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

4Future Partnership


115.The Prime Minister has said consistently that the Government does not favour the adoption of any existing model for its Future Partnership with the European Union.154 The Secretary of State said that the Government would seek a “Canada Plus-Plus-Plus” agreement, signalling a preference for an agreement that was more comprehensive than the EU-Canada trade and security agreement (CETA) and inclusive of financial services.155 Donald Tusk has said that the only option would be an off the shelf Free Trade Agreement.156 Michel Barnier said that the future economic relationship will “have to work on a model that is closer to the agreement signed with Canada”, based on the UK Government’s red lines, as outlined in Figure 4.157

‘EU Exit Analysis—Cross Whitehall Briefing’

116.HM Treasury has modelled the economic implications of three “off the shelf” options for the UK’s future trade relationship with the European Union—an “average” Free Trade Agreement (FTA) with the EU,158 membership of the European Economic Area (EEA) and World Trade Organization (WTO) Most Favoured Nation rules (a ‘no deal’ scenario). HM Treasury did not model the effects of a bespoke ‘deep and comprehensive’ Free Trade Agreement with the EU—the Government’s end state objective—presumably because it has not set out in precise terms what this would entail. However, during the Commons debate on the Exit Analysis, the Government committed to “provide Parliament with the appropriate analysis it needs to make a decision on the final deal at the time that we vote.”159

117.The high-level results of the modelling, entitled ‘EU Exit Analysis—Cross Whitehall Briefing’ (‘EU Exit Analysis’), was leaked to Buzzfeed, an online news website, which published a report on the contents on 29 January 2018.160 Other media outlets reported extracts subsequently.161

118.On 31 January 2018, the House of Commons passed a binding motion for the EU Exit Analysis to be “provided to the Exiting the European Union Committee and made available to all Members on a confidential basis as a matter of urgency.”162 The Government complied and provided the Committee with the EU Exit Analysis on 6 February 2018. In his letter to the Committee that accompanied the EU Exit Analysis, the Secretary of State said that it should not be placed in the public domain.163 The Government said that parts of the analysis were “negotiation-sensitive”, that the “document is preliminary, unfinished and has only very recently been presented to Ministers in any form at all”, contains a large number of caveats, and sets out on every single page that this is “draft analytical thinking with preliminary results”, and that it does “not yet reflect this Government’s policy approaches and does not represent an accurate reflection of the expected outcome of the negotiations.”164

119.Ministers said on 31 January 2018 that the EU Exit Analysis would be provided to the Devolved Administrations at the same time as the Exiting the EU Select Committee. Robin Walker MP, Parliamentary Under Secretary of State for the Department of Exiting the European Union, said

We do intend to make this information available to the devolved Administrations, as we did with the previous reports that we made available to this House. It is then a matter for the devolved Administrations to ensure that such documents are handled with appropriate confidentiality; we have no objection in principle to their being shared with Members of the devolved legislatures on the same basis of confidentiality.165

However, the Scottish Government’s position is that the EU Exit Analysis should be made public. On 31 January, Michael Russell MSP, the Scottish Government’s Minister for UK Negotiations on Scotland’s Place in Europe, wrote to the Secretary of State for Exiting the European Union and said:

As you are aware the Scottish Government considers that the public have a right to know the impact on jobs and living standards of the UK Government’s decision to pursue the UK’s exit from the EU and therefore that this analysis should be made publicly available. Further, this is not our analysis and we do not see it as our responsibility to make arrangements on confidential handling. I want to be clear that if you send the analysis to us we will make it public.166

The Government has not yet shared the EU Exit Analysis with the Devolved Administrations.

120.On 21 February, we considered the EU Exit Analysis provided subsequent to the Humble Address of 31 January. We agreed to write to the Secretary of State to inform him that the Committee was minded to publish the Analysis but noting that we would consider any request that he made to redact specific details on the basis that they were either sensitive to the negotiations, market sensitive or commercially confidential.167 The Chair also explained that the Committee had considered that “most of the substantive information in the document was already in the public domain and the public interest was better served by allowing this information to be considered in its full context rather than selectively quoted”.168 Following discussions with the Department, on 8 March, the Committee published the Exit Analysis with the exception of Annex B.169

121.The preliminary modelling contained in the Exit Analysis indicates the cumulative effect of each of the three models considered on UK economic growth over a period of 15 years as follows:

a)EEA-Type scenario: GDP minus 1.6%;

b)FTA-Type scenario: GDP minus 4.8%; and

c)WTO scenario: GDP minus 7.7%.

The Analysis also modelled likely effects on different sectors of each of these scenarios and the likely effect on each region and nation of the UK. The Scottish Government published its own economic assessment of the impact of Brexit on 15 January 2018.170

122.The Government’s EU Exit Analysis modelled the economic impact of three scenarios for the UK’s Future Partnership with the European Union—an “average” Free Trade Agreement with the EU, membership of the European Economic Area and World Trade Organization Most Favoured Nation rules (a ‘no deal’ scenario). The Government is only now starting to measure the economic consequences of different EU-UK trade models. It is therefore concerning that the Government drew red lines on the Future EU-UK trade relationship without having conducted any assessment of the possible impact of these red lines on the UK economy. Moreover, there is no evidence that the Government has modelled the impact of its preferred end state relationship with the European Union.

Future Partnership UK negotiation objectives

123.In February and March 2018, the Prime Minister made two wide ranging speeches on the Future EU-UK Partnership.

124.On 17 February 2018, the Prime Minister gave a speech on future EU-UK security cooperation. She said that the UK was “ unconditionally committed to maintaining” European security. Furthermore, the Government would seek continued involvement in pan-European crime fighting agencies such as Europol and Eurojust, as well as the European Arrest Warrant. The Prime Minister acknowledged that continued involvement in these agencies and programmes would entail a recognition of the remit of the CJEU. She said, “When participating in EU agencies the UK will respect the remit of the European Court of Justice”. She added that it would also be necessary for the EU “to respect our unique status as a third country with our own sovereign legal order”. On defence, the Prime Minister said that the Government wanted “a future relationship with the European Defence Fund and the European Defence Agency”. The Prime Minister said that the Government would also be “open” to contributing to “EU development programmes and instruments” to deliver mutual interests. The Prime Minister said that “aspects” of the future security partnership could “already be effective” in 2019.171

125.On 2 March 2018, the Prime Minister gave a speech on the future EU-UK trade relationship. She reiterated the Government’s policies that the UK would leave the Single Market, the Customs Union, the jurisdiction of the CJEU, the Common Agricultural Policy and the Common Fisheries Policy. However, the Prime Minister also acknowledged that there would be trade-offs as a result. For example, she said, “Our access to each other’s markets will be less than it is now” and that “EU law and the decisions of the [CJEU] will continue to affect us.”

126.On Fisheries, she said ‘We are also leaving the Common Fisheries Policy. The UK will regain control over our domestic fisheries management rules and access to our waters. But as part of our economic partnership we will want to continue to work together to manage shared stocks in a sustainable way and to agree reciprocal access to waters and a fairer allocation of fishing opportunities for the UK fishing industry. And we will also want to ensure open markets for each other’s products.

127.The Prime Minister was clear that only a bespoke Future Partnership would be in the interests of the European Union and the UK. She said there should be no introduction of tariffs or quotas and that goods should need only be subjected to one approval process which would require “a comprehensive system of mutual recognition.” Furthermore, for goods and services, the UK would commit to maintaining regulatory standards that were at least as high as those of the European Union. The Government will seek to match the same regulatory outcomes as the EU in many areas that relate to trade in goods and services. However, if Parliament decided it wished to achieve different outcomes, “it would be in the knowledge that there may be consequences for our market access.” The Prime Minister said that there will need to be an “independent mechanism” to oversee these arrangements. She called for the Future EU-UK Partnership to include provisions on broadcasting and financial services. However, for financial services, she said that there should be a regulatory framework that is “reciprocal, mutually agreed, and permanent”. The Prime Minister also set out objectives for other areas where the UK and EU economies are closely integrated, including energy, transport, digital, law, science and innovation, and education and culture.172

128.Stefaan De Rynck, Member of the EU Brexit Negotiation Team and Senior Adviser to Michel Barnier, has said:

Each free trade agreement is tailor made to the party with whom the EU negotiates.

The Canada one is not a replica of the South Korea one. The Japan FTA, which will hopefully enter into force in early 2019, has a chapter on corporate governance and cooperate transparency which you do not find in other free trade agreements. It has a very ambitious Chapter on free movement of professionals, so called Mode 4 in trade talks, and family rights to move with the professionals.

So it’s just an example of what is there in Japan which is not always there in other trade agreements. And also with the UK, if indeed, based on the UK’s choices we go to a free trade agreement, that free trade agreement will be typical in view of the respective economies and the negotiated outcome.173

But to come back to the mathematics of [Canada] pluses and [Norway] minuses, what you cannot do is square an FTA circle into a Single Market.174

129.The Prime Minister acknowledged in her Munich and Mansion House speeches and confirmed in Parliament that the UK would seek to remain associated with a number of EU agencies, including those pertaining to security cooperation and regulatory bodies including those governing chemicals, medicines and aviation safety, after exit. However, the draft guidelines prepared for the March European Council state that:

The European Council further reiterates that the Union will preserve its autonomy as regards its decision-making, which excludes participation of the United Kingdom as a third-country to EU Institutions, agencies or bodies. The role of the Court of Justice of the European Union will also be fully respected.

130.The EU27 is expected to agree its negotiation guidelines on 22–23 March, after which Phase 2 negotiations on the Future EU-UK Partnership can begin. As we have noted, the UK and EU agree that the Future Partnership should be set out in a detailed Political Declaration that will accompany the Withdrawal Agreement in October.175 From October, the EU expects to begin negotiations on the treaties/agreements that will establish the Future Partnership. Michel Barnier said there would be several agreements, some of which will be treaties.176 We heard in Brussels that the Commission is working on the basis that the Future Partnership will be separated into four pillars, which are trade, ‘areas of thematic cooperation’, justice and home affairs, and Common Security and Defence Policy and foreign affairs. We heard that these agreements/treaties would be negotiated in parallel and could be agreed separately.

131.We welcome the Prime Minister’s recent speech on the Future EU-UK Partnership because it provided more details on the Government’s approach and acknowledged the inevitable trade-offs that will result from the UK leaving the Single Market and Customs Union. Furthermore, it acknowledged that the EU’s standards, regulations and enforcement structures would continue to have a significant effect on the UK. However, the speech failed to outline which EU standards and rules the Government expects the UK to continue to abide by and which it wants to diverge from or the economic case for either approach.

132.We welcome the Prime Minister’s statement that the UK will wish to remain associated with certain EU agencies after exit. However, some EU agencies do not currently permit third country participation and the UK’s contribution to decision-making would not be guaranteed. It is acknowledged that the UK has great expertise to contribute in a number of fields that is valued within a number of EU agencies. However, the UK needs to make specific proposals for how it envisages continuing to make an important contribution after exit. Clarity must also be provided on what the UK’s role will be in EU agencies during the transition period.

133.The Commission has suggested that the negotiations on the treaties/agreements will be divided into four pillars to be negotiated in parallel and agreed separately. This structure seems sensible, as it will avoid the rigid, obstructive phasing that has characterised the Article 50 negotiations. However, the Government has not yet set out to Parliament its own view on how this process should be organised or acknowledged that the negotiations on a new partnership will in practice occupy a significant part of the transition/implementation period. It should now outline exactly how the process should be structured and then seek agreement with the European Union. This must be done well in advance of October.

134.We are currently examining different types of trade and partnership agreements into which the EU has entered with third countries. These include CETA, the EFTA and the EEA agreements, the Ukraine Association Agreement, the EU-Turkey Customs Union and TTIP, which was a proposed trade agreement between the United States and the EU which was halted after the 2016 US presidential election. We will present our findings in our next report together with our views on the structure of the future negotiations.

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

158 HC Deb 31 January 2018, Vol. 635, Col. 835

159 HC Deb 31 January 2018, Vol 635, Col. 876

160 Buzzfeed, This Leaked Government Brexit Analysis Says The UK Will Be Worse Off In Every Options, 29 January 2018. Buzzfeed published a second report, This Is How Cutting EU Immigration Will Hit The UK Economy, According To The Government’s Leaked Analysis, on 31 January 2018

162 HC Deb 31 January 2018, Vol. 635, Col. 876

163 Exiting the European Union Committee, Letter to the Chair from the Secretary of State regarding the Cross Whitehall Briefing, 6 February 2018, 8 March 2018

164 HC Deb 31 January 2018, Vol. 635, Col. 834

165 HC Deb 31 January 2018, Vol. 635, Col. 834 and Col. 875

166 Scottish Government, Call for Brexit analysis to be made public, 1 February 2018

167 Exiting the European Union Committee, letter to the Secretary of State from the Chair regarding redaction, 21 February 2018

168 Exiting the European Union Committee, letter to the Secretary of State from the Chair regarding redaction, 21 February 2018

170 Scottish Government, Scotland’s Place in Europe: People, Jobs and Investment, 15 January 2018

171 Prime Minister, PM speech at Munich Security Conference, 17 February 2018

173 Chatham House [Stefaan De Rynck], Inside the Brexit Negotiations [video], 18 December 2017 [17.18]

174 Chatham House [Stefaan De Rynck], Inside the Brexit Negotiations [video], 18 December 2017 [17.18]

175 [Government response]

176 Northern Ireland Affairs Committee, Oral evidence: Brexit and Northern Ireland, HC 329, Oral evidence: Brexit and Northern Ireland, HC 329, Opening statement [Michel Barnier]

Published: 18 March 2018