Conclusions
Progress of the negotiations
1.We welcome the fact that the UK and the EU have prioritised securing an agreement on citizens’ rights. We regret that it has not proved possible to conclude this agreement yet, with the consequence that there is a lack of clarity for EU citizens in the UK and UK citizens in the EU—more than four million people. Together with the prospect that “nothing is agreed until everything is agreed” this creates further doubt about what kind of legal guarantees UK citizens in the EU and EU citizens in the UK and their families will have about their status. (Paragraph 16)
2.We are disappointed by the Commission’s stance on the recognition of the professional qualifications of UK citizens in the EU. Such inflexibility is contributing to unnecessary uncertainty for millions of people in the UK and Europe. We believe greater precedence should be given to the impact that the lack of early agreement on this issue is having on large numbers of citizens. (Paragraph 17)
3.Notwithstanding that the phasing of the negotiations was accepted, we remain unpersuaded that there is any need to link agreement on citizens’ rights to issues concerning Ireland and finance. Both sides should announce when they reach agreement on this that, come what may, the agreement on people is in perpetuity, so that 4.5 million citizens can plan their lives ahead. We urge both sides to reconsider this so that people really do come first. (Paragraph 18)
4.The role of the CJEU in enabling EU citizens in the UK to enforce their rights is clearly an issue of dispute. We encourage the Government and the EU to negotiate a mutually acceptable mechanism. We heard during our inquiry on the European Union (Withdrawal) Bill that there was no convincing precedent in the world for what the EU proposes and concluded in our report that it was not appropriate for the CJEU to continue to have jurisdiction in the UK to enforce citizens’ rights after the UK has left the EU. However, a body could be established with representation from both sides to ensure that agreed rights were consistently interpreted after the UK’s exit. We encourage the UK Government to make a concrete proposal to the EU on the nature and location of the joint body that would have oversight of UK and EU citizens’ rights under any Withdrawal Agreement. We believe that these rights should be enshrined in a binding agreement. (Paragraph 20)
5.We welcome the Government’s acceptance that the current system for applying for permanent residence certificates is “not fit to deal with the situation after we leave the EU”, and the Secretary of State’s acknowledgement that a new system will not ask applicants to complete an 85-page form. Any new online system for enabling EU residents to register with the UK Government must be simple and straightforward and must enable both adults and children to be easily registered. (Paragraph 29)
6.The Government is designing a new system for EU citizens in the UK to make an application online to gain the proposed “settled status”. We note that this system is being developed “from scratch” and it is not anticipated to be operational until the end of 2018, only three months before the UK leaves the EU in March 2019. The new system has to be able to cope with potentially three million applications. Therefore, a period after March 2019 is vital to enable EU citizens in the UK to apply for settled status and we welcome the Government’s commitment that EU citizens will still be able to apply for settled status for two years after the UK leaves the EU. The Government has said that obtaining documentation to show their settled status will enable EU citizens who are resident here to continue to do so lawfully but there needs to be early clarification on what that documentation will consist of. If however the processing of applications continues after the two year implementation period then there will be a proportion of EU citizens in the UK unable to demonstrate their settled status and therefore their right to live and work in the UK. (Paragraph 30)
7.We welcome the progress made on citizens’ rights and urge both sides to do more to resolve the outstanding areas of dispute to provide reassurance to millions of citizens living across the EU. However, attaining sufficient progress in December 2017 does not mean there will be a final agreement in place on citizens’ rights. Firstly, negotiations on citizens’ rights will continue alongside phase two talks. Secondly, the principle that “nothing is agreed until everything is agreed” holds out the risk that, even when an agreement on citizens’ rights is reached, it could still be put in jeopardy by a failure to reach an overall Withdrawal Agreement. We call on the Government to request, and the EU to agree, that any agreement reached on citizens’ rights should be ring-fenced when reached, and preserved even if no overall Article 50 deal is agreed. If the EU negotiating team rejected such a request, then the UK Government should make a declaration that it will unilaterally provide a guarantee on EU citizens’ rights in the UK (as recommended in a report by our predecessor Committee). This would provide reassurance to the more than three million EU citizens living in the UK. In these circumstances, we would expect the EU to issue a similar guarantee to UK citizens living in EU countries. (Paragraph 32)
8.The UK and the Irish Governments are co-guarantors of the Good Friday Agreement. The complexity and sensitivity of the implications of the UK’s decision to withdraw from the EU, including the Single Market and Customs Union, for Northern Ireland and the Republic of Ireland mean that the negotiations will continue into phase two of the Article 50 process. We agree with the Government’s view that for progress to be made in Northern Ireland, the EU and UK should move quickly to negotiations on the terms of the EU-UK future relationship. We also recognise the unique challenges posed by the need to preserve the peace settlement in Northern Ireland, including issues that go far beyond trade and customs. In the light of the recent statement from the Irish Government about the border, Ministers should now set out in more detail how they plan to meet their objective to avoid the imposition of a border, including if no withdrawal agreement is reached by 29 March 2019. (Paragraph 36)
9.The Government has demonstrated significant flexibility in its approach to protecting the Belfast Agreement, peace and co-operation on the island of Ireland. Its objective of enshrining the Common Travel Area within the Withdrawal Agreement is welcome as is the UK’s assurance that it will not compromise the Republic of Ireland’s free movement obligations. (Paragraph 41)
10.We welcome the Government’s commitment to “no physical infrastructure” at the land border between Northern Ireland and the Republic of Ireland. We also welcome its rejection of a customs border between Northern Ireland and Great Britain. We do not currently 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 UK; i.e. including the land border in Northern Ireland and at the ports of Holyhead, Milford Haven and Fishguard that provide freight services to and from the Republic of Ireland. It will be made harder by the fact that the Government’s proposals, by its own admission, are untested and to some extent speculative. We call upon the Government to set out in more detail how a “frictionless” border can in practice be maintained with the UK outside the Single Market and the Customs Union. (Paragraph 47)
11.The negotiations on the financial settlement are fluid and the situation may change. The Government has said that the UK will meet its financial obligations. It must now seek a fair settlement that will not unduly burden UK taxpayers. The evidence is clear that there are many ways to calculate the potential settlement and all involve a degree of speculation. Having challenged the EU’s financial assessment, the Government should provide us with evidence on its analysis of the EU’s position paper of 12 June 2017 on the financial settlement. If the UK is required to contribute to the EU’s liabilities, then the UK must benefit from a share of the EU’s assets, which the EU’s position paper does not mention in any substantive way. To move forward, the Government and the EU should set out what assets the UK is entitled to. The Government should also set out, as soon as possible, which scientific, educational, cultural, security and any other programmes it would like to contribute to and benefit from after the UK leaves the EU. Early and clear explanation of the purpose of such expenditure will be important to build public confidence in the Government’s efforts to reach an agreement with the EU on finances. (Paragraph 57)
12.The EU has decided that it will not allow negotiations to move to phase two until sufficient progress on the financial settlement has been made. We continue to take the view of our predecessor Committee that this approach is unnecessary and unhelpful but the Government has reluctantly accepted it. However, the Government will need to balance its negotiating position against the significant economic risk that arises from the continuing uncertainty over the negotiations. It is essential that talks now move on to phase two. (Paragraph 58)
13.We note the Government’s recognition of Parliament’s role in scrutinising the negotiations. However, the June General Election, combined with the Summer Recess, has meant that nearly a quarter of the Article 50 negotiation time has passed without the opportunity for us to provide scrutiny on progress. While acknowledging the statements he has made to the House, we expect to hear evidence from the Secretary of State at regular intervals and we request that he commit to giving evidence to us at least once every two months. (Paragraph 62)
14.We note the Government’s intention to work closely with the devolved administrations. However, as we said in our report on the European Union (Withdrawal) Bill, the Joint Ministerial Committee for EU Negotiations (JMC (EN)) should meet “much more regularly” and address “the concerns expressed by the devolved administrations about the effectiveness of its operations.” We also recommended that the Government “set out whether it is considering formal structures for inter-governmental relations, and its proposed arbitration system for disputes, so that the views of the devolved governments can be heard, including in any future trade agreements.” (Paragraph 63)
15.Towards the end of the Article 50 negotiations, if there is a deal, MPs will vote on whether to accept the outcome. The Government, therefore, has a duty to be as open with Parliament as possible without jeopardising its negotiating position. We welcome the Government’s statement that it will abide by the will of the House and provide us with the sectoral analyses of the UK’s exit from the EU. There is an important difference between information which would genuinely harm our negotiating position and information that is simply embarrassing for the Government. The two are not the same thing. On 27 November, the Committee received an edited version of the sectoral analyses from the Secretary of State for Exiting the European Union. We will now consider them and respond separately. (Paragraph 74)
16.We welcome the Government’s commitment that it will share with the devolved administrations its economic modelling on the impact of UK withdrawal on the constituent nations and regions of the UK. We call on the Government to clarify whether this modelling is different from the sectoral analyses that it has already committed to sharing with us and if so, to provide us with this additional economic modelling as well. (Paragraph 77)
Implementation and the future relationship
17.In the Prime Minister’s Florence speech she reaffirmed the Government’s intention to seek an ‘implementation period’ to provide more time for business, the public sector and European governments to adapt to the implications of the UK’s withdrawal from the EU. The European Council’s statement that it will begin preparatory “internal discussions” on transitional arrangements is also a positive step. Such an arrangement, if it can be agreed quickly, could be of significant mutual benefit to the UK and EU Member States. (Paragraph 85)
18.The Commission’s and Council’s legal services should give definitive advice on whether Article 50 provides a basis on which to agree an implementation period as part of the withdrawal period, including in relation to potential UK participation in those European Union agencies and institutions that currently have no provision for the membership of, or participation or cooperation with, non-EU Member States. The Government could then publish the reasoning on which its legal opinionon the elasticity of Article 50 rests, as well as that of the Commission’s legal service, and clarify what any legal basis in UK law would be for the domestic implementation of the agreement. We believe this could increase certainty in the negotiations; not doing so could risk a successful legal challenge to the Court of Justice of the European Union. We also recommend that the Government should now make a clear and public statement about the likely terms of the transition and implementation period, so that these are widely understood. (Paragraph 90)
19.We urge the EU to acknowledge at its December Council that sufficient progress has been made on the withdrawal issues. Then the Government and the EU must prioritise providing certainty to business and other stakeholders that there will be an implementation period that can be relied upon. Failure to reach an early outline agreement will undermine the very purpose of having an implementation period and will do nothing to reassure importers and exporters in the UK and the EU, or the UK’s larger and more mobile businesses, some of which are already considering when to trigger contingency plans to relocate some operations from the UK. We welcome the assurance from the Secretary of State—echoed on our visit to Brussels—that, subject to a positive outcome to the December Council, it will be possible to publish detailed arrangements for the implementation period by the end of March 2018. We think it essential that this deadline is achieved. To mitigate business uncertainty in 2018, these guidelines should provide sufficient scope and detail for business to make investment and trade decisions and for regulatory agencies to base risk assessments and other such judgements on, for the period after March 2019. (Paragraph 96)
20.The Government and the EU should provide more detail on how they intend free movement to operate during the implementation period, and how it will affect the rights of EU citizens coming to live and work in the UK after 29 March 2019, as well as during any time-limited implementation period. (Paragraph 98)
21.The UK is party to over 30 trade agreements with over 60 countries, and hundreds more non-trade agreements, through the EU. These agreements foster trade and co-operation between the UK and the rest of the world and if the UK ceases to be party to them it will rely instead on WTO terms. Third countries will have a mutual interest in continuing many of these agreements. Nevertheless, striking deals to continue them will be a significant task and the Government has acknowledged that much of the work will not be completed until near the end of the Article 50 process. Some of these agreements, both trade and non-trade, will be more important than others; therefore, the Government must prioritise accordingly. The Government should set out its plans for the UK’s continuing participation in these agreements, its approach to how it is prioritising agreements, and what can be achieved during the Article 50 timeframe. (Paragraph 105)
22.The Government should publish a white paper on the implementation period as soon as possible after the European Council in December. This should cover the legal basis in UK and EU law for such an agreement, the single market, the customs union, free movement, the CJEU, UK membership of EU agencies, security, defence and foreign policy co-operation, the 30 plus trade agreements, and hundreds of non-trade agreements, that the UK is party to through its membership of the EU and also the Government’s response to the European Parliament’s resolution of 28 September 2017. (Paragraph 106)
23.The scope and nature of any UK future trade and services agreement with the EU will be determined by many things, including economic interest and by the extent to which the UK chooses to, and the EU requires the UK to, remain closely harmonised with EU standards and regulations, versus diverging from these to secure new trading relationships. It is not yet evident that the Government has decided which path to follow, let alone set out what kind of deal it is seeking. Given the short time left, it is very hard to see how it will be possible to negotiate a full, bespoke trade and market access deal between now and October 2018. The Government’s stated policy aim is to agree, by October 2018, the Article 50 withdrawal agreement, a transition/implementation period and “a comprehensive free trade agreement and a comprehensive customs agreement that will deliver the exact same benefits as we have”. Such a deal must deliver the Government’s aim in both goods and services. We look forward to monitoring progress on this over the coming year. Until now, the Government’s statements on the nature of the UK’s future relationship with the EU have been couched in general terms such as ‘comprehensive and ambitious’ or ‘deep and special’. The Government should now provide to Parliament much more specific proposals as to what these words will mean in practice. Similar clarity from the EU negotiators on the “new partnership” would also be welcome. Given the lack of certainty that an agreement, for a future relationship with the EU, will be signed during the withdrawal implementation period, it will be important to have as much clarity by the date of exit. (Paragraph 112)
24.We welcome the Government’s commitment to enshrine the withdrawal agreement in separate primary legislation, which will include agreements on citizens’ rights, any financial settlement and an implementation period, along with other matters. The Government has also said that the House will have the opportunity to vote on a motion on the withdrawal agreement once it has been agreed but before the European Parliament has its own vote. We recognise that the timeframe for agreeing the withdrawal agreement is not in the Government’s hands. However, the timing of the vote in the House of Commons is significant. As it stands, any deal will need to be voted on by the UK Parliament and the European Parliament before 11pm on 29 March 2019 unless the date of exit has been postponed by unanimous agreement of the 27 Member States under the terms of Article 50. If the European Parliament has not approved the agreement and the negotiating period has not been extended, the UK will leave the EU without a deal. Clearly a vote cannot take place until an agreement has been reached between the UK and the EU. If this happens at the very end of the Article 50 period then the Government would be unable to guarantee that either the motion or the Bill could be debated and voted on before the end of March 2019. Therefore, the Government must hold a vote as soon as possible after any deal is agreed. It would not be acceptable to present a motion to the House after the UK has left the EU. (Paragraph 116)
25.Whether or not a deal is reached, we believe that the Government should be investing now in improvements in technology and infrastructure to ease the passage of goods through gateways like the Port of Dover; for example, by introducing electronic customs checks and building the proposed lorry park outside the Port of Dover. However, such measures would not deal with all the risks of serious delays in Dover and would have to be reciprocated across the Channel in order to be effective. (Paragraph 122)
26.There has been continued debate about no deal being reached at the end of the negotiations. We agree with the Chancellor of the Exchequer that this would be “a very, very bad outcome” for the UK and we think it would also be harmful for the EU, in particular for our closest trading partners. It would be chaotic and damaging for the UK economy and would leave many businesses and whole sectors in limbo facing huge uncertainty. The Government must do everything it can to avoid such an outcome. The Government has said that if no deal is reached, specific sector by sector agreements could still be made to minimise damage to the economies of both the UK and EU member states, but there is nothing to suggest that this would be a straightforward or swift process, or even possible. The Prime Minister has previously stated that ‘no deal is better than a bad deal’. It is difficult to imagine any possible deal, consistent with WTO and other international treaties, that would be more damaging to the UK’s interests than leaving the EU with no deal whatsoever in place. (Paragraph 123)
30 November 2017