The Day the Unicorns Cried: the deal on phase 1 of the Brexit talks

Professor Steve Peers, University of Essex

Introduction

The recent ‘joint report’ on the progress in the Brexit negotiations (accompanied by a Commission paper) amounted to an informal deal to proceed to the second phase of Brexit talks. Indeed, on the basis of the joint report, the EU27 side has since agreed there is ‘sufficient progress’ in the talks to move to the second phase. This phase will focus on a transition period (discussed here; and see the EU negotiation guidelines on the transition period here) and (starting possibly in March 2018) the framework for the post-Brexit relationship between the UK and the EU.

I have previously blogged on the parts of the deal dealing with the rights of citizens of the EU27 in the UK, and British citizens in the EU27. Here I want to focus on the rest of the joint report, concerning the Irish border, the financial settlement, and ‘winding up’ issues. As I discussed in the Conversation, the joint report is not legally binding, but sets out political commitments, which will be crucial to the final conclusion of the withdrawal agreement and the negotiation of the future EU/UK relationship. Moreover, they will be set out in detail when drawing up the formal text of the withdrawal agreement, which will begin shortly. It should be noted that some points still need to be negotiated or fleshed out, and any agreement on what happens in the transition period will have to be added to the withdrawal agreement. Yet overall the recent deal is undeniably significant, making it rather more likely that a final complete withdrawal agreement will be agreed.

In the citizens’ rights part of the deal, the UK has committed to bring forward a bill for an Act of Parliament giving domestic legal effect to the withdrawal agreement, making express reference to the agreement and making the citizens’ rights provisions part of UK law. However, there is no explicit commitment that the other provisions of the agreement must be made part of UK law.

Irish border issues

These proved to be the most difficult parts of the joint report to agree, given the divergence of views between Ireland (backed by the rest of the EU27), the Democratic Unionist Party (the DUP: unionist MPs from Northern Ireland who prop up the Conservative party’s minority government), and within the Conservative government.

The starting point is the continued commitment of both sides to the Good Friday Agreement, which effectively ended the long period of violent conflict relating to the status of Northern Ireland. The joint report also refers to the UK government’s intention to avoid a ‘hard border’ between Northern Ireland and Ireland, meaning the absence of ‘physical infrastructure or related checks or controls’ at the land border. To reassure the DUP, both sides agree to uphold the ‘principle of consent’ in the Good Friday Agreement (ie, Northern Ireland would have to vote in favour of unification with Ireland), and the UK supports Northern Ireland remaining part of the UK in the absence of such consent. The UK respects both Ireland staying part of the EU internal market and customs union and Northern Ireland saying part of the UK’s internal market, as the UK leaves the EU’s internal market and customs union. It’s the difficulty reconciling these positions with the intention to avoid a hard border that causes problems.

The joint report does not ‘predetermine’ the broader talks on the EU/UK relationship, which may be ‘specific’ as regards the ‘unique circumstances’ on the island of Ireland. The commitments are ‘made and must be upheld in all circumstances, irrespective of the nature of any future agreement between’ the UK and the EU. However, it is hard to see how this could amount to a legal obligation that will apply even in the event of a failure to agree a withdrawal agreement.

Next, the joint report refers to the importance of maintaining North-South cooperation on the island of Ireland, which is linked to cooperation within the EU framework in a number of areas. Then comes the crucial paragraph 49. The UK ‘remains committed’ to North-South cooperation and its ‘guarantee’ of avoiding a hard border, and:

Any future arrangements must be compatible with these overarching requirements. The United Kingdom’s intention is to achieve these objectives through the overall EU-UK relationship. Should this not be possible, the United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland. In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market or the Customs Union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the 1998 Agreement. 

But this reassurance to Ireland is then followed by a reassurance to the DUP: the UK will not create new regulatory barriers between Northern Ireland and the rest of the UK, unless Northern Ireland bodies consent to this.

The joint report goes on to address related issues. It recognises that Irish citizenship – and therefore EU citizenship – will still be held by many in Northern Ireland, as a consequence of Irish citizenship law. Human rights and equality law shall continue to be protected – including no diminution of equality rights as protected by EU discrimination law. The Common Travel Area for persons can continue to apply. Indeed the UK’s position paper on Northern Ireland notes its intention not to apply checks on persons crossing the land border with Ireland, but rather to ensure migration control via checks in country instead, via workplaces, banks, universities and landlords (for instance), as is currently the case for non-EU citizens. Finally, the funding programmes relating to the peace process will continue, and their future application will be ‘examined favourably’. In fact, the Commission paper commits to propose to continue these programmes in the next EU multi-annual funding cycle (a proposal is due in May 2018).

The key issue in this part of the joint report is the means to avoid a hard border and continue North-South cooperation more broadly. Some interpret paragraph 49 as a commitment from the UK implicitly to stay part of the EU’s internal market and customs union – but this is hard to reconcile with the paragraph which explicitly notes that the UK is leaving the internal market and customs union. (The EU27 guidelines on the transitional period note this again).

Read closely, the obligation of ‘full alignment’ only applies if the commitments on ‘no hard border’ and North-South cooperation cannot be achieved via means of the overall EU/UK agreement, or by a specific solution. Even then it is a commitment to align with ‘those rules’ in the internal market or customs union which support North-South cooperation et al. If the intention is to commit to staying in the entire customs union and internal market, why refer only to some rules in this context?

The reality is that this form of words is a fudge, intended to serve as a vague compromise that would be enough to get the nod for ‘sufficient progress’ to move to the next phase of talks. There is far less concrete detail in the ‘Irish border’ section of the joint report than in the sections on citizens’ rights and the financial settlement. It remains to be seen whether the two sides are content to leave this point ambiguous for now, given that talks on the future trade relationship have yet to start and a ‘status quo’ transitional period would defer the necessity to decide the issue definitively for awhile.

If they do intend to address the issue in detail at an earlier stage (as the wording of the joint report suggests), it will be necessary to address how much paragraph 49 merely refers to border controls, and how much it refers to broader issues of North-South cooperation and the all-island economy. Border controls do not concern all aspects of the internal market, given that checks on persons are referred to separately in the joint report and issues concerning regulation of services or establishment have little or nothing to do with checks at land borders. (It’s worth noting that the issues on which Jeremy Corbyn’s Labour leadership would most like to diverge from single market rules – competition, state aid, regulation of public services – do not have much to do with land border checks either).

Specifically on land border checks, the UK’s Northern Ireland paper suggested that trade and regulatory rules could differ somewhat but a hard border could still be avoided, by means of new high-tech systems keeping track of trade remotely. Two such methods were proposed (the ‘highly streamlined customs arrangement’ and the ‘new customs partnership’), but there was little detail on either. (See now the discussion paper on the planned Customs Bill).

On the other hand, ensuring regulatory alignment regarding North-South cooperation and the all-island economy would encompass a broader proportion of the internal market, although not necessarily all of it. On either interpretation this leads to the question of whether the EU27 would accept a solution entailing participation in only some EU rules, not all of them. While the EU27 side has said it would not accept ‘cherry-picking’ of the internal market rules by the UK, it has also said that it will contemplate a ‘unique’ solution for Ireland in light of its special circumstances. There is as much tension between those two positions as there is in the UK’s positions that it will simultaneously avoid a hard border, keep Northern Ireland in the UK internal market, and diverge from EU regulations. The UK has often been rightly criticised for a ‘have your cake and eat it’ Brexit strategy; but there appears to be some magical munching on the EU27 side too. 

Financial settlement

EU budgetary law is the type of law only an accountant could love. Nevertheless, it’s necessary to look at the details of the deal on this issue, since the principle of paying anything to the EU after Brexit is bitterly resented by some. Some general points: the EU27 side was not simply asking for a lump sum (as some claimed), but for a detailed list of commitments relating to specific amounts that it believed were payable as an ongoing consequence of the UK’s membership of the EU prior to Brexit day. But also it should be noted that the financial settlement represents money the UK would be paying anyway if it remained an EU Member State; so it’s misleading to suggest it’s an extra fee that has to be paid because of Brexit. There isn’t enough space on British roads to accommodate another false claim about the UK’s financial contributions to the EU. However, the size of the financial settlement further undercuts those earlier false claims about how much the UK stood to save from Brexit.

The starting point is that the two sides have agreed a ‘methodology’ for the financial settlement, rather than an exact sum. It contains four elements: a list of components as to what is owed; principles for calculating the value of the settlement; arrangements for the UK to continue being part of the current EU budget until its normal end in 2020; and arrangements for the UK’s role in other EU spending.  Some points are left to the second phase of talks (paras 60, 67c, 70, 72, 80 and 85) or, in effect, to the future relationship talks (paras 66, 73).

Components of the settlement

The UK agrees to stay a participant in the current EU budget until the end of 2020, despite leaving the EU in March 2019. While the EU27 side sees this as an outstanding obligation, the UK side sees it as an aspect of the post-Brexit transition period, as proposed in the Prime Minister’s Florence speech. In principle, I agree with the UK’s legal argument here; in practice, it’s a distinction without a difference.

Notably, the joint report says that changes to the EU’s basic laws on spending or revenue adopted after Brexit day which affect the UK will not apply to it. This protects the UK against its budget rebate being abolished or curtailed, or having to pay a share of any (hypothetical) increased EU spending, in the absence of its veto. It’s expressly a ‘derogation’ from the rule (later proposed in the EU27 guidelines) that the UK would be bound by new EU laws adopted in the transition period. Conversely, it’s necessarily implicit that the UK would be bound by the annual EU budgets for the whole of 2019 and also 2020 (except for any parts of those annual budgets affected by changes in the basic budget laws), and any changes to the EU’s Financial Regulations (which set out the technicalities of the EU spending process in more detail, but don’t determine the actual amounts spent). 

The UK has agreed to pay its share of funding commitments that the EU promises before the end of the budget cycle in 2020, but does not actually fund until later. Known by the unlovely French acronym ‘RAL’, this is probably the biggest chunk of the financial settlement. There is a detailed agreement on how to work out the UK share of EU liabilities in general.

Principles for calculating the value of the settlement

This part of the joint report includes details of how to calculate the UK’s share of EU spending. It includes a requirement that UK contributions be paid in euro – so the UK will pay extra due to the drop in the value of the pound following the Brexit vote and the decision to leave the single market.

Current EU budget

It’s made clear in the joint report that the UK will fully benefit from EU spending up until the end of the 2020 budget cycle. This will mean, for instance, that EU regional funds, agricultural subsidies and research spending will be spent in the UK until the end of 2020. The UK states a wish to continue participating in some EU programmes after Brexit – but this is an issue for negotiations on the future relationship.

Other EU spending

The UK has agreed to guarantee its ‘callable capital’ in the European Investment Bank, and there’s a schedule to return the UK’s capital in the Bank over twelve years (at the rate of €300 million/year).  Again, the UK wants a continuing relationship, but that’s an issue left for future talks. The UK’s capital in the European Central Bank will also be returned; the details will be agreed by the Bank.

The UK will continue participating in EU off-budget spending relating to Turkey and Africa (as regards migration and refugees) and in the European Development Fund, the aid programme for African, Caribbean and Pacific countries. Presumably this spending, while it lasts, will still be considered part of the UK’s commitment to spend 0.7% of GDP on international aid. That means there’s no money here to be saved as such – although in the absence of these commitments, the UK could, if it wished, have spent that aid money differently. The joint report includes an agreement to discuss ‘governance arrangements’ to take account of the off-budget status of this fund, presumably retaining the UK’s decision-making role here whereas it will lose its representation in EU institutions.
 

Finally there’s a recognition of the UK’s intention to discuss reducing the withdrawal costs of the EU agencies leaving London. It does seem odd that these agencies would not be able to cut those costs by subletting their office space to other tenants.

‘Winding up’ rules

These are the least high-profile of the issues in the joint report, but are important for the nitty-gritty of relations between the UK and the EU. Anything agreed on this issue may turn out to be irrelevant, at least for now, if the substantive law of UK/EU relations remains the same during the transitional period (as the EU27 proposes). Indeed, it may turn out to be irrelevant forever, to the extent that the UK and EU agree to keep applying current rules even after the transitional period: but it’s likely that a big chunk of current rules will indeed change sooner or later.

On these issues, the joint report (paras 87-95) notes that ‘further discussion’ is required on some issues in the second phase. The Commission paper notes that there has been no discussion yet of EU27 papers on issues relating to intellectual property law, customs, public procurement and data protection. However, there are some agreed principles on winding up UK participation in Euratom, the atomic energy body (discussed further here), although the Commission paper notes that some issues have not yet been resolved. Some points have been agreed on goods placed on the market before Brexit day, although the Commission paper says there is no agreement yet on the definition of ‘placing on the market’ or on regulatory competence.

As for civil law cooperation (discussed further here), the two sides agree to continue applying current conflict of laws rules where the contract was signed, or the damage occurred, before Brexit Day. Current rules on jurisdiction of courts will apply where proceedings started before Brexit Day. But there is no full agreement yet on the details of mutual recognition of civil judgments or decisions: a judgment handed down before Brexit Day will be recognised, but the two sides have not yet agreed whether a case pending on Brexit Day but decided afterwards will be. There is disagreement on what happens if a ‘choice of court’ rule is triggered after Brexit Day, but civil cooperation proceedings pending on Brexit Day (for instance, the service of documents, or a request for evidence) will be completed.

As for criminal law, the two sides have agreed that pending procedures will be completed, but have not yet agreed on the date for a cut-off. Procedural rights for suspects will be guaranteed, as regards the legislation which the UK has opted into. (For more on criminal law cooperation after Brexit, see discussion here).

On issues specific to the EU institutions, the UK has accepted the EU27 position that where the ECJ has been seized of cases relating to the UK before Brexit Day, it will remain competent to give a judgment after Brexit Day. (Presumably it will be clarified that such a judgment will still bind the UK, given that the ECJ insists that its judgments must always be binding). On the other hand, as the Commission report notes, the two sides still disagree on what happens to cases concerning EU law pending in the UK courts on Brexit Day (ie could they still be sent to the ECJ for a decision?).

Also there is no agreement yet on what to do with administrative proceedings pending before EU institutions on Brexit Day, such as competition and state aid processes. But there is agreement on issues relating to immunities, professional secrecy and classified information.

There is also no agreement yet on ‘governance issues’, notably the role of a Joint Committee and the dispute settlement process, including as regard sthe role of the ECJ in such a process (note this is a separate question from the role of the ECJ as regards citizens’ rights, which has been agreed).

Conclusions

Hard core Brexiteers once insisted that the UK could quickly obtain a short, simple trade agreement from the EU, with the EU capitulating immediately to the UK’s demands. The length and complexity of the Brexit talks to date – before trade talks have even begun – shows the falsehood of these assertions.

So do the details of the agreement to date. If the UK ‘holds all the cards in negotiations’, why did it agree to a financial settlement in the tens of billions? If the UK/Ireland border could simply remain unaffected by the Brexit process, why was there a need for such convoluted language on this issue – with many details still to be worked out? If the citizens’ rights issues could be settled by a simple exchange of letters, why has the UK agreed to the continued application of key aspects of EU law to EU27 citizens in the UK?

It seems evident that the UK/Ireland relationship will continue to remain a central issue not just as regards the withdrawal agreement, but also the UK/EU future relationship. The ironies pile up here. First, while the UK government tried to use discussions of Irish border issues to bring forward talks on the future EU/UK trade relationship, the EU27’s willingness to do just that then exposed the lack of agreement within the UK government (and between the government and the DUP) as to exactly what the UK wants from that future relationship.

Secondly, the joint report treats Northern Ireland as Schrodinger’s province: simultaneously reaffirming its identity as a uniform part of the UK and its distinct status as a part of the UK closely linked to the Republic of Ireland. Perhaps this is to be expected from the influence of the Democratic Unionist Party, which sees no contradiction in simultaneously insisting on Northern Ireland’s uniformity with the rest of the UK and on the need for lower taxes, more spending and different laws on same-sex marriage and abortion there than in the rest of the UK.

Thirdly, the huge overlap between hard core Brexiteers and hard core unionists contains inherent contradictions. Because of the Good Friday Agreement, retaining a close link between Northern Ireland and the rest of the UK necessarily means retaining a close link between the entire UK and Ireland – and therefore with the rest of the EU. Brexiteers are keen to enhance links with the USA and the Commonwealth; but Ireland was not the ex-colony they were looking for. 

Overall, agreement on the first phase of Brexit talks means that ‘no deal’ in the talks is somewhat less likely – though this might be mirrored by the Remain option being less likely too, if it means that leaving the EU produces only a gradual economic impact, rather than a huge shock. Coupled with the plans for a transitional period which mostly or entirely retains the substantive status quo of EU membership, the joint report envisages a process in which the UK moves gradually from being a semi-detached member of the EU to a semi-detached non-member of the EU.

The UK government has yet to resile from all the magical thinking which Brexiteers have indulged in. But its willingness to compromise on some difficult issues does suggest it recognises that ‘no deal’ is a bad idea. It has also recognised that a transition is necessary, that a financial settlement is inevitable, and (tentatively) that Brexit leprechauns will not solve Irish border issues. The move to the next phase of Brexit talks was a bad day for disaster capitalists and fantasists. But while the sky will be clearer without flocks of flying pigs and unicorns, it does mean that everyone on the ground will now have to listen to the same endless moaning from hard Brexiteers which they have long accused Remainers of.

Barnard & Peers: chapter 27

Art credit: Steve Cutts