EU-UK: The Chips Are Down

Introduction – a dialogue of opposites

During the last week of February the European Union Council of Ministers formally endorsed the draft mandate which the European Commission had submitted, setting out objectives for a new long-term relationship with the United Kingdom.  A few days later the UK Government published a White Paper specifying its own objectives for this negotiation, entitled The Future Relationship with the EU – The UK’s Approach to Negotiations.

Both sides aim for a bilateral Free Trade Agreement (FTA).  There are however wide differences as to what this “Comprehensive Free Trade Agreement” (CFTA), as the UK side terms it, should cover. The EU side would prefer something like an association agreement. Under such an agreement, there would be a large measure of regulatory convergence and an overarching framework for settlement of disputes.  Inevitably the jurisprudence of the European Court of Justice would be influential in settling these disputes. The EU justifies its on the grounds that the UK is not a trade partner like any other. Instead it is deeply entwined, even post-Brexit, with the rest of Europe by geographical proximity, history, and  ethnicity; and the enormous volume of common legislation that grew up during the period of UK membership, in many cases through the influence of the UK.

The UK for its part appears to favour something that seems a hybrid of the disparate (and cumbersome) set of bilateral sectoral agreements which the EU has with Switzerland; and the recently-negotiated EU-Canada Comprehensive Economic and Trade Agreement (CETA). The latter covers both goods and services, though the additional level of actual liberalisation it yields relative to what both parties apply already on a non-discriminatory basis is limited.

Beyind that, the key point of divergence is that the EU demands that there should be a “level playing field” of regulation and economic behaviour between the UK and its nearest European neighbours, so as to avoid either side seizing an unfair advantage through reduced standards or lax competition policy. For its part, the UK flatly rejects a priori any formal mechanism that would require and alignment of its laws with those of the EU as well as any jurisdiction in the UK on the part of the European Court of Justice or any other EU institution.

The two documents nevertheless each list many areas where the EU’s and the UK’s objectives are essentially similar, though they may be differently expressed.  There are points of apparent convergence, particularly on technical issues where both sides see reaching workable agreements is essential and there should be, scope for practical settlements.  That, of course, would require both sides and especially the UK to be more open to pragmatic compromise than at present.  For example, for obvious economic reasons the UK wants to retain its current intra-EU position on road transport.   And both sides recognise that in addition to the proposed FTA, whatever form that takes, it will be necessary to negotiate special sectoral or topic agreements for wider issues such as fisheries, law enforcement and judicial cooperation in criminal matters, security, transport and energy supply.

Urgency

The EU mandate recognises, implicitly, that the time window of no more than nine months for negotiating a comprehensive package of agreements during 2020 is impracticably short. (And this now takes no account of possible wholesale disruption of dealings between the UK and EU authorities resulting from the current international crisis over the Covid-19 virus.)

Under the terms of the UK Withdrawal Agreement it would be possible to extend negotiations beyond the end of the transition period on 31 December 2020 for one single period of either one or two years (but not both), provided that consensus on the need for such extension was reached by 30 June 2020.  Additionally, the EU mandate now expresses willingness to go on negotiating on matters of major mutual interest after the end of the transition, although the legal basis on which this might be done is not spelt out.  UK Ministers flatly rule out further extension of negotiations on any basis.

Such fundamental differences can potentially derail the negotiations and, in the worst case, bring about on 31 December the much-feared “No Deal” outcome.  As from 1 January 2021 the UK and the EU would then trade together with no preferential terms between them and subject to basic World Trade Organisation (WTO) rules, as is currently the case of EU trade with the United States and Australia.  Indeed the White Paper states bluntly that unless “the broad outline of an agreement [is] clear” by June, and is “capable of being rapidly finalised by September”, the UK will be ready to consider walking away from the negotiations.

Inescapable facts

Meanwhile it should be obvious that whether or not a FTA can be agreed between the parties, and regardless of whatever domestic regulatory standards the UK Government chooses apply after the end of the transition period, any UK business which seeks from then on to market goods or provide services in the EU Single Market will have to comply with every last requirement of applicable standards and regulations in that market.

European Union mandate – basic approach

In the early months before and after the UK Referendum in 2016 there was loose talk among leading proponents of Brexit predicting that the UK would be able to leave the EU and its common trade policy while retaining most of the advantages of membership – the so-called “cake” policy.  In a sense the EU mandate takes its starting point from a position not unlike that. In setting out the EU’s practical conditions for a bilateral FTA it analyses areas where the UK in its trade with the EU could retain the substance of free trade in goods and at least some Single Market principles. This would however require the two sides to observe common regulatory standards, whether through agreed joint systems or on the basis of consultation and cooperation between autonomous partners.

After recalling the context of the original Brexit negotiations and the Withdrawal Agreement, which came into force on January 31 2020, the EU mandate defines the aim of the negotiations as

“to establish a new partnership between the Union, and Euratom where relevant, and the United Kingdom that is comprehensive and covers the areas of interest outlined in the [joint] Political Declaration: trade and economic cooperation, law enforcement and judicial cooperation in criminal matters, foreign policy, security and defence and thematic areas of cooperation.  The envisaged partnership should form a coherent structure and be embedded in an overall governance framework.”

As already noted, the mandate demands a “level playing field”, which must protect the autonomy, institutions and financial interests of the Union and the integrity of its Single Market and customs union, including the indivisibility of the “four freedoms” (free movement of goods, services, capital and labour). The “level playing field” principle recurs throughout the text of the mandate.  As regards the UK, the mandate bluntly declares that the UK as a

“non-member of the Union, that is not subject to the same obligations as a member, cannot have the same rights and enjoy the same benefits as a member.”

Having recalled core values and rights shared between the parties, including a high level of personal data protection, the EU mandate moves on to specific areas of joint interest including terms for UK participation in EU and Euratom programmes.  Its fundamental proposal is for an ambitious and balanced economic partnership based on a comprehensive FTA consistent with all the provisions of the WTO, and on the principle of sustainable development.  Both parties would operate their own standards of protection for legitimate public services and such matters as public health, education, environmental protection and cultural diversity, on the basis of customs and regulatory cooperation.

Basis of a bilateral FTA

The EU mandate sets out detailed technical proposals for the FTA covering goods, and for associated customs cooperation and trade facilitation measures.  There are less detailed proposals for liberalising bilateral trade and investment in services, in such areas as professional and business services, telecommunications, courier and postal services, distribution, environmental services, financial services and transport.

The mandate then turns to regulatory aspects, particularly in the field of product and health standards and measures to ensure that such regulation does not erect barriers to trade.  Emphasis is laid on the UK’s and the EU’s common membership of the WTO and adherence to its basic standards and requirements; though the ambition of both sides should be to do better than WTO baselines wherever possible in areas such as protection of intellectual property (IP) and public procurement rules.

Priority trade topics

Other specific trade-related topics or sectors for which separate or supporting agreements should be negotiated are then listed in sequence, specifically:

• Mobility of persons;

• Transport (Aviation, including air safety; Road haulage; and Rail (specific issues regarding the Channel Tunnel);

• Energy and raw materials (Electricity and Gas; Civil nuclear);

• Fisheries (Management of and access to shared fish stocks; Sustainability);

• “Level playing field” (Open and fair competition, requiring detailed provisions on Competition policy and enforcement; State-owned enterprises and subsidies; Taxation; Labour and social protection; Environmental protection and climate change.

The partnership agreement should include general exceptions, such as already exist in the WTO Agreements and the EU Treaties, permitting the parties to derogate from specific obligations in matters of particular national interest and urgency such as national security, balance of payments protection, prudential supervision and taxation.

Overarching issues of mutual concern

At this point the EU mandate moves on to tackle some of the most profound and complex policy and practical issues affecting both parties, namely:

• Security, including global security, prosperity and effective multilateralism;

• Law enforcement and judicial cooperation in criminal matters (Data exchange; Operational cooperation between law enforcement authorities and judicial cooperation in criminal matters; Provisions against money laundering and terrorism financing);

• Foreign policy, security and defence (Close and lasting “cooperation on external action to protect citizens from external threats, prevent conflicts, strengthen international peace and security and address the root causes of global challenges”; Alignment of policy on sanctions; UK participation, by invitation, in EU foreign missions; collaborative development of defence capabilities; Intelligence exchanges; aerospace cooperation; cooperation on international development policies).

Human rights and cooperation

The autonomy of the UK and EU partners to make and pursue their own independent policies would be preserved.  However under the specific head of law enforcement and judicial cooperation the mandate takes a very strong, indeed uncompromising, line on respect for the European Convention on Human Rights (ECHR).  It states that if the UK were to denounce the ECHR, or to abrogate domestic UK law that permits individuals to invoke ECHR rights before the UK courts, law enforcement cooperation and judicial cooperation in criminal matters between the parties would automatically be terminated.

Under the heading of Thematic cooperation the mandate proposes ongoing dialogue and cooperation between the parties, including cooperation with Europol, on cyber security and joint action to tackle what it calls “irregular migration”, i.e. unforeseen migratory and refugee flows.

The final pages cover EU proposals on institutional and administrative arrangements including the legal structure and governance of the partnership (based on a standing joint committee), as well as provision for action in the case of breaches by either side and for settlement of disputes, including recourse to independent arbitration.  Provision would be made for exceptional safeguards which either side could invoke “in case of circumstances of significant economic, societal or environmental difficulties”.

Repeatedly throughout the 24 closely-printed pages of the EU mandate there are references to the need for policy and regulatory cooperation, as a basis for enabling the UK to retain some degree of the EU market access and benefits which it enjoyed as a member state.  Inevitably the EU side envisages such cooperation on the basis of its own regulatory structures and procedures.

The EU mandate is binding on negotiators

The terms of this mandate have been hammered out over many months of consultations within the European Commission and both informally and formally between the Commission and the 27 current member states, against the backdrop of the tortuous negotiations with the UK which led up to the Withdrawal Agreement and its associated Political Declaration.  The mandate is an outline or framework – in some aspects very detailed – for the proposed partnership with the UK.  While it obviously leaves room for negotiation on specific issues, it is binding on the EU’s negotiators (led by Michel Barnier for the Commission) to achieve an outcome consistent with the mandate.  EU negotiators do not have flexibility to strike pragmatic deals outside that framework, however politically desirable such deals might look.

Confidentiality and transparency

In the early stages of the Brexit negotiations Theresa May’s government, in thrall to the right wing of the Conservative Party, made the fundamental mistake of trying to negotiate in secret an agreement whose terms could be revealed to Parliament and the public once they were done and dusted.  That immediately raised suspicion on all sides as to what Ministers were up to.  By contrast the EU side, representing the remaining 27 member states as well as the EU institutions, knew that with so many participants, and with the depth of political, media and civil society interest, nothing that passed across the negotiating table could be kept confidential. In any case the Treaties require the Commission to negotiate on international trade matters under supervision by representatives of the member states, to whom they must report regularly.  The EU opted for transparency, reporting regularly and at all significant points what was going on, and frequently pushing the UK side onto the back foot.

UK Government White Paper on the future relationship to the EU: red lines renewed

The UK has tried not to make the same mistake in regard to the long-term negotiations.  At the end of February 2020 it responded to the 24 closely-printed pages of the EU mandate with its own White Paper of comparable range and scope.  The opening section, on the Overall Policy Framework, states bluntly that:

“the Government will not negotiate any arrangement in which the UK does not have control of its own laws and political life.  That means that we will not agree to any obligations for our laws to be aligned with the EU’s, or for the EU’s institutions, including the Court of Justice, to have any jurisdiction in the UK.”

Like the EU side, the UK proposes a FTA, in the form of the Comprehensive Free Trade Agreement referred to at the start of this article, based on the agreement which the EU recently negotiated with Canada, as well as on agreements with “other friendly countries”.  It says:

“The CFTA would be supplemented by a range of other international agreements covering, principally, fisheries, law enforcement and judicial cooperation in criminal matters, transport, and energy…. All these agreements should have their own appropriate and precedented [sic] governance arrangements, with no role for the Court of Justice.”

In overall conception, structure and coverage the UK mandate is rather similar to the EU’s.  However the EU, conscious of the enormous task ahead for both parties and the short time available, expresses willingness to negotiate further after the end of the transition period if necessary. The UK as noted above demands that the “broad outline” of an agreement be clear by June 2020 and capable of being finalised by September, backing this up with the threat to walk away from negotiations and leave “No Deal” as the inevitable outcome.

UK priority trade issues for negotiation

Having thus severely limited the UK Government’s room for negotiation, the White Paper turns to the Government’s ambition for a CFTA, dealing in detail with matters including:

• National treatment (treating imported goods the same as domestic production for tax and regulatory purposes) and market access (no tariffs or other restrictions on bilateral merchandise trade);

• Rules of origin (essential in a FTA to determine what goods traded between the parties qualify for preferential treatment);

• Trade remedies (action against dumping of goods at uneconomic prices and against government subsidies which distort trade);

• Cooperation on standards and technical barriers to trade including sanitary and phytosanitary (animal and plant health) within the framework of established international agreements on these matters;

• Customs and trade facilitation measures;

• Cross-border trade in services, taking account of established WTO principles on non-discriminatory market access for service suppliers, national treatment, and presence in the market of foreign service suppliers;

• Mutual investment protection;

• Temporary entry and stay of UK and EU persons each other’s markets for business purposes;

• Avoidance of excessive regulation, together with best practice and transparency in regard to regulation which is adopted.

Interestingly this section makes no reference to public procurement, which is central to UK and EU economies, and which is governed by WTO rules to which both sides subscribe and might therefore be expected to re-endorse.

A nod towards services

The UK puts forward proposals, though with little supporting detail and in reality as no more than markers, for the treatment of various services.  These include telecommunications; delivery and postal services; audio-visual services (excluded under the EU’s mandate); financial services; digital; and international road transport.  The little prominence afforded to financial services is surprising in the light of their crucial importance for the UK economy and the extent of public debate that has focused on the position of financial services in the post-Brexit economy.

Cooperation and good practice

The section on the proposed CFTA  ends with a number of short paragraphs on trade-related topics which under the EU mandate fall under the heading of level playing field: mutual notification of government subsidies that may distort trade; competition policy and enforcement (alignment with the EU is ruled out); IP protection; good regulatory practice and regulatory cooperation; sustainable development; trade and labour; trade and environmental protection; and tax (though tax sovereignty of the partners should not be constrained “in any manner”).

Broader areas of cooperation

Moving on from the CFTA, the UK White Paper sets out extensive proposals for “other” (i.e. accompanying, or parallel) agreements, also prioritised in the EU mandate, namely:

• Fisheries;

• Aviation (a Comprehensive Air Transport Agreement, or CATA, as well as a Bilateral Aviation Safety Agreement, or BASA);

• Energy (including electricity and gas trading, carbon pricing and climate change);

• Mobility of labour and social security coordination;

• UK participation in Union programmes including the PEACE PLUS programme in Northern Ireland;

• Nuclear cooperation, to facilitate civil nuclear trade while maintaining the parties’ commitments to non-proliferation;

• Law enforcement and judicial cooperation in criminal matters, including detailed provisions for data exchange and operational cooperation including between the UK and Europol, as well as between the UK and Eurojust, extradition and the transfer of prisoners between the UK and the EU;

• Asylum and illegal migration; and

• A Security of Information Agreement.

The UK has however stated its intention not to participate in future in the European Arrest Warrant.

The White Paper includes in its final Part 3 a postscript on “technical and other processes beyond the scope of the future relationship negotiations”, including data adequacy (i.e. data protection standards); civil judicial cooperation within existing international agreements; and just four lines on equivalence between governments  in financial services regulation.

While the UK proposals for a CFTA are worked out and stated in some detail, as are the accompanying proposals for a fisheries agreement, aviation, and law enforcement and judicial cooperation, many of the topics listed in the second half of the mandate are handled in a decidedly sketchy manner.

Common ground and underlying disagreements

The range and formulation of topics covered respectively in the EU mandate and the UK White Paper are unsurprisingly similar, given the common background of EU membership and the importance of these matters for both sides.  All the important issues covered in the EU mandate are also covered in more or less detail in the UK White Paper, and vice-versa.  The underlying approaches however are very different.  The EU Commission had the easier task in drawing up its mandate, in that it was able to take a firm stance on the existing range of EU law and regulation and then search through the lists of sectors and topics to sort out areas where concessions could be made to the UK, in the interests of both sides, while maintaining the integrity of customs union and Single Market law.  Generally the realisation of such concessions and cooperation would depend upon close consultation and on coordination of UK national regulation with that of the EU, with the Court of Justice of the EU in the background as the final arbiter on EU law, so that elements of ECJ jurisdiction would be bound to apply indirectly in the UK market.

The UK for its part expresses willingness at some points to consult with the EU on policy and regulatory matters, but as already noted it rejects any direct applicability of EU regulation or ECJ jurisdiction in the UK, thus apparently making impossible compromises or part-compromises of the sort at which the EU mandate hints.  And because the UK is in the unprecedented position of dismantling a mature and integrated economic and legal relationship, and in the process inevitably creating new trade barriers, it still clearly has very little idea, beyond the proposals for a CFTA and on major issues for which legal and judicial cooperation is essential, of what it wants to replace existing arrangements.  Hence the sketchy nature of many of the sectoral and topic proposals in the White Paper on which, by its own insistence, the UK side has to settle its policy stance and proposals and then negotiate solutions, all within little more than three months.

Uncertain outlook

The EU and UK sides agree on what the essential issues between them are, and in some cases they perceive these issues in the same way.  There ought, by rational calculation, to be sufficient common grounds to find practical compromises that preserve the economic and constitutional rights and interests of both parties and contribute to the welfare of their populations.  The question of whether such solutions can be made operational however collides, on the EU side, with the Union’s absolute insistence on integrity of the Single Market and the indivisibility of the “four freedoms”; and on the UK side with the determination, while trading freely with EU partners, to achieve total constitutional and legal separation from the Union.

Nevertheless in a rational world it should be possible for the parties to agree on robust bilateral dispute settlement arrangements by establishing a joint system which could sidestep any question of direct EU jurisdiction in the UK

It was reported that the first round of negotiations between the parties, in the week of March 2, did not go well, with – one suspects – the parties talking past rather than to each other.  Michel Barnier is reported to have spoken of grave difficulties. Such language is to be expected in the opening salvos of so tense and wide-ranging a negotiation.  For any signs of positive progress we must wait for the various teams of expert subject negotiators, no doubt under intense pressure of time, to get to practical grips with the enormous task before them.