The future UK-EU relationship Contents

3The UK’s future relationship with the EU

The broader relationship: the four pillars

154.Michel Barnier acknowledged when we met him in Brussels that his famous “staircase” slide, setting out the relationship that the UK could expect with the EU based on its “red lines” only related to the trade element of the relationship. He said that this agreement would be unique. There was nothing to prevent the UK trading with the EU on the basis of a bilateral free trade agreement or on WTO terms but enjoying close co-operation in other areas.

155.He told us that he envisaged the Future Partnership based on four pillars: Trade, Justice and Home Affairs, Common Security and Defence Policy and Foreign Affairs, and thematic ‘areas of specific co-operation in areas of shared interest’. The Future Partnership could be agreed through several agreements, some of which will be treaties.227 Thematic areas could include research, university co-operation, fisheries, and aviation and we believe that services, including financial and professional business services, justify a separate pillar of co-operation. The Future Partnership will be based on a legal basis other than Article 50 and agreements would, most likely, be mixed agreements, requiring ratification by each Member state. The Article 50 withdrawal agreement will be subject to qualified majority voting in the Council and approval by the European Parliament.

156.Similarly, the UK has said it wishes to have a relationship based on broader matters than just trade. The Prime Minister’s Lancaster House speech from January 2017 listed twelve priorities for the negotiating objectives, including co-operation in the fight against crime and terrorism and future and in science and innovation.

Security co-operation

157.In her Lancaster House speech, the Prime Minister said that “a Global Britain will continue to co-operate with its European partners in important areas such as crime, terrorism and foreign affairs.” The Prime Minister’s letter triggering Article 50, sent to President of the Council, Donald Tusk on 28 March 2017, said “we want to agree a deep and special partnership between the UK and the EU, taking in both economic and security co-operation.”228 In her Munich speech, in February 2018, the Prime Minister said “Europe’s security is our security. And that is why I have said […] that the United Kingdom is unconditionally committed to maintaining it.”229

158.The Prime Minister specifically referred to the UK’s future involvement in Europol and the European Arrest Warrant, maintaining alignment with EU Data Protection rules, and seeking to maintain the fast exchange of data through the Schengen Information System. On external security she referred to continued co-operation on sanctions policy, contributing UK defence capabilities for EU operations, using the UK’s foreign aid budget to contribute to EU development programmes, and co-operation on cyber, defence R&D and expanding areas such as space.230 Ian Bond, of the Centre for European Reform, summarised the position as:

The UK’s overall aim appears to be to keep as much as possible of the existing foreign policy and development policy co-operation intact. But it is vague about how it should do this.231

The European Council’s draft negotiating guidelines called for a partnership that should cover trade and other areas including “the fight against terrorism and international crime, as well as security, defence and foreign policy.”232

159.There are different ways in which non-EU states interact with the EU on security and foreign policy areas. The EEA Agreement does not cover Common Foreign and Security Policy, or Justice and Home Affairs, but Norway has secured agreements with the EU in both justice and home affairs, and in security and defence. It takes part in Europol and Eurojust, and is part of Schengen and the Dublin system for asylum. Norway does not take part in the European Arrest Warrant (EAW), but has negotiated an extradition treaty with the EU, which is similar to the EAW but with two discretionary bars on extradition: an option for all parties to refuse to extradite their own nationals, and a “political offence” exception. It took thirteen years to negotiate.233 Norway has formal bilateral discussions with the EU high representative and seconds staff to the European External Action Service.234 Ulf Sverdrup told us that security was an important issue for Norway and that “Norway has a huge interest in the discussions between the UK and the EU on the future security and defence arrangements”.235

160.The Canada-EU Strategic Partnership Agreement includes a section on Justice, freedom and security, which covers a range of relevant areas, such as law enforcement and the fight against organised crime. It builds on co-operation structures already in place (but now incorporated in an international treaty) and created joint bodies to help the relationship develop.

Thematic areas of co-operation

Science and innovation

161.The UK Government has said it would like to continue to collaborate with European partners on major science, research, and technology initiatives.236 The Prime Minister has said the UK would like to remain part of the European Medicines Agency (although there is no provision for third states to become members or observers to the European Medicines Agency.237) The EU draft negotiating guidelines published on 7 March 2018 said the agreement could include co-operation on EU programmes “in the fields of research and innovation”. We visited Cambridge and met those who worked in the life sciences, medical research and space sectors and the university.238 Their priorities were looking to provide certainty for their existing EU staff and ensuring that they retained access to future talented students and staff. They were also looking to continue international collaboration, to remain in EU wide programmes (Galileo, Copernicus, Erasmus+), to continue to access EU-wide research funding, to remain within the EU regulatory sphere and retain access to the EU market, and to continue participation in EU wide clinical trials. Doubts had already arisen over future contracts because of a lack of certainty about the long-term relationship.239

162.Professor Eilís Ferran, Pro-Vice Chancellor for Institutional International Relations, Cambridge University, emphasised the importance of ensuring that the future immigration system took account of the needs of the sector, including, in particular, technicians and researchers with difficult to source skills who were below PhD level:

Simply extending the existing Tier 2 to EEA staff would not be welcomed by us or by the sector.240

Both Horizon 2020 and Erasmus+ allow some form of participation for non-EU member states. However, Switzerland’s participation was downgraded to partial associated status of Horizon2020 in 2014–2016 following its decision to limit immigration.

Aviation

163.Another area of co-operation that Michel Barnier told us he envisaged coming into the “thematic” pillar was aviation. The EU Draft negotiating guidelines are positive about an air transport agreement and an aviation safety agreement. The UK has said it would like to explore with the EU the terms on which the UK could remain part of EU agencies such as the European Aviation Safety Agency, and accept that this would mean abiding by the rules of those agencies and making an appropriate financial contribution.

164.The European Council guidelines include reference to research.241 The Canadian Strategic Partnership Agreement includes aviation co-operation.242 Switzerland has a bilateral agreement with the EU on civil aviation which allows for reciprocal access to the air transport market.

Data

165.Maintaining the free flow of data between the UK and EU is essential for the convenience of consumers and the functioning of the UK economy, and very important for the cross-border portability of data.243 Jessica Gladstone described its inclusion in the final EU-UK agreement as “crucial”.244 One of the CBI’s Five Steps to Protect Services Post-Brexit is to secure an adequacy decision for the UK’s data regime to maintain the free flow of data between the UK and EU.245

166.An adequacy decision from the European Commission would provide the best comprehensive mechanism for the UK to share data with the EU. It would certify that the standard of data protection in the UK is “essentially equivalent” to EU data protection standards. Although the UK is currently fully aligned with EU standards, Mr Erixon told us that this would not necessarily be simple for the UK as several Governments in the EU will have concerns about data protection in the UK:

The starting point will be that the rest of the EU wants to have an adequacy recognition of the United Kingdom, but it is going to raise concerns about mass surveillance and what the Government are doing on these issues. […] I probably would be very surprised if there were no recognition of adequacy of the UK, providing that more or less the current regulation that applies in the UK will apply after Brexit as well.246

David Henig said he thought the negotiations on data will be “extremely painful. […] Because the EU is really not comfortable with sharing data. It is increasingly putting more conditions on it.”247 Mr Erixon said the UK may be judged against higher standards of data protection outside the EU than if it remained as a Member State since, as a Member State it is able to invoke certain national security provisions allowing it a leeway not offered to third countries.248

167.Alternatives to a data adequacy decision can be cumbersome and expensive. The UK and the EU could aim for a mutual adequacy decision, with both recognising each other’s data protection regimes.249 There are signs that the EU Commission is moving closer to the inclusion of data in trade agreements, and it has been included in the negotiations between Japan and the EU.250 The resistance in the EU to including data in trade agreements has been attributed to differences of opinion between two EU Commission departments: Trade and Justice.251

Level playing field

168.Michel Barnier told us that one of the “horizontal” issues that he would be looking to address during negotiations was maintaining a “level playing field” with the UK after its exit from the EU. The EU would not be prepared to agree special access to the Single Market or EU programmes if the UK was going to undercut EU businesses by reducing its environmental, health and safety, employment and other regulatory standards. Professor Whitman suggested that there would be some concern among Member States about whether the UK might seek to get some kind of unfair competitive advantage through the agreement.252 Fredrick Erixon said he did “not read the political mood in the UK as if it is about to embark on a development that is completely different in environmental or social standards from what it has right now.”253 During his speech in Vienna, the Secretary of State, acknowledged that some people in Europe feared “that Brexit could lead to an Anglo-Saxon race to the bottom” in terms of standards, and that “These fears about a race to the bottom are based on nothing, not our history, not our intentions, nor our national interest.”254

169.The European Council draft guidelines said:

Given the UK’s geographic proximity and economic interdependence with the EU27, the future relationship will only deliver in a mutually satisfactory way if it includes robust guarantees which ensure a level playing field. The aim should be to prevent unfair competitive advantage that the UK could enjoy through undercutting of current levels of protection with respect to competition and state aid, tax, social, environment and regulatory measures and practices.255

It said that the Agreement will include enforcement and dispute settlement mechanisms, “as well as Union autonomous remedies”.

Rolling over third country trade agreements

170.The Department for International Trade has told the Committee on International Trade that the UK has “40 plus” EU trade agreements with “70 plus” partners.256 The Department was unable to provide that Committee with a precise figure of the number of trade related agreements that the UK is party to by virtue of being a Member State, but it was believed to be in the “multiple hundreds”.257 Reports in the press have suggested it is over 750.258 In addition to the FTAs, these agreements include the DCFTA with Ukraine, the EU’s trade agreements with the EFTA countries, the partial customs union between Turkey and the EU, and agreements such as the Open Skies aviation agreement between the EU and the US. The UK Government has said it wishes to roll over these agreements into UK-third country agreements by the time the UK leaves the EU, and the EU has asked third countries to treat the UK as a Member State during transition. This is not binding, and it is for the third country to agree.259 This may result, in some cases, in a trilateral negotiation involving the UK, the third country and the EU, for example, to agree diagonal cumulation on rules of origin.260

171.David Henig did not see it as being in the interests of the EU to get involved in trilateral negotiations, and he thought it was more likely to be a bilateral negotiation where the third country may wish to reopen part of the agreement. Mr Henig said “Certainly, if I was negotiating on the other side, I would.”261 He gave two examples:

The best example is with South Africa; they have long had a complaint about a certain kind of citrus fruit that is not allowed into the EU, and that is an obvious ask on their part if they were rolling over an agreement with the UK alone. For South Korea, it might be a little trickier because, for example, one of the things that the South Korea-EU agreement gave us was access to their legal services market. That has been a little bit controversial in South Korea, as I understand it. They may want to say, ‘Can we restrict that a little bit?’ It is a negotiation, at the end of the day; we cannot say what will actually happen as a result of that. There may also be things in there that we would be happy to lose because they were EU-specific things that do not really affect the UK. I would not want to predict how the negotiation would go, but I can predict that there should be a negotiation where most countries would have at least some things that they would ask for.262

He did not want to make generalisations about how third countries would respond to making a deal with the UK outside the EU, some may wait to see what the EU-UK relationship would look like, but also some might anticipate a better deal if they go quickly.263 Some would not be straightforward to renegotiate, e.g. the customs union with Turkey or the Swiss relationship with the EU. He also questioned if the UK Government had the capacity to negotiate many such agreements at the same time, and if it actually knew what it wanted from all these agreements, what it would ask for and what it would seek to protect.”264

Rules of origin and diagonal cumulation

172.Rules of Origin are used in FTAs to establish whether a product is considered sufficiently local to count as originating there, and therefore can receive the preferential tariff. Depending on the agreement between the UK and the EU, a UK exporter may need to be able to prove their goods originate in the UK to qualify for a preferential tariff. Furthermore, UK products currently count as EU origin for the purposes of EU FTAs. For the transition period, the UK and the EU have asked third countries to recognise the UK, essentially, as a Member State and therefore maintain the status quo for the purposes of Rules of Origin. When the UK leaves the EU, UK products will not qualify automatically as EU origin, which could impact upon the ability of UK businesses to take advantage of current EU FTAs with third countries.

173.Jessica Gladstone, Clifford Chance, told us that business would have to decide whether to move supply chains within the UK or within the EU, depending on factors such as where its current suppliers are, if they can be replaced locally, and if it wished to continue to rely upon a particular FTA. She said

If you want to be exporting from the EU to rely on the EU FTAs, that would encourage you to move more. That would be another swing factor to base yourself more in the EU.265

Cumulation enables goods (or inputs) from outside a country to be considered as from that country. Jessica Gladstone said diagonal cumulation—where goods (or inputs) from the UK, EU or third country could qualify as being from within an agreed cumulation zone—would be “a very critical point to include in the trade agreements to make sure those supply chains can be protected where businesses want to continue them” and that without diagonal accumulation, “there will be a lot of shifts in supply chain reorganisation”.266

Conclusions

174.The EU’s different forms of relations with third countries have been driven by a range of particular circumstances and strategic interests. While there are a number of “off-the-shelf” models, the details of each vary widely. There is no precedent for Brexit and any deal reached between the UK and the EU on the UK’s future relationship will, by its nature, be bespoke. A “CETA-style” trade agreement between the UK and the EU would reflect very different trading priorities to the Canada deal and could be part of a very much deeper relationship with the EU in terms of security, academic and many other areas of co-operation than that enjoyed by Canada, however the lack of access for services in such a FTA would pose serious challenges for the UK. Even trading on WTO terms after agreeing exit terms under Article 50 would not rule out continuing close co-operation in areas of mutual benefit.

175.Continuing security co-operation is a priority for both sides. Our predecessor Committee welcomed the Government’s commitment to continuing co-operation with the EU27 on foreign policy and defence matters. That Committee called on the Government in March 2017 to set out some detail about how such co-operation could be made to work in practice, including the institutional and decision-making frameworks that would underpin it. It is regrettable that no response has yet been provided to that report and no detail has been set out. Our predecessor Committee also welcomed the Secretary of State’s statement that the Government wants “as far as is possible to replicate what we already have” in respect of Justice and Home Affairs Co-operation and concluded that the UK’s relationship with the EU when outside should be one of partnership on the basis of shared values and co-operation. Maintaining this level of co-operation will require overcoming a number of technical challenges in respect of agreeing data protection, judicial oversight and governance provisions. The Prime Minister’s Munich speech acknowledges that the Government will be looking to find positive solutions to address these challenges

176.Ensuring the continued free flow of data between the UK and the EU, once the UK has left will be one of the most important cross-cutting issues to be resolved in the negotiations on the future relationship. Data flows are vital for ensuring frictionless trade between the UK and the EU and they underpin co-operation in combating terrorism and organised crime. This is just one area of cross-over that illustrates the relationship between both trade and non-trade elements of the future relationship. Our scrutiny of other third country relations with the EU indicates that imaginative solutions are possible but will require agreement over regulatory frameworks, governance and oversight arrangements. Indeed, we welcome the greater emphasis on alignment, rather than divergence, in the Prime Minister’s Mansion House speech.

177.Our study of the existing relationships between the EU and third countries shows that there are trade-offs between the rights and obligations that comprise those relationships. Michel Barnier’s “staircase” diagram takes as a starting point that the UK Government’s existing red lines suggest a “Canada style” trade deal. The Government is seeking a much wider CETA plus plus plus agreement. While imaginative solutions are possible in other areas of co-operation, these red lines will also affect other aspects of the relationship. Ending free movement will affect the extent of involvement in programmes of academic co-operation granted to the UK. Ending the jurisdiction of the Court of Justice of the EU and any regulatory divergence in data protection will place constraints on a range of programmes for justice and home affairs co-operation, although in her Munich speech about security and policing co-operation, the Prime Minister indicated the UK’s willingness to accept the remit of the CJEU in these areas, respecting the sovereignty of both the UK and the EU’s legal orders. This is a very positive approach which we encourage the Government to apply in other areas.

178.In respect of both trade and non-trade agreements, other countries will take a close interest in the mix of rights and obligations that constitute any future relationship with the UK and may see any special deals for the UK as a precedent. Countries such as Switzerland and Norway will examine closely any agreement between the UK and the EU to see if it contains better terms than their current arrangements. This, in itself, may limit the EU’s room for manoeuvre in terms of what it is prepared to offer the UK.

179.The UK has an enormous amount to offer the EU as a third country. A deep partnership will ensure that the UK’s defence, intelligence and security capabilities continue to add to the EU’s resources (and vice versa), that the international financial centre for our continent stays in Europe; and that our co-operation continues across a wide number of important sectors. However, Ministers need to set out what they want to achieve overall, in much more detail, in terms of the future relationship. The absence of such detail could allow the terms of the future negotiation to be set by the EU with the “offer” to the UK determined by the EU’s analysis of the implications of the UK’s red lines, rather than by a proper consideration by the EU of the strategic value of a continuing close relationship with the UK. We encourage the Government to take a more proactive approach to the linkages between different areas of the future relationship, given that they will be negotiated to different timescales, so that the UK does not find that options are inadvertently closed off.

180.A political declaration on the future partnership is expected to be agreed alongside the withdrawal agreement around October this year. The Secretary of State is confident that final agreement on the future relationship can be reached very shortly after the UK leaves the EU in March 2019, providing for most of the transition period (currently anticipated to last 21 months) to be spent “implementing” the future relationship. In our last report, we questioned whether the transition period would be sufficient to agree the future relationship. The more bespoke and ambitious the relationship, the harder this will be to achieve in the time available.

181.Whilst the UK will not be looking to replicate the relationships of other countries with the EU, our analysis has indicated that there are a number of key tests by which any deal agreed by October can be judged. The Prime Minister has set out her red lines for the negotiations. However, the success of the future relationship will be judged on the ground by the members of the public, businesses and agencies that travel to and from, trade with and will continue to work closely with the EU and EU Member States. The criteria by which they and we will judge the political declaration that we expect to be reached by October will be the following:

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

228 See also UK Future Partnership Paper, Foreign policy, defence and development, 12 September 2017

229 Munich Security Conference Speech, 17 February 2018

230 Munich Security Conference Speech, 17 February 2018

231 Ian Bond, Plugging in the British, EU Foreign Policy, March 2018

232 European Council (Art. 50) guidelines on the framework for the future EU-UK relationship, 23 March 2018

233 House of Commons Library briefing, The European Arrest Warrant, April 2017

234 Ian Bond, Plugging in the British, EU Foreign Policy, March 2018

235 Q1001

236 UK Future Partnership Paper, Collaboration on science and innovation, 6 September 2017

237 Under Article 77, “representatives of international organisations” may participate in the EMA.

238 Oral evidence on 19 February 2018. See also written evidence Professor Graham Virgo, University of Cambridge NEG0017

239 Oral evidence taken in Cambridge on Thursday 18 January 2018, Qq634–647

240 Q682

241 Statement by President Donald Tusk on the draft guidelines on the framework for the future relationship with the UK, 7 March 2018

242 Q531

243 Q520

244 Q1282

245 CBI, 5 steps to protect services post-Brexit, 8 March 2018

246 Q521

247 Qq1282–1283

248 Q522–523

249 No interruptions, Options for the future UK-EU data-sharing relationship, November 2017

250 Q524

251 Apparent Breakthrough in Commission Talks to Include Data Flows in Trade Deals, TechUK, 19 Jan 2018

252 Q518

253 Q505

254 David Davis Vienna speech, 20 February 2018

255 Statement by President Donald Tusk on the draft guidelines on the framework for the future relationship with the UK, 7 March 2018

256 International Trade Committee, Continuing application of EU trade agreements after Brexit report, 7 March 2018

257 Ibid.

258 After Brexit: the UK will need to renegotiate at least 759 treaties, Financial Times, 30 May 2017

259 Q1258

260 Qq1260–1261

261 Q1261

262 Q1262

263 Q1263

264 Qq1266–1267

265 Q1247

266 Q1246



Published: 4 April 2018