What did we learn from the Prime Minister's Chequers statement on Brexit?

Brexit Explained banner

 

Area

What did the Chequers statement say?

What does it mean?

Is it negotiable?

Goods

The UK and the EU would maintain a common rulebook for all goods including agri-food, with the UK making an upfront choice to commit by treaty to ongoing harmonisation with EU rules, covering only those necessary to provide for frictionless trade at the border.

The statement underlines in bold the UK’s commitment to maintain a “common rulebook” with the EU. However it is unclear whether this envisages a legal obligation aligning to EU rules on all goods or a voluntary alignment which would not, by itself, remove trade barriers. The phrase “common rulebook” is misleading. The UK is saying it will harmonise with EU rules on traded goods. The UK could seek to influence those rules as Norway does now, but they would not be co-produced.

The statement then commits to making an “upfront choice” to “harmonisation” with a subset of EU rules needed to provide frictionless trade. That means the UK would update the rules in line with the EU. The white paper should clarify which rules would be outside the scope.

Accepting regulatory harmonisation would apply to agri-food – essential to solving the Irish border question – and makes a deep trade deal with the US much less likely.

This would need the EU to accept the divisibility of the Single Market and its underpinning four freedoms as the UK is proposing to end freedom of movement. It also assumes that goods and services can be divided – though increasingly they are bound up together and EU businesses may think less restrictive UK obligations on services could give UK firms a competitive advantage. The EU has though conceded variants of partial alignment/ access in its agreements with Turkey, Switzerland and Ukraine in return for mandatory alignment.

The EU itself proposed that Northern Ireland should stay aligned with a subset of EU rules through a common regulatory area as part of its proposed backstop, but it has stressed that this could not apply for a country the size of the UK.

Incorporation of EU rules Where the UK had chosen to apply a common rulebook Parliament would still have a lock on incorporating rules into the UK legal order, but choosing not to pass the relevant legislation would lead to consequences for market access, security cooperation or the frictionless border.

The Government is suggesting that the agreement would allow the UK to diverge from future regulation and this would lead to some consequences for market access or security co-operation – but not abrogate the agreement. What is not clear is how this process would work – whether the failure to incorporate one rule would lead to the collapse of the entire agreement, or of an entire chapter of it, or something narrower. It is also not clear who would decide. This section allows the PM to say her agreement to a common rulebook can be reconciled with “taking back control of our laws”.

In practice, the consequences would mean that the UK was unlikely to diverge – it would need to set up, for example, new UK regulatory processes and could open the way to border checks – which would reintroduce problems at the Irish border. The risk of loss of UK market access would make the UK a less attractive destination for business investment.

The document says the rulebook is relatively stable. It is not. The coming complete overhaul of medical devices regulation and the overarching General Data Protection Regulation (GDPR) are just two examples of how the acquis often goes through major transformations. In the case of the EEA, the annexes and certain protocols to the EEA are constantly amended, month after month, by the EEA Joint Committee.

This will be one of the most controversial parts of the document, as far as the EU is concerned. The single market is constructed to ensure that national parliaments do not have a lock on incorporating new EU rules into their domestic legal orders. If they fail to do so, they can be hauled before the ECJ and made to comply.

The EEA agreement is one relevant precedent. It provides that if the parties disagree as to whether new EU rules should be incorporated into the agreement, part of the agreement can be suspended. However, the EU may not regard this system as applicable to the UK case. The EFTA-EEA states are much smaller economies, and therefore present less of a competitive threat, and are trusted to maintain a cooperative relationship with the EU.  The EU may therefore seek a different system of sanctions in the UK-EU agreement.

Services We would strike different arrangements for services, where it is in our interests to have regulatory flexibility, recognising the UK and the EU will not have current levels of access to each other’s markets.

There is no commitment to align on services and the UK would retain the ability to diverge. The document accepts this would mean the UK’s ability to provide services would face greater restrictions in the EU and vice versa as a result.

What is not made clear is that transport services – especially road and aviation – are vital for free movement of goods. It also does not acknowledge the way in which services add value to goods exports.

The document suggests this would give scope for trade deals on services – though there is little evidence to date of deep trade deals on services – the EU’s Single Market has the most liberalised trans-national services regime.

The EU would argue that goods and services are increasingly integrated and the single market institutions and infrastructure cannot be split to apply just to goods. The UK could gain an unfair advantage if it did not have to align on services that are embedded in goods which are often the profitable component of a goods export.

Customs

The UK and the EU would work together on the phased introduction of a new Facilitated Customs Arrangement that would remove the need for customs checks and controls between the UK and the EU as if a combined customs territory

The UK would apply the UK’s tariffs and trade policy for goods intended for the UK, and the EU’s tariffs and trade policy for goods intended for the EU - becoming operational in stages as both sides complete the necessary preparations.

This is a variation on the original New Customs Partnership idea which also proposed that the UK would administer the EU’s external border. The big change is that an importer would pay either the UK or the EU tariff at the border, whereas in the earlier proposal they would pay the higher tariff. This depends on tracking goods to their destination – otherwise it is just a licence for massive fraud. It would avoid the need for customs declarations at the Irish land border.

The fact that it would be “phased” suggests that initially it would work as a customs union with no divergence, while the technology is developed.

The EU has expressed its reservations about allowing allow a third country, unsupervised by the Commission and not subject to the ECJ, the ability to control its borders and about the potential loss of revenue. The EU would potentially also be worried about the costs the technology may impose on member states or business.

Level playing field

The UK would commit to a common rulebook on state aid and establish cooperative arrangements between regulators.

The UK and the EU could also agree to maintain high regulatory standards for the environment, climate change, social and employment and consumer protection – meaning we would not let standards fall below current levels.

The Prime Minister offered “binding commitments” on state aid and competition at Mansion House. The UK is offering a “no-regression” clause on some other level playing field issues the EU identified. The EU has made it clear in its guidelines that, even with a Canada-style FTA it is concerned that the UK does not undercut its protections or ability to compete. This will go some way to meeting its concerns – but it is likely to look for firmer and more enforceable guarantees. The EU has also identified corporate tax as an area of concern which the UK does not mention.
Institutions The UK and the EU would establish a joint institutional framework to provide for the consistent interpretation and application of UK-EU agreements by both parties. This would be done in the UK by UK courts, and in the EU by EU courts – with due regard paid to EU case law in areas where the UK continued to apply a common rulebook.

This proposal is not unprecedented. The government is suggesting that the interpretation and application of the UK-EU agreement should work in a similar way to the EEA Agreement.

In that agreement, those three states have their own top court, the EFTA court, which adjudicates on the application of the agreement in those countries, while the ECJ adjudicates on the application of the agreement in the EU. The EEA agreement also provides that the EFTA court should “pay due account” to the case law of the ECJ.

Michel Barnier has hinted in the past that the EFTA model could work for the UK. A major benefit of a “two-pillar” structure, in which different institutions interpret and apply the agreement for each side, is that this approach ensures that only the EU’s own institutions bind the EU to a particular interpretation of EU law. In the past, the ECJ has rejected proposals for agreements that would bind the EU to another court’s interpretations of those rules.

However, making this model work for the UK is slightly more difficult than making it work for the EFTA-EEA states. This is because the UK is only one country. The application of the EEA Agreement in Norway is reviewed by Icelandic and Liechtensteinian judges, whereas the application of the UK-EU agreement in the UK would be reviewed only by UK judges, and so not subject to the same kind of “external review”. The EU might therefore worry that the proposal amounts to the UK “marking its own homework”.

Dispute resolution This framework would also include robust and appropriate means for the resolution of disputes, including through a Joint Committee and in many areas through binding independent arbitration – accommodating through a joint reference procedure the role of the Court of Justice of the European Union (CJEU) as the interpreter of EU rules, but founded on the principle that the court of one party cannot resolve disputes between the two.

A joint committee, usually comprising ministers and diplomats from each side, is par for the course in trade agreements and other international treaties. This part of the plan is no surprise.

Arbitration is also a standard means of dispute resolution for trade agreements. When the parties disagree about the application or interpretation of some aspect of the agreement, they agree on the appointment of three expert lawyers to decide the case. However, under EU law, only the ECJ can bind the EU to a particular interpretation of EU law. In the past, therefore, the EU has required that where arbitral tribunals play a role in dispute resolution between the EU and its partners, they refer EU law-related issues to the ECJ. This is the case, for instance, with the EU-Ukraine Association Agreement. The government appears to be drawing on that model.

The EU has said in the past that a Ukraine-style dispute resolution mechanism, in which an arbitration tribunal hears cases but can refer them to the ECJ if they hang on questions of EU law, is a plausible solution for the future UK-EU partnership.

The EU will want to see more detail, however, on how the different elements of the government’s proposal – the two-pillar courts structure, the joint committee, the arbitration and the ECJ reference procedure – hang together.

The Northern Irish backstop Taken together, we noted that such a relationship would see the UK and the EU meet their commitments to Northern Ireland and Ireland through the overall future relationship: preserving the constitutional and economic integrity of the UK; honouring the letter and the spirit of the Belfast Agreement; and ensuring that the operational legal text the UK will nonetheless agree on the ‘backstop’ solution as part of the Withdrawal Agreement would not need to be brought into effect. In this context, we also noted that this proposal should allow both parties to resolve the remaining Withdrawal Agreement issues, including the backstop. This paragraph is ambiguous. The UK and the EU have already agreed that the withdrawal agreement, a legally binding treaty that is expected to be signed and ratified by March 2019, must contain a backstop protocol which, if applied, would be guaranteed to keep the border between Northern Ireland and the Republic open. It would only come into force, however, if it proved impossible to achieve the same outcome through negotiations on the future economic relationship between the UK and the EU. The UK here reaffirms its commitment to including such a protocol in the withdrawal agreement, but it is not clear whether the UK is thereby accepting the backstop text proposed by the EU earlier this year, nor whether the UK is accepting that the backstop can keep only Northern Ireland in alignment with the UK, or must apply to the whole UK. The EU has consistently said that there will be no withdrawal agreement, and hence no transition period, unless there is an agreement on the backstop. The EU will press for clarity on what kind of backstop the UK is seeking to negotiate.
Agriculture and fisheries The UK will leave the Common Agricultural Policy and Common Fisheries Policy – taking back control of UK waters as an independent coastal state and designing a domestic agriculture policy that works in the best interests of the UK. The UK would run its own farm support scheme and hope to allow British fishermen a greater share of the catch in UK waters. But the UK wants tariff free access for agriculture and fish, and will sign up to the EU’s sanitary and phytosanitary regulatory regime. The EU may be worried about levels of agriculture subsidy (especially as this will be devolved) and the risk that reduced bureaucracy allows UK farmers a competitive advantage. The EU guidelines explicitly link a trade deal to maintaining “existing reciprocal access” on fish.
Freedom of movement

End free movement.

Include a mobility framework so that UK and EU citizens can continue to travel to each other’s territories and apply for study and work – similar to what the UK may offer other close trading partners in the future.

This is building on the hints at the Mansion House speech that the Government is prepared to put future migration into discussion; the word “apply” hints at no automatic right to move; and there is a sop to Global Britain advocates that we might also want to offer a preferential scheme to other countries. Not clear where they have in mind: Australia possibly? But would the government extend it to countries like India who will look for parity of treatment in any future trade deal. The EU has always insisted that future migration, including onward movement for UK citizens living in other EU members states should be discussed in the future partnership. But the key part for Single Market access is the reiterated commitment to end free movement.

 

Further information 

Read our Explainer on the Brexit white paper.

Update date: 
Monday, July 9, 2018