The progress of the UK’s negotiations on EU withdrawal: December 2017 to March 2018 Contents

2Draft Withdrawal Agreement


8.On 28 February, the Commission published their draft Withdrawal Agreement which was based on the Joint Report that was agreed in December 2017. It sets out the Commission’s interpretation of the Phase 1 agreements between the EU and the UK. These agreements were on citizens’ rights, the Financial Settlement and issues that relate to the Northern Ireland/Republic of Ireland border, as well as other separation issues.6 There are several parts of the draft Withdrawal Agreement with which the Government has said that it disagrees, particularly with regards to citizens’ rights, issues that relate to maintaining a ‘frictionless’ border on the island of Ireland and the role of the CJEU. This chapter examines the agreements as outlined in the draft Withdrawal Agreement on the main Phase 1 issues and what remains to be resolved in Phase 2.

Citizens’ rights

9.The draft Withdrawal Agreement defined the categories of citizens that fall within its scope as EU citizens who have exercised their right to reside in the UK, as well as their close family members, as set out in Directive 2004/38/EC.7 The draft Withdrawal Agreement also provides the same rights to UK nationals in EU Member States.8

10.Directive 2004/38/EC is also known as the ‘Free Movement Directive’.9 It sets out the right of free movement for the citizens of EU Member States. The rights it confers have been extended to nationals of Norway, Iceland and Liechtenstein by the EEA Agreement and to Swiss nationals by a bilateral agreement with the EU on the free movement of persons. The Directive essentially gives EU citizens the right to live and work across the EU, if they are workers, and to those who are not economically active provided that they are not an undue burden on the country of residence.10 This right also extends to close family members that are not EU citizens. The right of residence becomes permanent after five years and citizens can apply for a Permanent Residence document that confirms their rights, although this is not a legal requirement as Permanent Residence is acquired automatically after individuals have exercised treaty rights for 5 years, without an absence of more than six months.11

11.The Commission’s draft Withdrawal Agreement indicated that the cut-off point for when the citizens’ rights provisions in the Withdrawal Agreement come into force will be the end of any transitional/implementation period.12 However, the Joint Report stated that the cut-off point, should be “the time of the UK’s withdrawal”—29 March 2019.13 This is the Government’s interpretation of the Specified Date. However, the Joint Report also stated that “adaptations” may be needed if a transition/implementation period is agreed during Phase 2.14 We examine this disagreement in more detail in the next chapter on the transition/implementation period.

Unresolved issues

12.While the citizens’ rights chapter was the most advanced part of the Joint Report and the draft Withdrawal Agreement, there were some substantial issues that are still to be resolved.15 The Commission’s December Technical Note included a list of matters “raised by the UK but that were outside the scope of the EU’s mandate” for Phase 1. These were:

13.The Secretary of State said that voting rights for UK citizens in the EU and EU citizens in the UK was another issue that was unresolved. He said that the Commission had “not demurred” on the Government’s intention to negotiate on the matter bilaterally with individual Member States.16

14.The UK and the EU have been unable to agree on continued free movement for UK citizens in the EU27 after the Specified Date. The Commission’s position, as stated in the draft Withdrawal Agreement, is that ongoing free movement will not apply to UK citizens living in the EU27.17 The Secretary of State said that ongoing free movement was a matter for Phase 2 and would “interact quite closely with whatever deal we do on services, professional services in particular. The right to move around will be quite an important part of that.”18 In their summary of the negotiations following the European Council meeting in October, British in Europe and the3million said:

It appears that the UK has offered to grant an unlimited right to return to EU citizens in the UK in exchange for freedom of movement for UK citizens within the [Withdrawal Agreement]—if this is confirmed, it should be accepted immediately. This proposal would ensure reciprocity so that EU citizens in the UK and their children and family members would have the unlimited right to return to the UK, and UK citizens in the EU with their children and family members would continue to enjoy their existing rights of free movement across the EU27.

15.Before the UK leaves the EU, UK citizens have the right to move to another EU country to live or to work as an employee or self-employed or run a business, provide services cross-border and to benefit from mutual recognition of their qualifications. Without resolution of their ability to move to another Member State after the Specified Date, these rights will be lost. Individuals will lose not just the right to move freely to another EU country, but also the right to provide cross-border services in any country, to have their professional or academic qualification recognised in any country where it is not specifically recognised in the Joint Technical Note, and lawyers would lose their ability to practice in another Member State based on a qualification obtained in their home state.19 British and Europe and the3Million object to the insertion of the phrase “and based on past life choices” in the Joint Report to qualify whether these rights would have been within the scope of the negotiations.

16.We welcome the progress that has been made on protecting citizens’ rights so far. Both sides have taken a largely pragmatic approach to protecting those rights. However, the citizens’ rights strand of the negotiations has not concluded and many issues remain to be agreed in Phase 2 which are some of the most sensitive in the negotiations. These must be resolved with transparency and speed.

17.We recommend that the Government commit to repeating its offer to allow an unlimited return for EU citizens in the UK if UK citizens in the EU retain free movement, alongside the associated rights that flow from that, including recognition of professional qualifications and the right of establishment. The EU’s position on EU citizens’ rights in the UK has been to insist on no diminution of rights. UK citizens in the EU should be able to expect the same treatment.

18.On 20 December 2017, the Prime Minister published an open letter to UK nationals living in the European Union to update them on the publication of the Joint Report. The Prime Minister said:

I know there are a few important issues that have yet to be concluded. We raised these concerns, including the ability of UK nationals living in the EU to retain certain rights if they move within the EU, but the EU was not ready to discuss them in this phase of the negotiations. We will continue to raise these issues with the EU in the New Year.20

19.British in Europe and the3million are concerned that the negotiations on citizens’ rights have lost urgency since the Joint Report was published. They said in a joint response to the Phase 1 agreement:

The issue of citizens’ rights has thus widely—but incorrectly—been portrayed as resolved. the3million and British in Europe, as well as the European Parliament (see EP resolution of 13 December 2017), consider that the stated aim of ensuring that nothing would change for EU27 nationals in the UK and for UK nationals in the EU, is not met by the ‘Common Understanding’ reached in Phase 1 owing to glaring shortcomings, omissions and ambiguities, be it because issues were excluded from the negotiations contrary to the initial mandate or because of political expediency to reach a compromise.21

20.There has been little progress on the remaining citizens’ rights issues since December 2017. The Commission has published several ‘Programmes of EU-UK Article 50 negotiations’ that set out which subjects would be discussed in the negotiations. Citizens’ rights were mentioned only once and that was on a “technical clarification to the Joint Report”.22 This is because the outstanding issues are viewed by the European Union as contingent on the Phase 2 negotiations, which will not start until the end of March 2018.23

21.The Commission published a Joint Technical Note alongside the Joint Report which “expresses the detailed consensus of the UK and EU positions”.24 This Note builds on similar Joint Technical Notes that were published after the second, third and fourth rounds of the negotiations. These Joint Technical Notes have consisted of a table listing the areas for negotiation on citizens’ rights, the respective UK and EU positions and a traffic light system that indicates which issues have been agreed, which issues require further clarification and which issues are unresolved.25

22.The Joint Technical Notes have been a valuable resource for citizens affected by Brexit. We recommend that the Government seek to work with the Commission to publish a new Joint Technical Note which sets out the outstanding citizens’ rights issues for agreement in Phase 2, with the respective UK and the EU positions on each. This should be done immediately after the European Council meeting in March when the Phase 2 talks are expected to begin. Joint Technical Notes should also be published after each negotiating round.

Matter resolved in the Joint Report

23.The draft Withdrawal Agreement presented the Commission’s interpretation of the agreements that were set out in the Joint Report. These included:

24.The Joint Report also included an agreement on allowing the UK and any of the EU27 Member States to introduce a system requiring individuals to apply for a status that confers the right of residence—in the UK this will be ‘Settled Status’. Furthermore, it included an agreement that the UK would establish an ‘Independent Authority’ to oversee the rights of EU citizens in the UK. This finds expression in Articles 17 and 152 of the Commission’s draft Withdrawal Agreement. We examine these two agreements in more detail below.

Settled Status

25.The draft Withdrawal Agreement said that the UK and any of the EU27 Member States can introduce a system for individuals to apply for a status that confers the right of residence.35 The UK will be introducing such a system, which will provide a new category of residency called ‘Settled Status’. It will provide proof that EU citizens have permission to continue living and working in the UK.

26.The requirements for Settled Status will largely replicate those for Permanent Residence36—five years continuous and lawful residence in the UK as a worker, self-employed person, student, self-sufficient person or family member of an EU citizen; and without absence from the UK for more than six months.37 EU citizens in the UK that hold a Permanent Residence document will be able to exchange it for a Settled Status document, free of charge.38 EU citizens in the UK will have to demonstrate EU citizenship, residency in the UK before the Specified Date and pass a criminality and security test. EU citizens who do not have a Permanent Residence document by the Specified Date will be able to apply for ‘temporary status’ until they reach the five-year threshold and can then apply for Settled Status. An application for temporary status or Settled Status must be made within a minimum two-year ‘grace period’. If no application is made for Settled Status within this period, then the rights, in principle, lapse. However, the Commission is proposing that the grace period be extendable for a further year if there are technical problems with registration.39

27.The Government expects the online application system for Settled Status to be ready in the second half of 2018.40 It has also indicated that it intends the application process to begin six months before the UK leaves the EU, and will operate during the two-year grace period after the Specified Date. During this period, it will be necessary for the Home Office to process potentially 3 million applications.41 Furthermore, the Government has said that it expects to process applications within 2 weeks.42 However, British in Europe and the3million, advocacy groups for citizens affected by Brexit, said that “a firm commitment to such a 2-week period as sought by the House of Lords has not been forthcoming to date” and that because of “well-documented Home Office problems we have serious doubts about this timeline.”43 The two-week target is more ambitious than, for example, the target time for the UK Passport Office to process “straightforward renewal applications.”44

28.The draft Withdrawal Agreement states that the application process must be “smooth, transparent and simple” and the application forms “short, simple and user-friendly”.45

29.British in Europe & the3million said that the online Settled Status application process is centred on applicants who have previously engaged with the “UK Government, communicate in English and are computer literate.” Those advocacy groups highlighted that the Government has said that services will be provided at some “local libraries and that in exceptional cases home visits will be carried out to assist with applications for the new status. However, the details of this have been scarce.” Furthermore, British in Europe & the3million are concerned that the Home Office “will not be sufficiently funded and equipped”, following budget cuts.46

30.There is considerable scepticism that the Government’s online system for Settled Status and temporary status will be operational in time to start processing applications later this year. Furthermore, depending on the outcome of transition negotiations, there could also be a system to register EU citizens arriving during the transition period. Concerns have been raised by EU citizens in the UK and by the European Parliament about the efficiency and effectiveness of the Home Office’s processes. It is important that the Home Office ensures the online system for settled status and temporary status is operational by the end of this year, although past experience indicates that this may be a challenge for the Department.

Settled Status and those not included in the Withdrawal Agreement

31.The definition of ‘residence’ for establishing Settled Status is based on the Free Movement Directive. Dr Charlotte O’Brien, Senior Lecturer at York Law School in the University of York, and British in Europe and the3million have outlined categories of vulnerable people who are not covered by the Free Movement Directive:

32.The draft Withdrawal Agreement did not cover citizens from the EEA EFTA states and Switzerland who are living in the UK or UK citizens living in those states. However, on 16 February 2018 the Government announced that officials had met with EEA EFTA and Swiss counterparts to discuss a reciprocal extension of the arrangements set out in the Joint Report to one another’s citizens.52

33.The current proposals define ‘residence’ by reference to the provisions of the Free Movement Directive. The Directive does not cover a range of vulnerable categories of people who will be experiencing anxiety over their legal status in the UK. As a matter of priority, the Government must ensure that there are specific provisions and flexibility for such people to ensure eligibility for Settled Status that will cover vulnerable children and adults, particularly women who have had caring responsibilities or have been temporarily unable to work because of domestic abuse. The Government should also ensure that different types of part-time or irregular work are considered fairly and plans detailing this should be published as soon as practicably possible after the March negotiating round.

UK citizens in the European Union

34.The draft Withdrawal Agreement provides flexibility for other Member States to introduce their version of Settled Status for UK citizens, who are resident in their territory. This provision might be relevant as the current draft Withdrawal Agreement does not allow for continued free movement of UK citizens in the EU27 after the Specified Date. Member States could then initiate a process to identify the UK population in their territories so that they could be identified distinctly from those eligible for free movement across the other EU27 countries. Responding to the Joint Report, British in Europe and the3million said:

The EU thus accepted this departure from EU law. At the last minute an option was included in the [Joint Report] so that EU27 countries may require UK citizens in their boundaries to make fresh applications. This was a proposal on which there was no prior consultation. Were this constitutive approach to be applied—in the UK to EU citizens and potentially in EU27 countries to UK citizens—following the UK’s exit, existing EU rights would ‘fall away’ and citizens could potentially be without a legal status with dire consequences for them and their families.53

35.For UK citizens in the EU27 there is no information currently available on whether those countries intend to apply a variation of Settled Status.

36.The draft Withdrawal Agreement would allow EU Member States to require UK nationals in the EU to apply for a new residence document to ensure that their rights are protected beyond a transition/implementation period following the UK’s exit from the EU. While the negotiations on citizens’ rights are ongoing it is unclear whether any Member States are considering the introduction of such a requirement, should free movement for UK citizens in the EU by the Specified Date not be agreed and it becomes an option that is desirable to Member States. The Government should continue to push hard for continued free movement rights for UK citizens in the EU by the specified date and for an EU Member State equivalent to “settled status” for UK nationals living and working in the European Union after the United Kingdom has withdrawn from the EU.

Independent Authority

37.The draft Withdrawal Agreement states that the UK will create an Independent Authority to monitor the citizens’ rights part of the Withdrawal Agreement in the UK. The Independent Authority will have the power to receive and investigate complaints from EU citizens and their family members, and to conduct inquiries on its own initiative, concerning alleged breaches by administrative authorities of their obligations. The Independent Authority will have the right to bring a legal action before a competent UK court or tribunal to seek redress. Furthermore, the Independent Authority will inform the Commission of any such legal actions brought before courts or tribunals and may consult the Commission before taking legal action “and the European Commission may suggest to the Authority to bring such legal actions.”54

38.The Joint Report said that the “scope and functions” of the Independent National Authority, including its role in acting on citizens’ complaints, will be discussed in Phase 2 and reflected in the Withdrawal Agreement. Article 152 in the Commission’s draft Withdrawal Agreement is more expansive including a right to bring legal proceedings and an obligation to inform the Commission of those proceedings.

39.The Secretary of State said that the Government chose to create an Independent Authority, rather than give the task to the Home Office, to monitor the citizens’ rights part of the Withdrawal Agreement. He said that initially the European Commission wanted to oversee it and “that was not going to fly”. He then gave two reasons for why that was the case. He said:

One is that much of this is about anxiety rather than reality, about people being concerned. We wanted to do something that met any concerns, real or imagined.

Second, he said that having independent oversight bodies and ombudsmen were common, and he thought this would be “a way of championing [citizens’] rights and making sure they delivered, in a way that was visible, transparent and clearly designed to deliver on the deal.”55

40.We agree with the Government’s proposal to establish an Independent Authority to “champion” the rights of EU citizens in the UK. We recommend that the Government publish draft proposals on how the Independent Authority will carry out its work. There are a number of important ways in which Parliament can have a role in ensuring the independence of those in charge of public bodies. A number of roles are subject to pre-appointment hearings with departmental select committees. For example, the Treasury Select Committee has a statutory veto over the appointment and dismissal of the Chair of the Office for Budgetary Responsibility. The appointment of the Chief Executive of the Financial Conduct Authority is also subject to a pre-appointment hearing with the Treasury Select Committee and the Government has accepted that if it disagrees with a negative report from the Committee, it will table a motion disagreeing with the Committee in Government time. We call on the Government to publish the details of arrangements for appointing the Chair of the Independent Authority as soon as possible, including which Committee it would envisage as having a statutory veto or the right to an appointment hearing.

Northern Ireland/Republic of Ireland

41.The Commission’s draft Withdrawal Agreement and the Joint Report both stated that there will be no “physical infrastructure or related checks and controls” on the border between Northern Ireland and the Republic of Ireland.56 The Joint Report presented three options to meet this objective:

[Option A:] The United Kingdom’s intention is to achieve these objectives through the overall EU-UK relationship. [Option B:] Should this not be possible, the United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland. [Option C:] In the absence of agreed solutions, the United Kingdom 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.57

42.The Commission’s draft Withdrawal Agreement set out its interpretation of how Option C should be translated into a legal text that reflected the progress of the negotiations at the time that it was published. The draft Withdrawal Agreement proposed a “common regulatory area” which constitutes “an area without internal borders in which the free movement of goods is ensured and North-South cooperation protected”.58 Under this proposal, Northern Ireland would be considered “part of the customs territory” of the European Union59 and would require Northern Ireland to follow European Union law on goods, agriculture and fisheries, the Single Electricity Market, certain environmental standards and state aid.60 Michel Barnier described this as “the backstop solution” and that it was “the only way to guarantee that [the EU and UK] joint commitments will be upheld in all circumstances, as the Joint Report requires.”61

43.The Prime Minister has rejected this proposal because it would “undermine the UK common market and threaten the constitutional integrity of the UK by creating a customs and regulatory border down the Irish Sea” and that “no UK Prime Minister could ever agree to it”.62 The Prime Minister stressed that the Joint Report had “made it clear that there should continue to be trade between Northern Ireland and the rest of the United Kingdom, as there is today.”63 The Prime Minister was referring to paragraph 50 of the Joint Report which stated that there would be:

In the absence of agreed solutions, as set out in the previous paragraph, the United Kingdom will ensure that no new regulatory barriers develop between Northern Ireland and the rest of the United Kingdom, unless, consistent with the 1998 Agreement, the Northern Ireland Executive and Assembly agree that distinct arrangements are appropriate for Northern Ireland. In all circumstances, the United Kingdom will continue to ensure the same unfettered access for Northern Ireland’s businesses to the whole of the United Kingdom internal market.64

This paragraph of the Joint Report was not translated into legal text in the draft Withdrawal Agreement. Although that may be because this is an internal matter for the UK. The Government has consistently ruled out any form of economic border in the Irish Sea. The Secretary of State said, “we have always said that there is not going to be a border in the Irish Sea and that continues to apply. We are not going to have any breakup of the United Kingdom off the back of what we are doing here.”65

44.While the Government has rejected the Commission’s interpretation of Option C, it has not, so far, set out its own interpretation of what ‘full alignment’ means in any detail. When updating the House on the Joint Progress Report, the Prime Minister stated that the Government’s intention is to deliver a “deep and special partnership”66 with the European Union, an essential part of which involves an agreement on the Irish border. She went on:

Because we recognise the concerns felt on either side of the border, and we want to guarantee that we will honour the commitments we have made, we have also agreed one further fall-back option of last resort. If we cannot find specific solutions, the UK will maintain full alignment with those rules of the internal market and the customs union that, now or in the future, support north-south co-operation, economic co-operation across the island of Ireland and the protection of the Belfast agreement.67

The Government has said that full alignment could include mirroring EU regulations to provide equivalent regulations or having our own regulations.68 It did not mean harmonisation. However, some witnesses said that it was difficult to draw conclusions on the scope of the commitment based on some of the phrasing in the Joint Report. For example, Professor Dougan said that the concept of the all-island economy “could be as broad or as narrow as you really want it to be”.69 When we asked the Secretary of State what was included in the all-island economy, he said:

It was things like the single electricity market we had in mind, which we will somehow have to maintain in place if we are going to have the best outcome for north and south, in terms of cost of electricity, reliability, seasonal adjustment and so on.70

45.The Secretary of State said that full alignment would be limited to six areas of north-south cooperation listed in the Good Friday Agreement: transport, agriculture, education, health, environment and tourism.71 Professor Dougan said that the ‘north-south co-operation’ phrasing in the Joint Report was a “relatively clear criterion, in the sense that the two sides have been working on drawing up a list of areas that are the subject of north-south co-operation, underpinned by EU law and policy.”72 In Dublin, we heard that 142 potential areas of cooperation had been identified in preliminary work as part of a “mapping exercise”, although this has not been published.73 In evidence to the Northern Ireland Affairs Committee, Mr Robin Walker MP, Parliamentary Under-Secretary of State, Department for Exiting the European Union said that the 142 areas of cooperation related to:

existing areas of co-operation; these are areas that are either covered under the six principles of the Belfast agreement and the six co-ordination bodies there, or they are areas where the Northern Ireland Executive has signed off on co-operation that exists between the north and the south under the auspices of the North-South Ministerial Council.74

It is worth noting that the Belfast Agreement was drawn up at a time when both the UK and the Republic of Ireland were members of the EU so many of these issues did not arise.

46.As at present, it is clear from the draft Withdrawal Agreement and statements surrounding it, that the Commission and the Irish Government do not believe that a commitment to full alignment that is limited to only the six areas of cooperation under the Good Friday Agreement would encompass all the necessary product standards for goods laid down in EU legislation. Their view is that a frictionless border requires cooperation on product standards, customs duties and VAT. Both sides would have to agree a system in which duties were collected and not evaded, despite an absence of customs controls at the border. Products entering either market would need to continue to meet the standards of that jurisdiction without border checks.

47.On 24 January 2018, the Secretary of State said that the UK would not be following EU rules to the letter but rather it would seek to achieve the same outcomes through different regulatory regimes. He said, “The point of full alignment… is that we intend to get outcome alignment, not harmonisation.”75 On 20 December 2017, Professor Anand Menon said:

the missing element in all this is the question of adjudication. Lurking in the text of this document is “we will be aligned; trust us”, and that is simply not going to fly for the European Union, because the big question is who gets to say whether or not the rules are the same? What is the form of legal adjudication?76

Article 11 of the Protocol on Ireland and Northern Ireland to the Commission’s draft Withdrawal Agreement proposed the extension of EU supervision and enforcement to Northern Ireland. This would involve CJEU rulings having direct effect in Northern Ireland.

48.When we visited Dublin in January, Irish politicians, including Simon Coveney, said that the Joint Report represented a clear agreement that there would be no regulatory divergence which could lead to customs checks at the border. We were also told that the obligation to maintain full alignment had replaced the original wording “to avoid regulatory divergence”. EU accession states were expected to achieve “full alignment” of regulations with the EU as part of the accession process; so, the words “full alignment” in paragraph 49 of the Joint Report should be seen in this context. And the Taoisearch has stated that any form of border analogous to that of the US-Canada border for example, “is definitely not a solution that we can possibly entertain.”77

49.During our visit to Armagh, concerns were raised with us about any impact on daily life of any changes on the border or changes arising from Brexit.

50.We note that the draft legal agreement does not reflect all the options in the December Joint Report. We support the Government’s rejection of the Commission’s interpretation of what constitutes the previously agreed fall-back position of full alignment in the draft Withdrawal Agreement in the context of the Joint Report’s commitment to uphold the Good Friday Agreement. This is because the UK Government’s commitment was to the United Kingdom—not just Northern Ireland—maintaining “full alignment” with those rules of the internal market and the customs union which support north-south co-operation, the all-island economy and the protection of the 1998 agreement. Whatever solution is reached to resolve issues around the Border must involve the whole of the UK. While we recognise it is the least favoured option for both the Government and the European Union, it has, potentially, far reaching consequences for Northern Ireland, the United Kingdom and Ireland. The Irish Government has said that it sees the Joint Report as an unambiguous commitment to there being no divergence that could lead to a hard border, including any physical infrastructure or related checks and controls. We note that Michel Barnier has already stated that innovative and imaginative solutions must be sought to deal with this issue and believed that given political willingness there are solutions that are worthy of consideration. Because the UK Government has not explained what full alignment means, it should now provide answers to the following questions:

Paragraph 47 of the Phase 1 Agreement said, “The two parties have carried out a mapping exercise, which shows that north south co-operation relies to a significant extent on a common European Union legal and policy framework”. We believe the Government should publish the results of this mapping exercise in order to provide clarity about what is covered by north south co-operation.

51.If the Government is unhappy with sections of the draft withdrawal agreement then it should produce its own suggested legal text.

Government’s proposed solutions

52.The Government’s preference for maintaining a frictionless border is through the overall EU-UK relationship.78 However, the Government has asked for Options A and B—the Future Partnership and ‘specific solutions’—to be considered together.79 ‘Specific solutions’ appears to refer to the implementation of new technical and administrative processes to avoid the need for customs checks. Options A and B are not set out in detail in the draft Withdrawal Agreement as they are contingent on the Phase 2 negotiations which are expected to begin in March. Nevertheless, the draft Withdrawal Agreement allows for a “subsequent agreement” to supersede Option C:

Should a subsequent agreement between the Union and the United Kingdom which allows addressing the unique circumstances on the island of Ireland, avoiding a hard border and protecting the 1998 Agreement in all its dimensions, become applicable after the entry into force of the Withdrawal Agreement, this Protocol shall not apply or shall cease to apply, as the case may be, in whole or in part, from the date of entry into force of such subsequent agreement and in accordance with that agreement.80

53.Last August, the Government published a position paper that included two technical and administrative proposals. Those were:

Evidence from Jon Thompson, the Chief Executive and Permanent Secretary of HM Revenue and Customs, suggested that the streamlined customs arrangement proposal is the most developed of the two within Government. He said:

First of all, the assumption is that what is adopted in the future is a negotiated settlement with the EU, in which the highly streamlined customs arrangement is adopted. That is a basket of changes that essentially keeps all of the good features of trading with the European Union: for example, you stay in the Common Transit Convention and there is mutual recognition of the Authorised Economic Operator scheme and so on and so forth.

Because of the unique situation of Ireland and Northern Ireland, however, you need to add on three additional things, which are set out in the “Northern Ireland and Ireland” [position] paper. First of all, that is to maximise the Authorised Economic Operator scheme, which you were asking about. Secondly, it is to seek a derogation for small traders, because there needs to be a recognition that the Ireland-Northern Ireland border is very much a local economy in which traders cross the border on a regular basis. We are seeking a derogation for small traders, with the definition of small to be negotiated. Thirdly, we want to move to a system of self-assessment, which is set out in the Union Customs Code and is the direction of travel for the European Union.

If you take the highly streamlined customs arrangements and you add those three things on, we believe that would cover the vast majority of the trade between Northern Ireland and Ireland. If there were any checks, they would be risk and intelligence-based, and they would take place well away from the legal border.82

Mr Thompson also referred to the considerable costs associated with HMRC border contingency planning for the whole of the UK, involving the recruitment of “somewhere between three and five thousand, probably at the upper end of that range” new staff at a cost of “the order of £200 million extra to our current budget… on an annual basis.”83

54.The Prime Minister’s most recent speech on the Future Partnership referred to the two technical and administrative proposals that were presented in the August 2017 position paper and emphasised a desire for an “agreement on customs” as part of the Future EU-UK Partnership.84The Irish Government has said, in broad terms, that it favours maintaining a frictionless border through the future partnership. In February, Leo Varadkar, the Taoiseach, said, “We both prefer Option A as the best option by which we can avoid any new barriers [on the] border in Ireland, and that is through a comprehensive customs and trade agreement involving Britain and Ireland.”85 In February, in response to the publication of the draft Withdrawal Agreement, Simon Coveney, the Tanaiste and Foreign Minister, said:

We have always been clear that our preference is to avoid a hard border through a wider future relationship agreement between the EU and the UK, a view we share with the British government. We are also committed to exploring specific solutions to be proposed by the UK. At the same time, there is now the necessary legal provision to implement the backstop of maintaining full alignment in Northern Ireland with the rules of the Single Market and Customs Union necessary to protect North South cooperation and avoid a hard border. This is very much a default and would only apply should it prove necessary.86

55.We agree with the Prime Minister who said in her speech on 2 March 2018 that, “it is not good enough to say, ‘We won’t introduce a hard border; if the EU forces Ireland to do it, that’s down to them’. We chose to leave; we have a responsibility to help find a solution.”87 The political and technical challenges of maintaining a frictionless border outside the Single Market and Customs Union are likely to be significant. In our last report, we concluded that we did “not see how it was possible to reconcile there being no border with the Government’s policy of leaving the Single Market and the Customs Union” and called upon the Government to set out in more detail how it would be done.88 There is no example89 of a border between the EU and a third country that is as frictionless as that which currently exists between Northern Ireland and the Republic of Ireland. Even EFTA-EEA countries, which are closely aligned with the European Union, are still subject to customs, VAT and rules of origin checks for their exports into the Single Market. Michael Dougan, Professor of European Law and Jean Monnet Chair in EU Law at the University of Liverpool, described the example of the Norway/Sweden border—a border between an EEA country and an EU country. He said:

the Norway/Sweden border is about as closely integrated a border as you can get without being in the Customs Union. Bear in mind that there are no customs tariffs or duties of any kind on most categories of goods between the EEA states that are also EFTA members and the EU member states… There are no internal tariffs between those countries; there are only the external tariffs, which involve third countries. There is pretty much full regulatory alignment and convergence and cooperation within the context of the EEA agreement, but there is still a customs border. It still has to function as a customs border… There is a common border zone between Norway and Sweden, where the customs officials can travel across the border freely as if it were a single territory, but it is still a customs border, and that is about as co-operative and close as you can get. You still have checks, formalities, physical infrastructure and so on.90

56.In November 2017, the European Parliament’s Committee on Constitutional Affairs (AFCO) commissioned a report to identify international standards and best practices for creating “a smooth border experience” on the island of Ireland. The report was authored by Lars Karlsson, a former Director of the World Customs Organization and Deputy Director General of Swedish Customs. It examined three case studies, the Norway/Sweden border, the United States/Canada border and the Australia/New Zealand border for examples of international best practice. However, the report assumes that some customs infrastructure might be necessary. The report provided an example of a “normal border crossing” facilitated by the report’s proposals. In the example, a company transporting goods would be pre-registered in an AEO database and the driver would be pre-registered in a Trusted Commercial Travellers database. A simplified export/import declaration would be automatically processed and risk assessed. Once at the border, the driver’s mobile phone would be sent a release-note and a permit that would open a “gate automatically when the vehicle is identified, potentially by an automatic number plate registration system.” A post-import supplementary declaration would also be submitted in the import country within a given time period. Any necessary controls would be carried out by “mobile inspection units” from the EU or the UK with a “right of access to facilities and data”.91 On 5 March 2018, the Prime Minister told the House of Commons that the report “does give some very good proposals for solutions.”92 We note, however, that the report envisages infrastructure on the border—i.e. gates and staffed border posts—which would appear to rule it out as an answer given the Government’s commitment to no physical infrastructure or related checks and controls. The Prime Minister also said that the customs arrangements being looked at included the border between the United States and Canada, although that border cannot be described as ‘frictionless’.

57.For a border that is more frictionless than that of Norway/Sweden, a solution that is bespoke to the unique circumstances of the island of Ireland will be necessary. However, there is a risk that other Member States may not accept a situation where goods entering the European Union through Ireland are subjected to less stringent checks than those entering through other Member States. Without a common system for VAT collection, such a situation could increase evasion of customs duties and VAT as businesses divert their goods into the European Union through Northern Ireland or vice versa. Professor Anand Menon, Director of UK in a Changing Europe, said that it was difficult to identify a precedent for the EU taking a flexible approach to border requirements. He gave the example of the Poland/Ukraine border:

The Poles had a very open border with Ukraine to the east, and as a result western Ukraine flourished economically, because there was a lot of trade going on with the more developed Polish economy. The Poles begged the European Union to be flexible when it came to imposing an external EU border, because they said, absolutely rightly, “This will have a very detrimental effect on the west Ukrainian economy”. The European Union just ignored that and imposed the border—it is an external EU border—and showed very little in the way of flexibility about that.93

The Committee recognised that no comparison of border issues would be exact with the situation on the Northern Ireland Border.

58.John Bourne, Policy Director of Animal and Plant Health for the Department for Environment, Food and Rural Affairs, said, “Clearly, there is two-way trade across the border. We can decide what we do on our side, but we cannot determine what happens on the other side.”94 Jon Thompson said, “How exactly the French, the Dutch, the Belgians or the Irish eventually react is not something over which the Government, civil servants or indeed UK plc has much influence.”95

59.Although the Prime Minister set out in more detail the nature of its technical and administrative proposals there remains the question of whether they could be operational before the end of the transition/implementation period. For example, the Government has said that it plans to use the EU’s Authorised Economic Operator scheme, or a recognised equivalent, to reduce customs requirements at the border. However, according to the Institute for Government, “the accreditation process for AEO status can take around six months for businesses, meaning that clear guidance is required early to ensure that traders are ready to make the most of the scheme.”96 This would involve the Government taking steps to speed up the process.

60.The issue of the border is not only one of trade. It has wider political implications and is also an issue of law enforcement and security. Evidence from the PSNI pointed out the security implications of any physical infrastructure at the border. PSNI Assistant Chief Constable Stephen Martin told us:

If there was infrastructure such as you describe, buildings and people that reemphasised the border in a physical, tangible, visible way, I think it is highly foreseeable that dissident republicans would seek to take action against that and that could include attacking the buildings and the people.97

His colleague Deputy Chief Constable Drew Harris stressed to us the importance of common EU legal processes and databases in current law enforcement. He said,

We would also highlight the European arrest warrant. It is very important for both the speedy removal of suspects to other nations but also bringing suspects to this nation. In Northern Ireland last year, we were engaged in 69 European arrest warrant movement of individuals. We also access the Schengen information system, which is a very important system for us. We use it at our ports in addressing the point about human trafficking.

I would highlight Eurojust, which is a joint investigation team. That has been very successful, particularly with human trafficking and drug trafficking… We would also highlight the Prüm system—the hit/no hit by a metric check—and the vehicle recognition system.98

61.The Joint Report and the draft Withdrawal Agreement commits to there being no “physical infrastructure” or “customs checks” on the Northern Ireland/Republic of Ireland border. We know of no international border, other than the internal borders of the EU, that operates in the frictionless manner of the border that is between Northern Ireland/Republic of Ireland. When the UK leaves the European Union, it will become a third country. Even the border between Norway (an EEA member state) and Sweden (an EU member state) requires some checks and physical infrastructure.

62.We agree with both sides that maintaining a frictionless border through the Future Partnership and Specific Solutions is the best option. We look forward to scrutinising the Government’s proposals, when they are presented. In their absence, however, we remain of the view that we cannot see how it will be possible to maintain an open border with no checks and no infrastructure if the UK leaves the Customs Union and the Single Market.

Belfast/Good Friday Agreement

63.In the Joint Report, both the UK and the European Union affirmed “that the achievements, benefits and commitments of the peace process will remain of paramount importance to peace, stability and reconciliation” and that the Good Friday Agreement must be protected “in all its parts, and that this extends to the practical application of the 1998 Agreement on the island of Ireland and to the totality of the relationships set out in the Agreement.”99 Furthermore, the UK and the European Union “recognised the need to respect the provisions of the 1998 Agreement regarding the constitutional status of Northern Ireland and the principle of consent” and that the UK “continues to respect and support fully Northern Ireland’s position as an integral part of the United Kingdom, consistent with the principle of consent.”100

64.10 April 2018 will be the twentieth anniversary of the signing of the Good Friday Agreement. We welcome the commitment from the Government, as co-guarantor to the Agreement, and from the EU to protect the Agreement “in all its parts”. We also welcome the Government’s commitment to support fully “Northern Ireland’s position as an integral part of the United Kingdom.” There must be no hard border North-South or East-West.

Financial Settlement

65.The Government has estimated that the Financial Settlement will amount to between £35 and £39 billion.101 This will be spread over many years and will add up to less than what would have been paid had the UK remained a Member State. The amount reflects the obligations the UK would have had in the event of remaining a Member State for the Multiannual Financial Framework that ends at the end of 2020. It also reflects EU assets of which the UK is entitled to a share. The Secretary of State said that the size of the Financial Settlement would be unlikely to rise during Phase 2.102 The Office for Budget Responsibility has set out the composition and timeline in the following charts:

Figure 1: Settlement components and time periods, OBR

Figure 2: Annual path of financial settlement payments, OBR103

66.In response to a question on the Spring Statement about the use of the savings arising from lower contributions to the EU budget, the Chancellor said that the OBR:

has assumed that any saving from a lower contribution to the European Union will be recycled to fund things that would have been funded by the EU, but will no longer be so. How we choose to use that money and what our priorities are will, of course, be an issue for this Parliament, but we should note that we have already made certain commitments—to our agricultural community, for example—to maintain spending at EU levels until the end of this Parliament.104

67.During a statement to the House of Commons on 5 March 2018 the Prime Minister confirmed that the Financial Settlement agreed as part of the Joint Report did not include financial contributions that might be required in order to retain UK membership of key European Institutions. She said:

We also want to explore the terms on which the UK could remain part of EU agencies, such as those critical to the chemicals, medicines and aerospace industries. That would mean abiding by the rules of those agencies and making an appropriate financial contribution, and the UK would also have to respect the remit of the ECJ in that regard.105

68.The Joint Report stated that the UK and the EU have agreed a methodology by which the Financial Settlement will be calculated.106 It notes that the UK will contribute to the European Union’s annual budgets for 2019 and 2020. The 2020 budget will most likely be adopted without a vote for the UK.

69.The UK has also agreed to settle its share of the Reste à Liquider (RAL), which is the difference between the EU’s expenditure commitments undertaken and the actual payments made, as at 31 December 2020. These commitments would have been made under the Multiannual Financial Framework (MFF) which was agreed by the UK.107 By the end of 2020, the RAL is expected to amount to €254 billion (£223 billion). The UK’s share is apparently 12.7% or approximately 28.3 billion, based on the UK’s average share of contributions in the current budgetary cycle.

70.The UK will also contribute a share of the EU’s other financial (contingent) liabilities, including staff pensions and the €1.8 billion (£1.58 billion) macro-financial assistance package for Ukraine. The EU will repay the UK’s €3.5 billion (£3.1 billion) of paid-in capital to the European Central Bank and European Investment Bank (EIB), the latter in twelve annual instalments.108 However, the UK has committed to remain liable to provide capital to the EIB as necessary for operations outstanding on the withdrawal date, including a maximum of €35.7 billion (£31.2 billion) of callable capital if the EIB were to be in financial distress. These liabilities will decrease as the EIB’s loans outstanding on the UK’s withdrawal date amortise.

71.In 2019 and 2020, all EU funding programmes—including Horizon 2020, the Cohesion Fund and the Regional Development Fund—will remain open to UK participants.109 This will entitle UK beneficiaries to payments from those programmes for projects that were agreed to before 31 December 2020, even if actual payments are made after that date. Although the provisional agreement takes note of the UK’s intention to participate in some EU programmes after 2020, it does not make any specific provision for such participation. It is expected that this will be included in the negotiations on the transition/implementation period.

72.The draft Withdrawal Agreement said that the UK will remain a participant in the 2014–2020 European Development Funds (EDFs).110 The EDFs fund development assistance projects in the African, Caribbean and Pacific Group of States.

Financial Settlement and the Future Partnership

73.The Secretary of State said that the Financial Settlement was “conditional” on the UK securing a Free Trade Agreement111 and that was one reason a trade deal needed to be concluded by October.112 This conditionality is not specified in the Joint Report. He said that he expected the UK “to make the payment during the course of the transition or the implementation period.” However, he also said that the Future Partnership will “take some time to conclude, as the Canadian one did… and that time will happen during the implementation period.”113 This means that the UK will have already paid a proportion of the Financial Settlement before the Future Partnership is ratified. Professor Anand Menon, Director of UK in a Changing Europe, said:

For the European Union, [“nothing is agreed until everything is agreed”] is a reference to Phase 1 … From the EU’s perspective, there is no link between the Financial Settlement and any future trade talks, for a very practical reason … We are not going to be in a position to sign off a trade deal until several years after we have been paying the money we have already agreed to pay anyway, because this agreement has to be signed and sealed in October next year. The timing is simply wrong.114

74.We welcome the agreement of the Financial Settlement in the Joint Report which enabled the EU27 to agree that sufficient progress had been made and that negotiations could move to Phase 2. The Government has outlined its view that the payment of the Financial Settlement is contingent on the agreement of the Future Partnership. However, the treaty establishing the Future Trade Agreement part of the Future partnership will probably not be ratified until after the UK has already made a substantial portion of these payments.

10 Comprehensive sickness insurance is required for those who are not employed/self-employed and for students

11 Or a single absence less than 12 months in certain circumstances (birth, severe sickness, etc.), or longer for military service.

12 For example, Article 17, 1(b) states, “the deadline for submitting the residence document application shall not be less than two years from the end of the transition period or from the date of arrival in the host State, whichever is later”. See also, Commission, Questions & Answers: Publication of the draft Withdrawal Agreement between the European Union and the United Kingdom, 28 February 2018

13 Since the Joint Report was agreed, the EU and the UK have disagreed on the definition of the ‘Specified date’. See Transition/implementation Period chapter, Citizens’ rights

14 Commission & Department for Exiting the European Union, 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 5

15 Q401 [Professor Dougan]

19 British in Europe and The3million, Securing Citizens’ Rights under Article 50, 23 January 2018

21 British in Europe and The3million, Securing Citizens’ Rights under Article 50, 23 January 2018

22 Commission, Programme of EU-UK Article 50 negotiations, 16 January, 2 February, 16 February, 23 February, 5 March

23 Q761

24 European Commission, Joint Technical Note on Citizens’ Rights, 8 December 2018

29 See also Q422

36 Permanent residence is an EU law concept. At present, EU law entitles EU citizens to permanent residence after five years of lawful, continuous residence in another Member State. The conditions for acquiring permanent residence and the rights that go with it are set out in the 2004 Free Movement Directive. EU citizens are not required to apply for permanent residence but may choose to do so.

37 The Joint Report does not mention comprehensive sickness insurance but guidance issued by the Government says that this “will no longer be considered as a requirement for acquiring Settled Status”.

38 The Government has said that exchanging a Permanent Residence document for a Settled Status document will incur “no cost”. The cost of residency documents otherwise will not exceed that imposed on nationals for the issuing of similar documents. The Government has previously used the cost of issuing a UK passport as a guide. An adult’s passport costs £72.50 regardless of how you apply. The Government recently announced that, as of 27 March 2018, the price of a British passport is to rise by £12.50 to £85 for postal applications and rise by £3 to £75.50 for online applications.

39 Article 17(c).

40 Home Affairs Committee, The work of the Home Secretary, oral evidence 17 October 2017, Q19. See also Civil Service World, Home Office to recruit 1,500 more staff to deal with Brexit, Civil Service World, 18 Oct 2017

41 The Home Affairs Committee has said, “The UK Government’s approach means that registration casework of this cadre of EU nationals will continue for up to five years beyond the two-and-a-half-year window as those initially granted temporary status may then pursue Settled Status when eligible to do so.” See, Home Affairs Committee, Home Office delivery of Brexit: immigration, Third Report of Session 2017–19, HC 421, footnote 9.

47 NEG0008 Dr Charlotte O’Brien

48 NEG0008 Dr Charlotte O’Brien

49 NEG0008 Dr Charlotte O’Brien

51 Third country EU-derived rights include those from the Zambrano, Metock and Surinder Singh cases. Zambrano allows a non-EU national to reside in the UK if they are a carer of an EU national who is dependent upon them to exercise their Treaty rights. Metock allows a non-EU national in the UK illegally to remain if they form a genuine relationship with an EU citizen. Surinder Singh allows non-EU national partners who have been exercising Treaty rights in another Member State to become resident in the UK under EU, rather than UK, rules.

52 Department for Exiting the European Union, Plans outlined to extend ‘Settled Status’ deal to citizens from Iceland, Liechtenstein and Norway, 16 February 2018. EEA EFTA citizens are covered by free movement provisions through the EEA Agreement. This allows them to move to the UK and other EU states, and UK citizens can move to the EEA EFTA states.

53 British in Europe and The3million, Securing Citizens’ Rights under Article 50, 23 January 2018, page 5

56 Commission & Department for Exiting the European Union, 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 43

57 Commission & Department for Exiting the European Union, 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

60 Commission, Draft Withdrawal Agreement, European Commission Draft Withdrawal Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, 28 February 2018, Articles 4–9 The draft Withdrawal Agreement states that with regards to State Aid, “only measures that affect trade between the territory of Northern Ireland and the Union shall be considered as aid within the meaning of Article 107(1) TFEU.”

62 HC Deb 28 February 2018, Vol. 636, Col. 823. The Prime Minister repeated the Government’s commitment to there being no “customs and regulatory border down the Irish Sea”. See, Prime Minister, PM speech on our future economic partnership with the European Union, 2 March 2018

63 HC Deb 28 February 2018, Vol. 636, Col. 823

64 Commission & Department for Exiting the European Union, 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 50

66 HC Deb 11 December 2017, Vol. 633, Col. 27

67 HC Deb 11 December 2017, Vol. 633, Col. 27

68 On 11 December 2017, the Prime Minister said, “Full alignment means that we will be achieving the same objectives. I set out in my Florence speech that there are a number of ways in which we can approach this. There will be some areas where we want to achieve the same objectives by the same means. In others we will want to achieve the same objectives by different means. If we look at the areas covered currently by north-south co-operation, we see there are six of those areas. Two of them are not covered generally by the acquis—education and health—but there are other issues, such as the environment, waste and water management, the electricity market, agriculture, and questions relating to road and rail transport.” See, HC Deb 11 December 2017, Vol. 633, Col. 42

71 Andrew Marr Show, Interview with the Rt Hon. David Davis MP [transcript], 10 December 2017, page 7

73 The ‘mapping exercise was also referred to in the Joint Report. See, Commission & Department for Exiting the European Union, 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 47

74 See Northern Ireland Affairs Committee, Oral evidence: The land border between Northern Ireland and Ireland, HC 329, 29 November 2017, Q232

78 Liaison Committee, Oral evidence: The Prime Minister, HC 637, 20 December 2017, Q3

81 Department for Exiting the European Union, Future customs arrangements, 15 August 2017. See also, Department for Exiting the European Union, Northern Ireland and Ireland, 16 August 2017

82 Department for Exiting the European Union, Northern Ireland and Ireland: position paper, 16 August 2017 & Q191 [Jon Thompson]

88 Exiting the EU Committee, The progress of the UK’s negotiations on EU withdrawal, Second Report of Session 2017–19, HC 372, 1 December 2017, para 47

89 Except Vatican City

90 Q393 [Professor Dougan]

92 HC Deb 5 March 2018, Vol. 637, Col. 37

94 Q191 [John Bourne]

96 Institute for Government, Implementing Brexit: Customs, 11 September 2017

99 Commission & Department for Exiting the European Union, 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 42

100 Commission & Department for Exiting the European Union, 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 44

101 HC Deb 11 December 2017, Vol. 633, Col. 44

103 Office for Budget Responsibility, Economic and fiscal outlook – March 2018, 13 March 2018, Annex B

104 HC Deb 13 March 2018, Vol. 637, Col. 736

105 HC Deb 5 March 2018. Vol. 637, Col. 26

106 Commission & Department for Exiting the European Union, 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 57 & 58

107 MFFs must be adopted by unanimity, and the UK voted in favour of the most recent one (adopted in 2013). There is currently RAL outstanding from the 2007–13 and 2014–2020 MFFs, but outstanding commitments from the former are expected to be fully paid out by December 2020.

108 There will be 11 instalments of €300 million. The final, twelfth instalment will amount to €195 million.

109 The European Agricultural Guarantee Fund, which provides direct payments for farmers under the CAP, would not be open to UK farmers in 2020. This is because the CAP works on a reimbursement basis, where Member States pay farmers in one year and then get reimbursed by the EU in the following year. As a result, direct payments that happen in 2020 will be covered in the EU budget in 2021 and therefore the next MFF. However, the Government has already guaranteed that the current level of agricultural funding under CAP will be upheld until 2020, as part of the transition to new domestic arrangements.

Published: 18 March 2018