The progress of the UK's negotiations on EU withdrawal Contents

3Implementation and the future relationship

Implementation period

78.The Government has announced that it will seek to agree an implementation period of “around two years” after the UK’s exit from the EU in March 2019. The Government will introduce measures in that period that are necessary for the UK’s future relationship with the EU which it says it will have agreed before the UK’s exit date.105

79.The European Council concluded in October that it would begin preparatory internal discussions on transition arrangements, as well as the future relationship, before its next meeting in December.106

80.In her Florence speech, the Prime Minister outlined the type of implementation period that the Government will seek. She said:

81.The Secretary of State for Exiting the EU provided detail on the implementation period in his evidence to us. He said that the main benefit of an implementation period was to give business, the UK Government and European governments more time to prepare for the UK’s withdrawal from EU structures.108 We understand that the UK expects to remain under the jurisdiction of the CJEU during this period.109 Justice and home affairs arrangements, such as access to the Schengen Information System, would continue as at present. The UK would retain membership of EU regulatory bodies such as the European Medicines Agency and the European Aviation Safety Agency. It would remain party to international agreements such as the EU-US Open Skies agreement. Financial services would retain passporting rights and the UK would continue to benefit from the EU’s FTAs with third countries.110

82.When we met them in Brussels, both Michel Barnier and Guy Verhofstadt said that any transitional period under Article 50 would necessitate the UK remaining part of the Customs Union, the Single Market and under the jurisdiction of the CJEU. Moreover, the European Parliament resolution of 28 September is categorical in its definition of the terms of the transition period:

such a transition can only happen on the basis of the existing European Union regulatory, budgetary, supervisory, judiciary, enforcement instruments and structures; underlines that such a transitional period, when the United Kingdom is no longer a Member State, can only be the continuation of the whole of the acquis communautaire which entails the full application of the four freedoms (free movement of citizens, capital, services and goods), and that this must take place without any limitation on the free movement of persons by imposing any new conditions; stresses that such a transitional period can only be envisaged under the full jurisdiction of the Court of Justice of the European Union (‘ECJ’); insists that such a transition period can only be agreed provided that a fully-fledged Withdrawal Agreement covering all the issues pertaining to the United Kingdom’s withdrawal is concluded.111

83.While the Government has emphasised that the implementation period should be “around two years”, the CBI and other business groups have urged more flexibility and requested a transition period of three years. In early November, the Irish Foreign Minister called for a transition period of up to five years. Michel Barnier told us that the implementation or transition period should be “short”.

84.The Secretary of State could not confirm whether the UK would continue to be bound by the Common Fisheries Policy as the Government will need to make a policy decision on new quotas that will be introduced during the implementation period. He said that the UK would probably not be a member of the Customs Union but would have a “customs arrangement” with the EU which would “look the same”.112

85.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.

Legal basis for an implementation period

86.The Government believes that Article 50 provides the legal basis for negotiating the implementation period.113 The Secretary of State said that he believes the European Parliament also “sees it in those terms” as does the Commission’s legal service.114 Michel Barnier confirmed this when we met him in Brussels. The European Council’s guidelines for the negotiations published in April refer to transitional arrangements in the context of those that are “necessary and legally possible”.115

87.Article 50 itself does not refer explicitly to a transition or implementation period; nor does it rule one out. It says that the Withdrawal Agreement with a Member State which has given the Article 50 notification can cover “arrangements for its withdrawal”. It also states:

The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.116

88.This suggests that the UK and the EU could agree to extend unanimously the two-year timeframe. The Centre for European Legal Studies and the Centre for Public Law (CELS/CPL) at the University of Cambridge published a paper that stated that if the EU treaties no longer applied to the UK then the sort of implementation period that the Government is seeking under Article 50—a third country, party to the existing structure of EU rules and regulations—”might be particularly testing in legal terms”. In their paper, CELS/CPL stated:

It is unclear to what extent, if any, [Article 50] can be used as the basis for a transitional agreement. The more that such an agreement merely perpetuates membership subject to minor modifications, the less easy it is to characterise as a ‘withdrawal’ agreement within the meaning of Article 50.117

89.The Secretary of State said that the Government does not publish legal advice to Ministers, and questions on the legal basis of the implementation period are “a question almost for the Commission rather than me”.118

90.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.

Timetable for agreement

91.The Secretary of State said talks on the implementation period should begin in December and the “outlines” should be agreed in the first quarter of 2018.119 The timetable set out by the Secretary of State is contingent on the EU27 agreeing to move on to phase two of the negotiations in December. Furthermore, the Secretary of State said that the EU’s principle that “nothing is agreed until everything is agreed” would apply, indicating that it would not be possible to provide absolute certainty on an implementation period until the end of the negotiations—which he said could be as late as the UK’s exit date in March 2019.120

92.In evidence to the Treasury Select Committee, the Rt Hon. Philip Hammond MP, Chancellor of the Exchequer, said that the benefits of an implementation period can be realised only if it is agreed at an early stage. He described an implementation period as a “wasting asset” and said:

[An implementation period] has a value today; it will still have a very high value at Christmas and early in the New Year. But as we move through 2018, its value to everybody will diminish significantly.121

93.Business groups have welcomed the Government’s statements on a possible implementation period; however, there is concern that agreement might come too late for it to be useful. A letter signed by the UK’s largest business organisations in October said that “agreement is needed as soon as possible, as companies are preparing to make serious decisions at the start of 2018, which will have consequences for jobs and investment in the UK.”122

94.A survey published in November 2017 of 1,118 supply chain managers in the UK and the EU found that 63% of EU businesses expected to move their supply chain out of the UK due to concern over the potential loss of frictionless trade. This was up from 44% that agreed with the same statement in May. 40% of UK businesses were looking to replace their EU suppliers, which was up from 31% in May. 20% of UK businesses with EU suppliers have found it difficult to secure contracts that run after March 2019.123 A September 2017 survey of 1,000 UK businesses found that 21% of respondents needed an agreement on the implementation period by the end of the year and 22% needed it by June 2018. Furthermore 40% of respondents said possession of more knowledge of what the implementation period will entail would have a “positive impact on their ability to unblock investment and recruitment decisions on hold since the referendum”.124

95.The Government has consulted regularly with business on its negotiating strategy, most recently through the introduction of quarterly Business Advisory Group meetings.125 In his evidence, the Secretary of State acknowledged that business leaders “would like things in black-and-white law” but said they are “not beyond making judgments” on communications that emanate from the UK and other EU Member States. He said that influential Member States like Germany had welcomed the prospect of an implementation period and so he “would give [business leaders] the advice to save their money [spent on implementing contingency plans] for the moment—at least until January.”126 A delegation of German business representatives met with the Prime Minister on 13 November 2017. They told the Prime Minister that in relation to any implementation deal “two years are not enough to ensure the necessary legal conditions are in place.”127 TheCityUK, an advocacy group for the financial sector, has said that credible political commitments from the UK and EU are welcome, but should be backed by assurances from regulatory agencies that these political commitments will guide their risk assessments for supervisory purposes. TheCityUK emphasised the need for swift progress, calling on the government to “rapidly set out in greater detail its objectives for this [transition] period”, and called for transitional arrangements that “in contrast to the government’s proposed implementation period, allows for enough time to negotiate a mutually beneficial future UK/EU relationship”, which would need to then be “followed by an adaptation/implementation period” because “an integral part of most Free Trade Agreements” are provisions “to allow for enough time to make all necessary adjustments for the new trading arrangements.”128

96.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.

Citizens’ rights and the implementation period

97.In the section above on registering EU citizens in the UK and “settled status”, we commented that the Government is assuming EU citizens in the UK will be able to register for “settled status” during the implementation period, and that the rules around free movement during the implementation period are yet to be negotiated. When asked if EU citizens will continue to be able to come and live and work in the UK during the implementation period, Mr Davis said:

Yes. The conditionality we put on that was that there would be a registration scheme. Although it would look like free movement to them, the rights may be a little different.129

Michel Barnier stated in his 21 September Speech in front of the Committees of Foreign Affairs and the Committees of European Affairs that access on “current terms”, in other words the extension “for a limited period of the acquis of the EU”, would entail the continued operation of the free movement of persons as currently experienced by the UK as an EU Member State.130

98.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.

Trade and non-trade agreements

99.The UK is a party to approximately 30 trade agreements, covering more than 60 countries, through the EU. These together account for 13% of UK trade.131 Some of these are entered by the EU alone but many are “mixed agreements” entered into by the EU and its Member States in their own right on one side, and the third country on the other. Furthermore, some agreements are more deep and comprehensive than others.132 Nevertheless, ten of the UK’s top 50 export markets for goods in 2015 were covered by these agreements which the UK would cease to be a party to after it withdraws from the EU.133 If the UK leaves the EU without agreements with these countries, trade could be negatively affected as the UK would have to trade on Most Favoured Nation tariffs in accordance with WTO rules, which many consider to be less advantageous.134 Furthermore, the UK would cease to benefit from provisions that reduce non-trade barriers that increasingly constitute the real value of these agreements.

100.The Government has said that it will seek to grandfather these arrangements so that they continue to apply to the UK.135 However, it is unclear how straightforward this process will be, whether it can be done before the UK exits the EU in 2019, and whether the legal position is different depending on whether the agreement has been entered into by the EU alone or is a mixed agreement to which the UK is also a party in its own right.

101.The Centre for European Policy Studies, a think tank, said the ease of grandfathering all these agreements should not be assumed and highlighted that some of these are bespoke.136The UK Trade Policy Observatory at Sussex University also warned that countries might seek to extract further concessions in particular sectors. It has also become clear that visa access will also figure prominently in such trade deals.137138

102.In evidence to the International Trade Committee, the Rt Hon. Dr Liam Fox MP, Secretary of State for the Department for International Trade, said that the Government was conducting negotiations with third countries that are party to EU trade agreements “implicitly [ … ] to ensure market stability” after the UK exits the EU, but with “a view to being able to develop a more bespoke agreement with those countries in the future.”139 He said that negotiations were at an “advanced stage” with specific countries that hold a high value in trade to the UK. However, he also said that no formal agreements had been struck and were not likely to be “until we get considerably closer to March 2019.”140 It is our understanding that legally such trade agreements could not take effect until the end of any implementation period.

103.The Secretary of State for International Trade said that grandfathering agreements was not simply a matter of rolling over the current terms that were agreed between the EU and the third countries, as it was necessary to disaggregate EU and UK quotas, so that third country exporters will know what their level of market access will be.141 Some countries, including the US, Canada and New Zealand, have complained to the World Trade Organisation about the methodology that the EU and UK want to use for quota disaggregation.142

104.As well as trade agreements, there are numerous non-trade related EU treaties to which the UK is a party, such as mutual recognition agreements, regulatory co-operation agreements, nuclear accords, data-sharing agreements et cetera, to which the UK would cease to be a party when it leaves the EU, unless it can secure grandfathering agreements. In evidence to the International Trade Committee, Antonia Romeo, Permanent Secretary to the Department for International Trade, said that there were “hundreds” of such agreements; and some reports put the figure as high as 975.143

105.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.

106.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.

Future relationship

107.The Government is optimistic that it can agree a bespoke FTA with the EU before March 2019. The Prime Minister has said that the Government does not favour any existing model; neither “something based on European Economic Area membership [such as the Norway model]; or a traditional Free Trade Agreement, such as that the EU has recently negotiated with Canada”. Instead, it will seek a new “comprehensive and ambitious” economic partnership with the EU which the Government said is the only economic model that is in the interests of both the EU and UK.144 The Secretary of State said that EU Member States with particularly close trade relationships with the UK, such as Belgium, France, Holland and Denmark, would have a strong interest in an FTA between the EU and the UK to prevent any disruption to their own economies.145 We heard the view in Brussels that trade between those countries is of “secondary importance” to their trade with the rest of the EU, and EU countries would place the interests of the Single Market ahead of any trade deal with the UK.

108.Reaching a trade agreement on services will be particularly important for the UK. While the Single Market in services is significantly less developed than the Single Market in goods, services accounted for 38% of the UK’s exports to the EU in 2016, accounting for a £14 billion trade surplus. However, that was outweighed by a deficit of £96 billion on trade in goods, resulting in an overall trade deficit of £82 billion with the EU.146 The services sector is not subject to tariffs. Where barriers to trade in services exist, they are usually due to regulatory differences. UK service providers currently have the right of establishment, which means that they are free to deliver services in another member state while continuing to be regulated by UK authorities. Furthermore, service providers benefit from the mutual recognition of professional qualifications throughout the Single Market. The EU has developed harmonised sets of regulations for certain sectors which can further reduce barriers to trade between Member States.

109.When challenged on whether it was possible, in practical terms, to agree a bespoke economic partnership in the remaining Article 50 time, the Secretary of State cited statements from Karel De Gucht, a former EU Trade Commissioner, who said it was possible to strike a deal in a period of two years, providing that there was sufficient political will.147 The Secretary of State said that a trade agreement could be agreed in a short timeframe because the EU and UK will start negotiations from a position of regulatory harmony. However, in evidence to the Treasury Select Committee, Sir Ivan Rogers, a former Permanent Representative of the UK to the European Union, said that it is not clear how the Government intends to reconcile regulatory harmony with the need to diverge if the UK is to take full advantage of its capacity to strike deals with new trade partners.148 Sir Ivan Rogers said that the Government’s ambition to negotiate an FTA during the Article 50 negotiations was not possible. He said:

[FTAs are] inordinately complex legal, lengthy documents. They often run to thousands of pages. There is no way that an EU-UK trade deal as comprehensive as the one we want to strike will be done in under a couple of thousand pages. Those couple of thousand pages will not be legally baked and done by October 2018.149

He concluded that any FTA ratification process was unlikely to be completed until “the early mid-2020s”.150 Furthermore, in evidence to the House of Lords EU Select Committee, Michel Barnier said that the “scoping” of the future relationship would “continue after 30 March 2019” and then the negotiations on a free trade agreement and defence and security co-operation would require “a few years”.151 The issue of public opinion across the EU27 will be particularly important when it comes to the future relationship, because the future relationship will be negotiated as a mixed agreement, thus requiring the ratification of 38 national and regional parliaments. Mr Barnier said that anything perceived as dumping or unfair regulatory competition would be unlikely to be accepted by legislatures.

110.In both Brussels and Paris, we were told repeatedly that managing potential divergence would be the key stumbling block to any future FTA. Interlocutors warned that public opinion across the EU was wary of any prospect of economic, social and environmental ‘dumping’, if the UK chooses to deregulate substantively. They noted the major disputes over CETA to highlight the debates over trade in Member States.

111.It is now generally accepted that Article 50 does not provide a legal basis for future trade negotiations with a departing Member State.152 It refers only to the need for the EU to take account of a “framework” for a future relationship.153 The Secretary of State said that an FTA would most likely be negotiated under Article 218 of the Treaty on the Functioning of the European Union which sets out the EU’s procedures for negotiating and concluding agreements with third countries and international organisations. He said that the agreement on the future relationship, including the trade agreement, the justice and home affairs relationship and possibly the defence relationship would constitute mixed agreements which under Article 218 would require ratification by all Member States, some of whom require authorisation by their parliaments (or even regional assemblies). This could take some time. Article 218 cannot be used to strike agreements with Member States and so the Secretary of State indicated that while an EU-UK FTA could not be signed until the UK had become a third country, it could do so a “nanosecond” after it has withdrawn from the EU.154 However, any mixed agreement would have to go through an extensive ratification process before it would enter fully into force.

112.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”.155 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.

Parliamentary vote on the deal

113.In February, in a debate on the European Union (Notification of Withdrawal) Bill, David Jones MP, the then Minister of State for Exiting the EU, reaffirmed the Government’s commitment to provide both Houses of Parliament with an opportunity to vote to approve the withdrawal and future relationship agreements before the conclusion of the negotiations. He said:

First of all, we intend that the vote will cover not only the withdrawal arrangements but also the future relationship with the European Union. Furthermore, I can confirm that the Government will bring forward a motion on the final agreement, to be approved by both Houses of Parliament before it is concluded. We expect and intend that this will happen before the European Parliament debates and votes on the final agreement.156

In the same debate, the Minister said:

What we are proposing, and what I am committing to from the Dispatch Box, is that before the final agreement is concluded—the final draft agreement, if you like—it will be put to a vote of this House and a vote of the other place. That, we intend, will be before it is put to the European Parliament. That is as clear as I can make it.157

However, the Secretary of State told us that the Government would bring a motion to the House only after a deal had been agreed as “[a motion] cannot come before we have the deal”.158 He also said it was possible, if negotiations continued to the end of the Article 50 period, that Parliament would not have a vote on the exit deal until after 29 March 2019.159 The Government has since clarified that it shares the Commission’s ambition to have agreed the future relationship by October 2018, and that it is still the intention that the UK Parliament is given the opportunity to vote before the European Parliament. The Secretary of State told the House that it “will be given the agreement to approve as soon as possible at the draft stage”. Nevertheless, despite these assurances he was unable to guarantee a meaningful vote on the exit terms before exit day as the timetable for negotiations is not wholly in the hands of the Government.160

114.On 13 November, the Government announced that the Withdrawal Agreement would be enshrined in a specific piece of primary legislation. The Government intended previously for the Withdrawal Agreement to be implemented through secondary legislation under Clause 9 of the European Union (Withdrawal) Bill. The Secretary of State said that the introduction of separate legislation would mean that Parliament will be given time to “debate, scrutinise and vote on the final agreement we strike with the European Union. The agreement will hold only if Parliament approves it.” He said that the Government’s commitment to give Parliament a vote on the final deal “as soon as possible after the deal is agreed” still stood, and that the Government still intended for such a vote to occur before the European Parliament votes on it.161 However it would appear that the choice being offered to Parliament would only be agreeing the deal or defaulting to no deal.

115.There will be two parts to the Withdrawal Agreement. The first covering the divorce settlement and the implementation period—which the Government states would come under Article 50. The second will be a scoping and outline of a new trade and market access agreement which the Government intends to agree by October 2018 but which would most likely have to be concluded under Article 218 once the UK has left the EU. The Government has said that this agreement will be a bespoke free trade agreement between the EU and the UK. However, others argue that such an agreement would only consist of a framework on which to base trade negotiations, which would begin only once the UK has left the EU.162 It is possible that reaching this agreement could take some time during the implementation period and would, as it is a mixed agreement, be subject to ratification by all EU Member States.

116.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.

No deal

117.In an evidence session on the European Union (Withdrawal) Bill, Sir Konrad Schiemann drew our attention to the fact that a no deal outcome could result from a challenge in the CJEU on the subject of vires—the powers—of the parties who make the Withdrawal Agreement under the Treaties:

The European Union sees itself as a community of law bound together by the interpretation of the treaties, which is given by the ECJ. In consequence, it can happen and has happened that everybody, all the politicians, are agreed on what the answer is, but the European Court of Justice has said, “I am sorry, that does not work because it goes against the role of the European Court of Justice in the treaties”.163

118.In the same evidence session, Professor Ekins described the risk of the CJEU challenging or invalidating the agreement as a “standard risk of negotiating with the EU.”164 This does not signify that the CJEU could stop the UK leaving the EU, as Sir Konrad went on to explain, “because Article 50 comes in and says if there is no agreement the UK leaves. That is why I say it is pretty important for Parliament to decide, the sooner the better I should have thought, what precisely we will do if there is no agreement.”165 When we raised this point with Ministers, we were told that it was in the interests of “both sides of the negotiating table to ensure that it does not transpire” and it was an ongoing consideration.166 In June 2017, the Chancellor of the Exchequer described leaving the EU without a deal as a “a very, very bad outcome for Britain”.167

119.The Secretary of State told us that there are various sorts of no deal. He said:

There is a no deal where we go to WTO arrangements but we have a bare-bones deal on other elements. I listed them to the Chairman: aviation, data and maybe nuclear—or not—and so on. Then of course there is a complete failure to agree and a hostile outcome. That is so incredible that it is off the probability scale. But in those circumstances, it is conceivable there will be no deal of any sort.168

120.The Institute for Government has said that the ease of agreeing even a “bare bones” deal should not be taken for granted. It said, “without an agreement on data, for example, transfers of personal information between the UK and the EU would be severely disrupted.” However, existing precedents suggest that a deal on data requires a judgment from the Commission that the UK will comply with EU data protection laws, but “such judgement could take years”. Furthermore, deals on other sectors, such as aviation, could be just as protracted. The Institute for Government said “negotiations for a quick aviation deal would turn into talks on cross-cutting regulation and institutional oversight—the very areas that are likely to prove contentious in a full free trade agreement”.169

121.The Committee recently visited the Port of Dover to see how the Port works and why it is so important for the UK’s trade. We held a series of private meetings with representatives of the Port, which included those who work at the border to facilitate security and the free flow of trade, representatives from the Port of Calais, and one of the ferry operators. A large amount of trade passes through Dover every day and the efficiency of the processes in place at the Port, and at Calais, have helped to minimise the time it takes for goods to move from supplier to customer on both side of the channel. Furthermore, it has introduced a predictability to the delivery timetable that is important for sectors with time sensitive supply chains, such as the automotive sector, and the agri-food sector. The current processes—involving roll on roll off ferries and short turnaround times—have developed while the UK has been in the Customs Union and the Single Market. Any change to the UK’s trade relationship with the EU could lead to a change in regime for customs checks and conformity to single market rules, particularly on animal or plant products, for goods being exported from the UK into the EU. A no deal scenario, especially if it was before any of the necessary adjustments had been made in areas such as IT systems, infrastructure, recruitment and training of staff, would cause major disruption. The Port has illustrated the scale of the challenge by noting that an additional two-minute delay per freight vehicle in the Ferry Terminal would cause 17 miles of queues on the motorway in Kent.170 The Committee also heard that Calais would be severely affected and the Port’s President has said that it might have to shut.

122.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.

123.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.

106 European council, (Art. 50) meeting (20 October 2017) - Conclusions, 20 October 2017

111 European Parliament, Motion for a Resolution, 28 September 2017

113 The Prime Minister said in her Florence Speech, “The framework for this strictly time-limited period, which can be agreed under Article 50, would be the existing structure of EU rules and regulations.” The Prime Minister also told the House on 23 October 2017 that “ The European Union raised a similar concept to the implementation period in its April guidelines, and that would be on the basis of the article 50 process.” See, HC Deb 23 October 2017, Vol. 630, Col. 34

117 Centre for European Legal Studies/Centre for Public Law, Implementing Transition: How Would it Work?, October 2017

121 Treasury Select Committee, Oral evidence: The Work of the Chancellor of the Exchequer, HC 424, 11 October 2017, Q19

123 Chartered Institute of Procurement and Supply, EU businesses say goodbye to UK suppliers as Brexit bites into key relationships, 6 November 2017.

124 London First, NEG0001, 2 November 2017

128 TheCityUK, Transitional arrangements, 17 October 2017

133 Library Briefing Paper, List of EU trade agreements, 21 November 2016

135 In this context, ‘Grandfathering’ refers to an option whereby the UK could inherit the rights the EU had acquired under its FTAs with third countries

136 Centre for European Policy Studies, Brexit Transitional Period: The solution is Article 50, 9 September 2017

137 Financial Times, Australia warns UK not to toughen visa regime, 24 July 2017

139 International Trade Committee, Oral evidence: The work of the Department for International Trade, HC 436-ii, 1 November 2017, Q145

141 International Trade Committee, Oral evidence: The work of the Department for International Trade, HC 436-ii, 1 November 2017, Qq145–155

143 International Trade Committee, Oral evidence: The work of the Department for International Trade, HC 436-ii, 1 November 2017, Q158. See also, The Times, EU global deals threaten to wreck Brexit transition hopes, 25 October 2017 and Financial Times, After Brexit: the UK will need to renegotiate at least 759 treaties, 30 May 2017

146 House of Commons Library Briefing Paper, Statistics on UK-EU trade, 1 November 2017

148 Treasury Select Committee, oral evidence: The UK’s economic relationship with the European Union, HC 473, 25 October 2017, Q11

149 Treasury Select Committee, oral evidence: The UK’s economic relationship with the European Union, HC 473, 25 October 2017, Q39

150 Treasury Select Committee, oral evidence: The UK’s economic relationship with the European Union, HC 473, 25 October 2017, Q37

151 House of Lords EU Select Committee, Oral evidence: Scrutiny of Brexit negotiations, 12 July 2017, Q4

152 The Secretary of State for Exiting the EU said in evidence that “Article 50 does not say very much about anything, if you read it. It is the blandest and unhelpful phrase you are ever likely to come across”. Q70

154 Qq25 & 28. Article 218 describes how the EU makes agreements with third countries or international organisations. See EUR-Lex, Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union

155 HC Deb 24 January 2017, Vol. 620 Col. 169 (Rt Hon. David Davis MP)

156 HC deb 7 February 2017, Vol. 621, Col. 264

157 HC deb 7 February 2017, Vol. 621, Col. 271

160 HC Deb 26 October 2017, Vol. 630, Col. 445

161 HC Deb 13 November 2017, Vol. 631 Col. 37. The Secretary of State said that the legislation will include issues “such as an agreement on citizens’ rights, any financial settlement and the details of an implementation period agreed between both sides. Of course, we do not yet know the exact details of the Bill and are unlikely to do so until the negotiations are near completion.”

162 Treasury Select Committee, oral evidence: The UK’s economic relationship with the European Union, HC 473, 25 October 2017, Q37

163 Q9 (Sir Konrad Schiemann)

164 Q25 (Prof Richard Ekins)

165 Q29 (Sir Konrad Schiemann)

166 Q257 (Steve Baker)

167 BBC [Video], Andrew Marr Show, 18 June 2017, [18.00]

169 Institute for Government, Could the UK bank on a “basic” no deal?, 1 November 2017

30 November 2017