Dr. Rafael Arenas García
Professor of Private International Law
Universitat Autònoma de Barcelona
1. Withdrawal Agreement and Future Relationship Agreement
Brexit is coming. In accordance with what has been scheduled, next 30 March 2019 the UK will become a third state from the EU’s perspective. As it is broadly known, the negotiations have been developed during the last year and a half between the EU and the UK, following the steps provided by article 50 of the Treaty of the EU. This article establishes that when a Member State notifies the European Council of its intention to withdraw the Union, an agreement setting out the arrangements for the withdrawal will be negotiated between the EU and that State. The agreement must take into account the framework of the future relationship between the EU and the State.
Article 50.2: “A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking into account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament”.
A distinction can be drawn between the withdrawal agreement and the agreement regulating the future relationship of the EU with the former Member State. The withdrawal agreement must consider this future framework, but the withdrawal agreement is not sought to include the details of it. Albeit the distinction between the withdrawal agreement and the agreement on the relationship between the UK and the EU after the Brexit was not questioned by the UK, the approach of this country and the EU to these two agreements has differed since the very beginning of the process.
The UK tried to link the negotiation of the withdrawal and of the future relationship between the EU and the UK. The EU, conversely, pointed out that the agreement ruling the relationship of the UK as a non-member State and the EU could only be negotiated after the withdraw of the EU, when the UK will become effectively a third State. That does not mean that it is not possible to consider the future framework of relationships between the EU and the UK during the negotiation of the withdrawal agreement; in fact, as we have just seen, it is compulsory –according to article 50- to consider this framework; but the agreement about the relationship will not be properly negotiated before the moment in which the UK becomes a non-member State.
What has been explained is the point of view of the EU, and as a result, the negotiation process has focused –also from the perspective of the EU- in the withdrawal agreement. Only in March 2018 the European Council approved the guidelines for the negotiation of the framework for the future EU-UK relationship (https://www.consilium.europa.eu/media/33458/23-euco-art50-guidelines.pdf). Those guidelines are a brief document, which does not descend to the details of the future partnership between the EU and the UK; in fact, it includes only principles that could embrace may different alternative regulations. These guidelines reflex the EU intention: not to initiate a proper negotiation on the future relationship with the UK before the conclusion of the Withdrawal Agreement.
The UK’s approach is quite different. From the beginning the UK tried to link the withdrawal agreement with the agreement on the relationship between the UK and the EU after the Brexit. The Paper we are going to deal with in this comment is a consequence of this British approach: in a moment in which the Withdrawal Agreement has not yet concluded, the UK Government presents a document that advance with a certain degree of detail the main lines of the (wished) future relationship with the EU. Moreover, the Paper links explicitly the two agreements, the withdrawal agreement and the agreement on the future relationship between the EU and the UK. Thus, in point 34.5 of the Paper we can read: “The UK and the EU have been clear that the Withdrawal Agreement and the Future Framework form a package”. This assertion could be discussed. The guidelines adopted by the Council in December 2017 seem adopt a different approach. According with point 6 of those guidelines, an agreement on the future relationship between the UK and the EU can only be finalised once the UK has become a third country. Before that moment the UK and the EU, will only elaborate an understanding incorporated to a political declaration
“The European Council reconfirms its desire to establish a close partnership between the Union and the United Kingdom. While an agreement on a future relationship can only be finalised and concluded once the United Kingdom has become a third country, the Union will be ready to engage in preliminary and preparatory discussions with the aim of identifying an overall understanding of the framework for the future relationship, once additional guidelines have been adopted to this effect. Such and understanding should be elaborated in a political declaration accompanying and referred to in the Withdrawal Agreement”.
So, from the point of view of the EU, at this moment what should be negotiated is the withdrawal agreement, that will guarantee an orderly exit of the UK. Once the UK will become a third State, the negotiation of the agreement on the future partnership could properly begin. Before that moment only the general principles of this partnership should be agreed in the framework of a “political declaration” referred in the withdrawal agreement. That means that there will be no “package”, but an agreement on the withdrawal and a political declaration about the future relationship. That is coherent with the fact that the EU has elaborated a Draft Agreement on the withdrawal of the United Kingdom with some degree of detail (130 pages: https://ec.europa.eu/commission/publications/draft-agreement-withdrawal-united-kingdom-great-britain-and-northern-ireland-european-union-and-european-atomic-energy-community-0_en) but only a seven-pages document on the guidelines for the negotiation of the Agreement on the future relationship (https://www.consilium.europa.eu/media/33458/23-euco-art50-guidelines.pdf). In the other side of the English Channel, instead, the document about the future relationship is more than 100 pages long (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/725288/The_future_relationship_between_the_United_Kingdom_and_the_European_Union.pdf) and, as we have just seen, the British aim is to link this agreement with the framework of the future relationship.
The different approaches in both sides of the Channel have consequences: it seems that the UK Government is prepared for a Brexit without agreement in the case that there would be no progress in the negotiation of the future relationship agreement. The EU indicates that without the withdrawal agreement there would be no negotiation on the future relationship agreement. If both parties are serious a Brexit without agreement would be the most likely scenario; but, of course, it could be also possible that these attitudes are just part of the game that every negotiation is. We will know it in a few weeks, because if there is no withdrawal agreement in November it would be impossible to conclude the formalities for the entry into force of that agreement before 30 March 2019, and, as we have seen, this day the UK will become a third state.
From the EU point of view the withdrawal agreement must be concluded before entering into the negotiation, and although 80% of the agreement is agreed, there are still some parts of the agreement that must be concluded; and, as we have just seen, the first step in a partnership agreement is the withdrawal agreement. In this sense is clear the Op-ed by Michel Barnier, the European Commission’s Chief Negotiator for the negotiations with the United Kingdom of 2 August 2018 (https://ec.europa.eu/commission/news/ambitious-partnership-uk-after-brexit-2018-aug-02_en). Barnier asks, “How can we achieve a new partnership [with the UK]?” The answer that he himself gives is “First, we need to make sure that the UK’s exit is orderly”, and he adds that 80% of the Withdrawal Agreement is agreed, but “80% is not 100%” and after explaining the issues that are still in dispute continues “Secondly, we need to agree on the terms of the future relationship”.
So, the EU is not very willing to move forward in the negotiation of the partnership agreement before concluding the withdrawal agreement; and perhaps, from the UK’s point of view, some advances in the future relationship agreement could help in the negotiation of the withdrawal agreement. As we have seen, for the UK’s government both documents are “a package” and the plan is to demand the UK’s Parliament a resolution to approve both documents (see point 34.6 of the “Chequers Plan”)
“Once the UK and the EU have reached agreement on the Withdrawal Agreement and the Future Framework under the terms of the European Union (Withdrawal) Act 2018 there will be a debate in both Houses of the UK Parliament. If the House of Commons supports a resolution to approve the Withdrawal Agreement and the future Framework the Government will bring forward the Withdrawal Agreement and Implementation Bill to give the Withdrawal Agreement legal effect in the UK”.
That explains the relevance of the “Chequers Plan”. If there is some possibility that the UK will accept a withdrawal agreement, it is necessary some advance in the Partnership Agreement. The “Chequers Plan” draws the main objectives of the UK in the future relationship with the EU and, as we have just seen, an acceptance of the plan by the EU will help the acceptance by the UK of the withdrawal agreement.
Some days ago, in Salzburg, in an informal summit, British Premier, Theresa May, and the leaders of the EU27 discussed the “Chequers Plan”. As in every negotiation, each party make an offer and the other party accepts in whole, accepts in part or refuses. Some level of tactical manoeuvring is expectable in negotiations, so it is possible that a refusal hides the intention to accept and the attempt to get a better offer. So, we cannot rule out that the almost plain refusal of the plan by the EU27 in Salzburg could change in the near future. Nevertheless, I think that there are too much distance between the “Chequers Plan” and the guidelines of the Council for the negotiation of the Partnership Agreement. Even more, some proposal in the “Chequers Plan” is plainly a mistake. In the next paragraphs we are going to deal with these issues.
2. “Chequers plan” and “cherry picking”
The question is to what extent the “Chequers Plan” is compatible with the guidelines of the European Council adopted in March 2018. The answer is that there are some basic contradictions between both documents.
First, the relationship between the withdrawal agreement and the partnership agreement is not the same from the British perspective and from the EU perspective. We have already dealt with this issue.
Second, when we move forward to the content of the British proposal, we realize that it is based in a “cherry picking” approach. The United Kingdom refuses the freedom of movement of people. See, for example, points 73 and 76 of the “Chequers Plan”:
73. “In future it will be for the UK Government and Parliament to determine the domestic immigration rules that will apply. Free movement of people will end as the UK leaves the EU. The Immigration Bill will bring EU migration under UK law, enabling the UK to set out its future immigration system in domestic legislation”.
76: “Any future mobility arrangements will be consistent with the ending of free movement, respecting the UK’s control of its borders and the Government’s objective to control and reduce net migration (…)”.
This refusal of the free movement of people does not affect –from the British perspective- its will to establish an ambitious partnership with the EU favouring the circulations of goods and the cross-border provision of services. As we are going to see, the UK’s proposal is to establish a free trade area for goods with the EU and the facilitation of the provision of cross-border services through the introduction of “general provision that minimise the introduction of discriminatory and non-discriminatory barriers to establishment, investment and the cross-border provision of services”, the mutual recognition of professional qualifications, arrangements for professional and business services and an arrangement on financial services (see point 49 of the “Chequers Plan”).
This approach does not fit with the guidelines of March 2018. See point 7.2 of these guidelines:
“The European Council recalls that the four freedoms are indivisible and there can be no “cherry picking” through participation in the Single Market based on a sector-by-sector approach, which would undermine the integrity and proper functioning of the Single Market”.
So, I think that it would be not surprising that after the summit in Salzburg, where the “Chequers Plan” was discussed, the President of the Council stated that the framework for economic cooperation included in the UK’s proposal “will not work” because “it risks undermining the Single Market”. See the remarks by President Donald Tusk after the Salzburg informal summit (https://www.consilium.europa.eu/en/press/press-releases/2018/09/20/remarks-by-president-donald-tusk-after-the-salzburg-informal-summit/). Maybe this assertion is linked to the evident “cherry picking” that adopts the “Chequers Plan”, where the UK pretends a close partnership in the commerce of goods and services without significant compromises in the free movement of persons.
It is true that in the field of services the UK’s proposal admits that it will be no possible to maintain the current situation in the field of establishment and services, but at the same time the objective is to provide freedom in the market of services in those areas that the UK is more interested in, and an integration of financial services markets. See point 5.2 of the “Chequers Plan”:
“On this basis, the Government’s vision is for an economic partnership that includes:
(…)
· new arrangements on services and digital, providing regulatory freedom where it matters most for the UK’s services-based economy, and so ensuring the UK is best placed to capitalise on the industries of the future in line with the modern Industrial Strategy, while recognising that the UK and the EU will not have current levels of access to each other’s markets;
· new economic and regulatory arrangements for financial services, preserving the mutual benefits of integrated markets and protecting financial stability while respecting the right of the UK and the EU to control access to their own markets-noting that these arrangements will not replicate the EU’s passporting regimes”
3. A “combined customs territory”
If we move forward from services to goods; we find that the British proposal is the establishment of a free trade area for goods with the EU. This area, however, will be compatible with the competence of the UK to stablish its own tariffs and trading policies for goods coming from third countries. The result would be what the “Chequers Plan” calls “a combined customs territory” in which the products coming from third countries and intended to the UK should pay the British tariffs and adjust themselves to the British commercial policies; the products intended to the EU should pay EU tariffs and respect the EU commercial policies. In cases in which the good’s final destination is not the destination declared in the border a repayment could be claimed.
The system proposed by the UK involves some complicate arrangements. For example, the “Chequers Plan” does not propose that the EU applies to goods intended to the UK through the EU borders the UK’s tariffs and trade policy. So mechanisms of cooperation and surveillance must be implemented.
I think that the proposal of the UK goes beyond the aim of the guidelines of the EU of March 2018, where “only” a Free Trade Agreement (FTA) has been considered, that is, an agreement that allows access of goods in conditions of zero tariffs and no quantitative restrictions for products coming from the UK, but taking into account the rules of origin that must be incorporated into the FTA. This is not the “combined customs territory” pretended by the UK. It is certain that the March Guidelines include “customs cooperation”, but this reference apparently does not cover the elimination of the customs control between the UK and the EU. Conversely, the guidelines stress that the integrity of the EU Customs Union must be preserved. So, I think that it is not very likely that the UK’s proposal will be accepted by the EU: a border within the EU and the UK is not easily avoidable.
Of course this border implies problems for Ireland. One of the principles of the negotiation between the EU and the UK is the preservation of the Good Friday Agreement of 1998. This Agreement ended the conflict in Northern Ireland and settled the basis for the development of the border areas between Northern Ireland and the Irish Republic. So, Brexit negotiations should find a solution for the Irish problem, avoiding a hard border in the Island. See point 11 of the European Council (Art. 50) guidelines for Brexit negotiations (29 April 2017):
“The Union has consistently supported the goal of peace and reconciliation enshrined in the Good Friday Agreement in all its parts, and continuing to support and protect the achievements, benefits and commitments of the Peace Process will remain of paramount importance. In view of the unique circumstances of the island of Ireland, flexible and imaginative solutions will be required, including the aim of avoiding a hard border, while respecting the integrity of the Union legal order. In this context, the Union should also recognise existing bilateral agreements and arrangements between the United Kingdom and Ireland which are compatible with EU laws”.
A “combined customs territory” would resolve the Irish problem, but, as we haves just seen, it is doubtful that the EU will accept that proposal; so, other solutions for the Irish border should be explored.
In conclusion, the British proposal goes beyond the limits established by the EU Council in the Guidelines for the negotiation. The proposal does not consider the Single Market as a unit, but intends to build a strong partnership in some areas (goods and services) and at the same time refuses integration in the field of free movement of people. A more adequate balance between the different fields should be necessary.
Apart from this, the proposal about a “combined customs territory” goes also beyond the limits of the negotiation established by the EU Council. To integrate the territories of the UK and the EU in a single area with common borders, but with different tariffs and commercial policies is not only a step forward the will expressed by the EU Council, but also extremely complicated from a practical way.
These are serious problems for the negotiation. The British proposal has not taken into consideration the limits fixed by the guidelines of the European Council; so, it is not surprising the refusal expressed by the European leaders in Salzburg.
4. The patents mistake
There is still another problem: the UK’s proposal includes at least one serious mistake. In point 151 the “Chequers Plan” indicates that the intention of the UK is to stay in the Unitary Patent System after the UK leaves the EU. The Unitary Patent System includes some EU Regulations and one International Agreement on the Unified Patent Court. The system creates a “ Unitary European Patent” for the whole territory of all the Member States participating in the system. It also creates a Unified Patent Court (UPC) with seats in Luxembourg, Paris, London and Munich. To maintain a section of the UPC in London is highly interesting for the UK from many perspectives, so, it is understandable the British interest in participating in the UPC.
151. “The UK has ratified the Unified Patent Court Agreement and intends to explore staying in the Court and unitary patent system after the UK leaves the EU. The Unified Patent Court has a unique structure as an international court that is a dispute forum for the EU’s unitary patent and for European patents, both of which will be administrated by the European Patent Office. The UK bill therefore work with other contracting states to make sure the Unified Patent Court Agreement can continue on a firm legal basis”.
This is really surprising! The “Chequers Plan” refers to the UPC as “an international court”, but the UPC is not an international court. The UPC is part of the judicial system of the Member States participating in the Unitary Patent System, and this is not a purely formal matter. The Court of Justice of the European Union issued an opinion (Opinion 1/09 of 8 March 2011) about the draft agreement on the European and Community Patents Court and the conclusion of the Luxembourg Court was that it was not compatible with the EU law to confer on an international court jurisdiction to interpret and apply EU law. See number 89 of the Opinion:
89. “Consequently, the envisaged agreement, by conferring on an international court which is outside the institutional and judicial framework of the European Union and exclusive jurisdiction to hear a significant number of actions brought by individuals in the field of the Community patent and to interpret and apply European Union law in that field, would deprive courts of Member States of their powers in relation to the interpretation and application of European Union law and the Court of its powers to reply, by preliminary ruling, to questions referred by those courts and, consequently, would alter the essential character of the powers which the Treaties confer on the institutions of the European Union and on the Members States and which are indispensable to the preservation of the very nature of European Union law”.
This was the reason for changing the draft agreement, transforming the international court firs intended into a national court. So, the UPC is not and cannot be an international court. It is and it must be part of the judicial system of the Contracting Member States. See the Agreement on a Unified Patent Court:
“CONSIDERING that the Unified Patent Court should be a court common to the Contracting Member State and thus part of their judicial system, with exclusive competence in respect of European patents with unitary effect and European patents granted under the provisions of the EPC”.
How it was possible that such a serious mistake (to consider the UPC as an international court) could be introduced in a document of the relevance of the “Chequers Plan”?
The Brexit is becoming a serious problem if it implies that the UK’s Government is not able to distinguish between international and domestic courts…
5. As a conclusion
The “Chequers plan” tries to advance the negotiation of the future partnership agreement between the EU and the UK. It is not probable that the EU accepts to conclude such a detailed agreement before the effective withdrawal of the UK and in any case; before entering in the future relationship agreement, the withdrawal agreement must be concluded.
Leaving this aside, the Chequers plan does not fit with the guidelines adopted by the EU Council: the British proposal does not respect the unity of the Single Market and pretends the creation of a combined customs territory that goes beyond the intentions declared by the EU.
Finally, the document incurs in a serious mistake: the UPC is not an international court. It is a national court and it is not possible for third states to participate in it.