement includes provisions that protect citizens’ rights. It enables people who are legally resident, whether they are UK citizens in the EU or EU citizens here, to continue to reside in their host state.14 It includes a right of return for up to five years for those with Permanent Residence status. Furthermore, there is agreement on reciprocal healthcare and social security arrangements, a partial agreement on the recognition of professional qualifications—protecting recognition only in the country where the decision to recognise was issued—and some rights to family reunion for life.15 Courts in the UK will be able to make preliminary references to the CJEU on the interpretation of the Citizens’ Rights part of the Withdrawal Agreement for eight years, starting from the end of the transition/implementation period.16

11.In our July 2018 Report on the rights of UK and EU citizens, we noted that previous versions of the draft Withdrawal Agreement did not contain the right to ongoing free movement for UK citizens living and working in the EU.17 We said that both sets of negotiators had failed to make it clear whether this right would form part of the negotiations on the future EU-UK relationship and that:

there are associated rights that will fall alongside the loss of free movement. These include the ability of some professionals to operate in more than one Member State, their ability to offer cross border services and the right to open a business in another Member State.18

12.We concluded that the matter of ongoing free movement should not be “left wholly to the negotiations on the future relationship as this would mean a period of continuing uncertainty”, and if it was not possible to include this issue in the Withdrawal Agreement, then “at the very least, it should be explicitly included in the Political Declaration.”19 The Political Declaration says that the two sides will seek to agree “appropriate arrangements on those professional qualifications which are necessary to the pursuit of regulated professions, where in the Parties’ mutual interest.”20

13.For EU citizens living in the UK, we have raised concerns over the Home Office’s ability to manage the task of processing over three million applications for settled status, which is the Government’s preferred approach for regularising the status of EU citizens. In our July 2018 Report, we said:

we are concerned that this is a task of unprecedented scale for the Home Office and it is being done within a very tight time frame. The experience of the Windrush generation shows that, where errors occur, it can lead to devastating consequences for individuals and their families.21

14.We were also concerned by the Government’s decision to issue a digital code, instead of a physical document, to EU citizens in the UK to prove their Settled Status to employers, landlords and public service providers. We said:

[A digital code] might work well for many, but for some the risk of a civil penalty for employing or renting to someone without the correct immigration status, and a lack of understanding of the new system, may deter them from employing or renting to EU citizens, or create difficulties in enabling their status in other circumstances to be confirmed.22

15.We recommend that in addition to a digital code, the Government should also provide EU citizens with a physical document.

16.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.

17.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.

18.We note that the proposed structure of the future relationship 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,23 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.

Backstop

19.The backstop was the most difficult part of the Withdrawal Agreement for the two sides to agree. On 17 January 2017, the Prime Minister said in her Lancaster House Speech that outside the Customs Union—including the Common Commercial Policy and the Common External Tariff—the UK would be able to strike bilateral trade deals with other countries, which is one of the Government’s main objectives.24 On 22 September 2017, the Prime Minister said in her Florence Speech that both the EU and the UK had “stated explicitly that we will not accept any physical infrastructure at the [Northern Ireland/Ireland] border.”25 In December 2017, we said that we did not

see how it will be possible to reconcile there being no border with the Government’s policy of leaving the Single Market and the Customs Union, which will inevitably make the border between Northern Ireland and the Republic of Ireland the EU’s customs border with the UK26

20.The negotiations on the future relationship will only take place once the UK has left the EU. However, the two sides agreed in the December 2017 Joint Report on a backstop to ensure continuation of an open border, regardless of the outcome of the future relationship negotiations. The backstop would only come into effect if there is no other workable EU-UK relationship which maintains an open border, or if the UK Government cannot bring forward any other “specific solutions” for maintaining an open border.27 The December 2017 Joint Report said that, if the backstop is activated, the UK will maintain

full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all island economy and the protection of the 1998 Agreement.28

21.The Joint Report also included a commitment that the Government would ensure that “no new regulatory barriers develop between Northern Ireland and the rest of the United Kingdom”, unless the Northern Ireland Executive and Assembly agreed “that distinct arrangements are appropriate for Northern Ireland, consistent with the Belfast/Good Friday Agreement.”29

22.The European Commission initially interpreted the backstop as applying to the territory of Northern Ireland only. It published a draft Withdrawal Agreement Protocol on the backstop that set this out. The Government rejected this on the basis that it would establish a border in the Irish Sea and would undermine the constitutional integrity of the UK. We agreed with the Government that the backstop must apply to the whole of the UK and not to Northern Ireland only, as that would be the only way to maintain frictionless trade on the island of Ireland, without creating a border in the Irish Sea.30

23.On 7 June 2018, the Government set out proposals for a UK-wide backstop in a technical note, although it acknowledged that it did not include proposals on regulatory standards that would be needed to make the backstop workable.31 The Government also said that any backstop should be “time limited”.32 We said that the Government must set out how this would be possible, “when, by definition, [the backstop] would need to remain in place until such time as an alternative arrangement that would achieve the same outcome could be implemented.”33

24.The backstop Protocol in the Withdrawal Agreement is significantly different to the version that was first set out by the European Commission in February 2018. The EU has conceded that the backstop could be UK-wide. If activated, the UK and the EU would form a Single Customs Territory to avoid the need for tariffs, quotas or checks on rules of origin for goods—reducing the need for checks on goods between Northern Ireland and the rest of the UK, and obviating the need for tariffs, quotas and checks on rules of origin between the UK and the EU.34

25.The UK and the EU have also agreed to a level playing field, should the backstop be activated, including ‘non-regression’ clauses for environmental, labour and social protection rules, meaning that both sides have committed not to lower standards. On taxation, the UK has agreed to maintain and commit itself to a range of international standards and principles of good governance, and to keep to some provisions of EU law. For rules regulating competition, the Withdrawal Agreement sets out common principles that the UK and the EU would each apply. The UK has also agreed to harmonise rules on state aid with the EU in future, including cooperation between UK and EU regulators.35

26.Additional provisions will apply to Northern Ireland, but not to the rest of the UK, if the backstop is activated. Northern Ireland would be required to follow the EU’s Single Market rules to the extent that is necessary to maintain an open border. It would be subject to the EU’s Union Customs Code, which would ensure that Northern Ireland’s businesses would not face restrictions when placing products in Ireland, or in the rest of the Single Market. Northern Ireland would also follow EU rules on goods, Sanitary and Phytosanitary Measures,36 agricultural production and marketing, VAT and excise in respect of goods, and state aid.37 The CJEU would have direct jurisdiction over Northern Ireland in respect of the EU rules that are applicable.

27.The Joint Report committed both sides to maintaining full alignment with rules supporting “North-South cooperation, the all island economy and the protection of the 1998 Agreement”. A mapping exercise was undertaken jointly by the UK and Irish governments, together with the EU Commission, to set out precisely which areas of regulation would need to be covered. We asked the then Secretary of State, the Rt Hon David Davis MP, for this to be published in April 2018 and were promised it would be provided to us soon. We pursued this matter subsequently, including most recently with the current Secretary of State in evidence on 3 December 2018. He has now informed us that he will publish the mapping exercise on Friday 7 December 2018. We did not have the opportunity to comment on this document before considering this report.

28.While there would be no checks for goods travelling between Northern Ireland and Ireland, or between Northern Ireland and Great Britain,38 there would be some checks on goods travelling from Great Britain to Northern Ireland. The EU and the UK have agreed to carry out these checks in the least intrusive way possible. For example, industrial goods would be subject to checks based on an assessment of risk, and these could take place at traders’ premises. These would be carried out by UK authorities. For agricultural products, existing checks at ports and airports would continue, but the frequency of these would be increased from what they are today.39

29.The backstop would also result in some additional friction for trade between the UK and the EU, compared with today, despite the backstop equating to an EU-UK Single Customs Territory. Dr Hestermeyer described the level of friction that would result from the Single Customs Territory in the following terms:

I would argue it is a customs union but, in terms of regulatory alignment, accepting certificates, permits and licences and the regulatory part that is required to have frictionless trade, it is weak. Accordingly, there will be more friction than there is now. There will be less friction than if there was not a customs union, but more than now.40

30.On 3 December 2018, Oliver Robbins told us that there is “no presumption in the backstop of fluid trade between Great Britain and the European Union”.41 He said the “degree of regulatory co-operation between the United Kingdom as a whole and the European Union will be a factor in the way both parties decide how to set their systems of checks and controls. Nothing is assumed in either direction.” Without such agreements, and if the transition/implementation period is not extended, goods would be subject to checks, and therefore potential delays, in as little as 21 months after the UK leaves the EU. There could also be new barriers for companies that trade in services. Oliver Robbins told us:

The protocol only relates to those aspects of EU law that are required to avoid a border in Northern Ireland. That is about tangible goods; it says nothing about services. If the backstop were to apply in the absence of any other agreement with the European Union, there would be no services relationship.42

For example, the backstop does not contain agreements on data, labour mobility or on the mutual recognition of professional qualifications. There are also no provisions to maintain current levels of market access for financial services. The impact on trade would affect both the EU and the UK. It is possible that the EU and UK could agree deals to mitigate some of these barriers to trade before the end of the transition/implementation period, where it is in the mutual interests of both sides.

31.The Withdrawal Agreement allows for the cessation of the backstop “in whole or in part”, if the Joint Committee decides that the Protocol “in whole or in part” is no longer necessary.43 Dr Hestermeyer told us that the Withdrawal Agreement would allow for circumstances in which the backstop has been activated but the Government then decides to negotiate a CETA-style free trade agreement with the EU. In this case, the free trade agreement could replace the backstop provisions that are applicable to Great Britain, but the provisions that would relate to Northern Ireland would continue to apply.44 If checks and controls were needed at the border as a result, which would almost certainly be the case, Dr Hestermeyer said that, in these circumstances, “the [EU-UK] customs union would fall away and trade between Northern Ireland and Great Britain would get more difficult.”45

32.The Withdrawal Agreement states that UK and EU fish products would not be included in the tariff-free provisions of the Single Customs Territory, unless an agreement on access to waters and fishing opportunities has been concluded by 1 July 2020.46 However, again, different provisions would apply to Northern Ireland. The Withdrawal Agreement states that fish products brought into the Single Customs Territory from “vessels flying the flag of the UK and registered in Northern Ireland” would be exempted from duties, but the Joint Committee, established under the governance Part of the Withdrawal Agreement, would need to decide which conditions would apply, “including in quantitative terms”.47 The Withdrawal Agreement does not set out the level of access that Northern Ireland would have to the EU market, or the level of access that EU vessels might have to UK waters in respect of Northern Ireland. Dr Hestermeyer told us:

It is my understanding that, the way it is currently constructed, Northern Irish fisherman, under the conditions later to be fixed, would have access to the market, but this would not govern anything about fishing rights. It remains true that the Irish fishing fleet would currently not know what access they will have and that will have to be negotiated in the future.48

33.The Government has said throughout the negotiations that it does not intend the backstop to be implemented. On 14 November 2018, Michel Barnier also said, “this backstop is not meant to be used” and, “our objective remains to reach a new agreement between the EU and the UK before the end of the transition.”49 The Secretary of State told us a number of reasons why the EU would be “uncomfortable” with the activation of the backstop. He said:

I alluded earlier to whether the EU 27 would be comfortable with losing all access to our coastal waters on day 1 of a backstop. I do not think they would. That would be difficult politically. Would they be comfortable with businesses having access to the single market without the vast sums that you and I campaigned against and without the freedom of movement? I do not think they would. Would they be comfortable with the litigation risk of firms claiming a trade distortion? Would they be comfortable with the potential disruption to their own future free trade agreements, as they tried to calculate them without clarity on the population size for those free trade agreements?50

34.If the backstop is activated, the Withdrawal Agreement states explicitly that it is “intended to apply only temporarily.”51 Nevertheless, the backstop can only be replaced with other arrangements if both sides, in the Joint Committee, agree that it is no longer necessary.52 If the two sides cannot reach agreement, the backstop will remain in force. The Attorney General confirmed in the House of Commons in his oral statement on 3 December 2018 that the UK cannot unilaterally withdraw from the backstop and that it could become indefinite. Asked whether there was anything to prevent the protocol from becoming permanent in the event of no agreement, the Attorney General said, “as a matter of international law, no there is not—it would endure indefinitely, pending a future agreement being arranged”.53

35.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.

36.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.

37.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.

38.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.

Review clause: transition/implementation or the backstop?

39.We heard evidence that the 21-month transition/implementation period would probably not be enough time to negotiate the future EU-UK relationship. Agata Gostynska-Jakubowska, Senior Research Fellow at the Centre for European Reform, said, “My sense is that it would be a tall order to negotiate the future relationship in 20 months. It is rather unlikely… and it involves over 30 stages from getting Council’s authorisation to entering into force.”54 Dr Hestermeyer described the possibility of negotiating the future relationship during the 21-month transition period as a “pipedream”. He said that within an extended transition/implementation period, “it is still tough, but my hope is that it would be possible to get at least the main things done.”55 However, Professor Dehousse, a former Judge at the General Court of the European Union, suggested that it might be possible to finalise the future relationship in time, but only in certain circumstances: “It is a huge endeavour, but sometimes the machine can go quickly if both partners clearly know what they want.”56

40.The Withdrawal Agreement allows the Government to choose between two options, if more than the 21-month transition/implementation period is needed to agree, ratify and implement the future EU-UK relationship:

i)The UK may request an extension to the transition/implementation period. It can be extended once, for either one or two years. A request for an extension must be made before 1 July 2020; or

ii)The Government can choose to activate the backstop.57

We note the provisions allowing for an extension to the transition/implementation period, which we called for in our March 2018 Report.58 However, we also noted the extent to which the UK would be a rule taker from the EU in such circumstances. We said:

During a prolonged transition/implementation period, the UK would be bound by the full acquis, with no say in the Union’s decision-making bodies. It would also be bound by the CJEU without a UK Judge on the Court. Furthermore, it would have to make financial contributions to the EU’s new seven-year budget, with no say on how it is to be spent. The UK would also be subject to new EU laws over which it had not had voting rights.59

41.On 26 November 2018, the Prime Minister said, “free movement would almost certainly be required to continue in the event of an extended implementation period.”60 The UK would also remain subject to the Common Agricultural Policy and the Common Fisheries Policy.

42.The Withdrawal Agreement states that an appropriate financial contribution would be calculated for the extended transition/implementation period, before 1 July 2020, by the Joint Committee established under the Withdrawal Agreement,61 subject to the dispute resolution mechanism.

43.The Prime Minister said that the UK would not be required to make a financial contribution to the EU under the backstop; nor would the UK be subject to rules on free movement of people. However, as we set out above, while the Single Customs Territory would obviate the need for tariffs, quotas and checks on rules of origin between the EU and the UK, without other arrangements there would still be barriers to trade in goods and services, whereas there would be no such barriers under an extended transition/implementation period.62 Oliver Robbins told us, “it is certainly true that, if the UK were to enter into an extension to the implementation period, some of the other negative consequences of being in the backstop… referred to at the beginning would not apply.”63

44.It is clear that if more time is needed to negotiate or implement the future relationship by 1 July 2020, the Government will need a clear idea of how to use the final months of the transition/implementation period to prepare citizens, businesses and institutions for the effects of either extending the transition/implementation period or activating the backstop. Professor Dehousse told us “… it will not be a cliff edge in July [2020]. There will need to be a clear perspective, if you do not have the extension, of how to use the remaining time.”64

45.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.

46.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.

Financial settlement

47.On 24 January 2018, the Chancellor of the Exchequer wrote to the Treasury Select Committee setting out a ‘reasonable central estimate’ of the Financial Settlement as between £35 billion and £39 billion.65 The Government has said that payment is conditional on there being an agreement on the future relationship that is acceptable to the UK. On 12 July 2018, the then Secretary of State for Exiting the European Union told the House, “I would like to make one thing very clear: we will not sign away our negotiating leverage or spend taxpayers’ money in return for nothing.” He went on to say:

There should be a firm commitment in the withdrawal agreement requiring the framework for the future relationship to be translated into legal text as soon as possible. Of course, if one party fails to honour its side of the overall bargain, there will be consequences for the whole deal.66

48.On 28 June 2018, we published a report on the parliamentary approval of the Withdrawal Agreement, which concluded that if the Government “wishes 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 inserting text to this effect in the Withdrawal Agreement.”67 We also called on the Government “to seek the inclusion of the Political Declaration as an annex to the Withdrawal Agreement in order to give its contents greater force.” In our September 2018 Report on the progress of the negotiations, we also recommended that “reaching a Withdrawal Agreement must be linked to obtaining a satisfactory Political Declaration on the framework for future EU-UK relations” and called on the Government “to include any such link, if agreed, in the Withdrawal Agreement and Implementation Bill.”68

49.The Withdrawal Agreement does not link its provisions, including the payment of the Financial Settlement, to a “satisfactory Political Declaration” as we recommended. However, it does include Article 184, that states:

The Union and the United Kingdom shall use their best endeavours, in good faith and in full respect of their respective legal orders, to take the necessary steps to negotiate expeditiously the agreements governing their future relationship referred to in the Political Declaration of 25/11/2018 and to conduct the relevant procedures for the ratification or conclusion of those agreements, with a view to ensuring that those agreements apply, to the extent possible, as from the end of the transition period.69

Oliver Robbins emphasised this Article in his evidence to us on 3 December, noting that it was “unprecedented” for a non-binding document such as the Political Declaration to be referred to in a legally binding treaty and that it placed a clear obligation on both sides to negotiate in good faith.70

50.This provision is reinforced by a duty of sincere cooperation requiring each side to “in full mutual respect and good faith, assist each other in carrying out tasks which flow from [the Withdrawal Agreement.]”71 However, these articles do not allow the Government to cease payments of the Financial Settlement. On 26 November 2018, the Prime Minister told the House of Commons, “I think it would be wrong for this House to believe that, on leaving, the United Kingdom will have no legal obligations to pay money to the European Union. There are legal obligations to pay money to the European Union, and I think it is important that we abide by those obligations.”72

51.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.

52.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.

Governance and dispute resolution

53.One of the last issues to be agreed in the Article 50 negotiations was the structure for the governance of the Withdrawal Agreement. Governance refers to the process of managing and supervising the provisions of the Withdrawal Agreement. Negotiators also had to devise a mutually acceptable process for resolving disputes should one party to the Withdrawal Agreement disagree with the other’s interpretation of their obligations. Mechanisms also had to be agreed for enforcing the results of the dispute resolution process.

54.These areas were controversial. The European Commission proposed that disputes that cannot be resolved politically should be settled by the CJEU at the request of either party. It also proposed that the CJEU would be able to enforce disputes with a power to impose penalty payments. While the Government acknowledged that the CJEU is the ultimate arbiter of EU law within the European Union, it previously rejected the suggestion that the CJEU must therefore be given the power to enforce and interpret international agreements between the European Union and third countries.

55.In previous reports we expressed concern over the continued role of the CJEU over the governance of the Withdrawal Agreement, although we have acknowledged that the EU will wish to preserve the autonomy of the CJEU to interpret EU law.73 In our May 2018 report on the progress of the negotiations we agreed with the Government that “the CJEU should not be the final arbiter after the transition/implementation period is concluded” but we acknowledged that “dispute resolution [cannot] be left to the Joint Committee for technical and political arbitration alone” and that the “only acceptable solution is a final arbiter whose composition is balanced between representatives from the UK and the EU’s institutions.”74

56.In the Withdrawal Agreement, both sides agreed to give the CJEU jurisdiction over the UK, as currently provided for in the EU Treaties, during the transition/implementation period.75 The Withdrawal Agreement then provides for the establishment of a Joint Committee once the UK has left the EU, co-chaired by the UK and the EU, which will be responsible for the implementation and application of the Withdrawal Agreement itself. The Joint Committee will have the power to adopt decisions which will be binding on the EU and the UK. All decisions by the Joint Committee will be made by mutual consent.76

57.In the event of a dispute on the interpretation of the Withdrawal Agreement, the Joint Committee will undertake an initial political consultation. If no solution is found, either party can refer the dispute to an arbitration panel, whose decision is binding. In cases where the dispute involves a question of EU law, the arbitration panel has an obligation to refer the question to the CJEU for a ruling, which the arbitration panel will have to follow. Article 174 of the Withdrawal Agreement says, “Where a dispute… raises a question of interpretation of a concept of Union law… the arbitration panel shall not decide on any such question. In such cases, it shall request the Court of Justice of the European Union to give a ruling on the question. The Court of Justice of the European Union shall have jurisdiction to give such a ruling which shall be binding on the arbitration panel.” In addition, either party can ask the arbitration panel to refer a question to the CJEU, which it must do, unless the arbitration panel considers that the dispute does not, in fact, touch on EU law. The arbitration panel must provide the reasons for its assessment and either of the two sides can ask for a review.

58.The decisions of the arbitration panel will be binding on both the EU and the UK and, in cases of non-compliance, the arbitration panel can impose a lump sum or penalty payment to be paid to the aggrieved party. Finally, if compliance is still not restored, the Withdrawal Agreement allows either side to suspend, proportionately, the application of the Withdrawal Agreement itself, although there are exceptions, such as for the Citizens’ Rights Part of the Agreement. Any suspensions would be subject to review by the arbitration panel.77

59.Dr Hestermeyer told us that the role of the CJEU as the sole interpreter of EU law and its ability to issue rulings that were binding on the arbitration panel was “inescapable for the level of integration we want under the current case law of the Court of Justice.” However, he said that the mechanism contained some room for flexibility in interpretation:

The idea is, if the Court of Justice only decides the matter of EU law, there is still the flexibility to render the final decision for the national courts or, in this case, the arbitration panel. Trust me, judges find ways of saying, “This is what the EU law says and this is what the non-EU law says, and so we come to the decision we wanted anyway”. There are limits to that, but the EU law matter will be decided authoritatively by the Court of Justice, although there is still the freedom for the arbitration panel to decide on other matters.78

Professor Dehousse agreed and said “some EU Member States or institutions are not fully happy about this… In the end, there is some power of autonomy in this panel, which is important.”79

60.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.

14 Citizens must be resident in their host state by the end of the transition/implementation period to qualify

15 The right to be joined by future spouses will be subject to national law. The right to return to the UK with a non-UK spouse will be subject to UK domestic law

16 Department for Exiting the European Union, Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as endorsed by leaders at a special meeting of the European Council on 25 November 2018, 25 November 2018, Chapter 2

17 In this instance, ‘ongoing free movement rights for UK citizens’ refers to maintaining the right to free movement for those UK nationals who are living in the EU and covered by the Withdrawal Agreement.

18 Exiting the European Union Committee, The progress of the UK’s negotiations on EU withdrawal: the rights of UK and EU citizens, Eighth Report of Session 2017–19, 23 July 2018, para. 15

19 Exiting the European Union Committee, The progress of the UK’s negotiations on EU withdrawal: the rights of UK and EU citizens, Eighth Report of Session 2017–19, 23 July 2018, para. 15. The UK Government Explainer for the agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union 2018, said “As part of the future relationship with the EU, the UK will also seek to secure onward movement opportunities for UK nationals in the EU who are covered by the citizens’ rights agreement.” This is not explicit in the Political Declaration.

20 Department for Exiting the European Union, Political Declaration setting out the Framework for the Future Relationship between the European Union and the United Kingdom, 25 November 2018, para. 36

21 Exiting the European Union Committee, The progress of the UK’s negotiations on EU withdrawal: the rights of UK and EU citizens, Eighth Report of Session 2017–19, 23 July 2018, para. 48

22 Exiting the European Union Committee, The progress of the UK’s negotiations on EU withdrawal: the rights of UK and EU citizens, Eighth Report of Session 2017–19, 23 July 2018, para. 49. On 8 December 2018, the Residential Landlords Association also called on the Home Office to provide hard copy documents to EU citizens for the purpose of proving their status in the UK. See, Residential Landlords Association: RLA calls for documents for EU citizens in letter to Home Secretary

23 For example, on 17 October 2017, Amber Rudd MP told the Home Affairs Committee, “We have our White Paper coming out on immigration by the end of the year [referring to 2017].” On 28 March 2018, Amber Rudd told the Home Affairs Committee “We have decided to wait until the Migration Advisory Committee reports in its entirety in September this year to go forward with the policy and the White Paper after that.” On 10 July 2018, the current Home Secretary Sajid Javid told the Home Affairs Committee “The timeframe that we set out, which is a White Paper in the autumn followed by an immigration Bill early next year, given that our plans are based on having an implementation period, that will set out the process and I think it will be done in the right way.” On 3 December 2018, the Financial Times reported an interview in which Sajid Javid told the BBC: “It’s very unlikely to be published before the vote.”

24 Prime Minister, The government’s negotiating objectives for exiting the EU, 17 January 2017

25 Prime Minister, Florence speech: a new era of cooperation and partnership between the UK and the EU, 22 September 2017.

26 Exiting the European Union Committee, The progress of the UK’s negotiations on EU withdrawal, Second Report of Session 2017–19, HC 372, 1 December 2017. Para 47. We repeated this conclusion in our third report. See Exiting the European Union Committee, The progress of the UK’s negotiations on EU withdrawal: December 2017 to March 2018, Third Report of Session 2017–19, HC 884, 18 March 2018, para 62

27 European Commission & HM Government, Joint report on progress during phase 1 of negotiations under Article 50 TEU on the UK’s orderly withdrawal from the EU, 8 December 2017, para 49

28 European Commission & HM Government, Joint report from the negotiators of the European Union and the United Kingdom Government on progress during phase 1 of negotiations under Article 50 TEU on the United Kingdom’s orderly withdrawal from the European Union, 8 December 2017

29 European Commission & HM Government, Joint report from the negotiators of the European Union and the United Kingdom Government on progress during phase 1 of negotiations under Article 50 TEU on the United Kingdom’s orderly withdrawal from the European Union, 8 December 2017, paras 43, 49 & 50

30 Exiting the European Union Committee, The progress of the UK’s negotiations on EU withdrawal (June to September 2018), Ninth Report of Session 2017–19, HC 1554, 18 September 2018, para. 23

31 Cabinet Office, Technical note on temporary customs arrangement, 7 June 2018, para 2

32 Cabinet Office, Technical note on temporary customs arrangement, 7 June 2018

33 Exiting the European Union Committee, The progress of the UK’s negotiations on EU withdrawal (June to September 2018), Ninth Report of Session 2017–19, HC 1554, 18 September 2018, para 24

34 Department for Exiting the European Union, Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as endorsed by leaders at a special meeting of the European Council on 25 November 2018, 25 November 2018, Protocol on Ireland/Northern Ireland, article 6

35 Department for Exiting the European Union, Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as endorsed by leaders at a special meeting of the European Council on 25 November 2018, 25 November 2018, Annex 4

36 Those relating to food safety and animal and plant health

37 Department for Exiting the European Union, Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as endorsed by leaders at a special meeting of the European Council on 25 November 2018, 25 November 2018, Protocol on Ireland/Northern Ireland, Annex 5

38 The Withdrawal Agreement states explicitly that goods from Northern Ireland should have “unfettered market access to the rest of the united Kingdom’s internal market.”

39 European Commission, Factsheet: Protocol on Ireland and Northern Ireland, 14 November 2018

40 Q2365

41 Q3348

42 Q3350

43 Department for Exiting the European Union, Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as endorsed by leaders at a special meeting of the European Council on 25 November 2018, 25 November 2018, Protocol on Ireland/Northern Ireland, article 20

44 Qq3284 &3286

45 Q3317

46 Department for Exiting the European Union, Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as endorsed by leaders at a special meeting of the European Council on 25 November 2018, 25 November 2018, Protocol on Ireland/Northern Ireland, article 6(1)

47 Department for Exiting the European Union, Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, as endorsed by leaders at a special meeting of the European Council on 25 November 2018, 25 November 2018, Protocol on Ireland/Northern Ireland, article 6(2)

48 Q3312

49 European Commission, Statement by Michel Barnier, 14 November 2018

50 Q3368