The UK-EU future relationship: the March 2020 EU draft treaty and negotiations update

Following the UK’s withdrawal from the EU on 31 January 2020, negotiations on the future UK-EU relationship began on 2 March 2020. The UK and EU negotiating positions were outlined in published documents at the end of February. These are analysed in the Commons Library briefing papers 8834, The UK-EU future relationship negotiations: process and issues and 8920 The UK-EU future relationship negotiations: summary of positions).

The negotiations

The initial terms of reference for the negotiations published at the end of February envisaged five rounds of negotiations up to the middle of May 2020, with further rounds to be mutually agreed. The high-level UK-EU meeting envisaged for June 2020 would be an opportunity to take stock of progress “with the aim of agreeing actions to move forward in negotiations”.

Draft texts tabled

The European Commission published a draft treaty text on 18 March covering all aspects of the EU’s envisaged future relationship with the UK (see below). The UK also tabled texts covering some of its proposed suite of agreements, including a free trade agreement. These were not made public and the Government asked the European Commission not to share these texts with the Member States.

Talks put on hold

Lockdowns across Europe in the wake of the coronavirus outbreak meant that the originally planned second and third round of negotiations did not take place. On 15 April, the two lead negotiators, David Frost (UK) and Michel Barnier (EU) met by videoconference and announced a new schedule of negotiations. This would involve three new rounds to take place by videoconference in the weeks commencing 20 April, 11 May and 1 June.

Second round of negotiations

Following the second round of negotiations, Mr Barnier said that the UK had “refused to engage seriously on a number of fundamental issues”. He referred to a lack of progress on four issues where the positions of the two sides continued to differ: i) level playing field; ii) governance; iii) police and judicial co-operation; and iv) fisheries.

A UK Government statement referred to promising convergence in some trade and related issues. But it said that there would be no progress on level playing field and governance provisions until the EU dropped its insistence on imposing conditions on the UK which are not found in the EU’s other trade agreements and “do not take account of the fact that we have left the EU as an independent state”.

In evidence to the House of Lords’ EU Committee on 5 May, the Chancellor of the Duchy of Lancaster Michael Gove said that the Government would be willing to drop the objective of a “zero tariff, zero quota” free trade agreement and accept some tariffs if this meant not signing up to the level playing field arrangements the EU wanted.

Third round of negotiations

Ahead of the third round of negotiations in early May, David Frost said that the UK had now tabled a full set of agreements, including a complete draft free trade agreement and a fisheries framework agreement. In his statement following the third round, Mr Frost said that the main obstacle was the EU’s “novel and unbalanced proposals” on the level playing field. He said these were not based on precedent. Similarly, he said the EU’s demands on fisheries were “manifestly unbalanced” and did not respect the UK’s future status as an independent coastal state.

In his statement following the third round, Mr Barnier rejected the UK suggestion that there could be some tariffs, similarly to those found in the EU-Canada agreement, without there being level playing field provisions. He also said this would require a much more lengthy negotiation of each tariff line, requiring an extension to the post-Brexit transition period. He said that the negotiations on different topics were linked with agreement in one area requiring agreement in others. He said that some of the UK’s requests went beyond what could be found in the EU’s other free trade agreements.

Publication of UK texts and letter to Michel Barnier

The UK Government published the ten draft treaty texts it has tabled in the negotiations on 19 May. The Government also published a letter from David Frost to Michel Barnier sent on the same day. Mr Frost said that the UK treaty texts were based on precedent from existing EU agreements with third countries. He contrasted these with examples of where the EU was not willing to replicate commitments found in these other agreements and was making additional demands.

In his response, Mr Barnier said he did not think such an exchange of letters was “necessarily the best way to discuss on substantial points”. He said the EU would “not accept cherry picking” from past agreements” and that its principal reference point was the Political Declaration (PD) agreed with the UK Government in October 2019.

Timeline and transition period

The loss of negotiating rounds, the switch to negotiating by videoconference and the diversion of resources and political attention towards addressing the coronavirus outbreak has increased concerns about the viability of the timeline for concluding an agreement. However, in his evidence to the House of Commons Future Relationship Committee on 27 April Michael Gove suggested that the coronavirus crisis “should concentrate the minds of EU negotiators”.

The Scottish and Welsh Governments, the Scottish National Party and Liberal Democrats and several other organisations have called for an extension to the post-Brexit transition period in order to give more time to negotiate an agreement. The transition period ends on 31 December 2020, but the Withdrawal Agreement (WA) provides for an extension of the transition period for up to two years if agreed by the end of June 2020. The Government has legislated to prohibit itself from seeking an extension and continues to reiterate that it will not do so.

EU draft treaty text

The EU draft treaty text, published on 18 March, operationalises the positions set out in the EU’s negotiating directives in several areas and provides more details. Some parts of the text, such as Title VI of Part two on services and investment, closely follow the text of the EU-Japan and other EU free trade agreements (FTAs). Detail in some parts is limited.

Part one (common provisions) of the draft treaty states that all areas of the partnership should be within a unified governance structure. It refers to certain essential elements of the relationship, including the rule of law and human rights, the fight against climate change and countering weapons of mass destruction.

Economy and Trade

Part two of the draft treaty covers economy and trade. Title III elaborates provisions on level playing field (LPF) and sustainability. The EU is seeking legally binding commitments to uphold high standards over time in areas of state aid, competition, taxation, labour standards, environmental protection, climate change, and sustainability. The partnership would involve continued application of EU rules (dynamic alignment) on state aid. In the remaining areas, the parties would agree not to regress below the standards applicable at the end of the transition period (non-regression). In addition, the governing body would be able to modify the commitments to reflect evolving standards in most areas of LPF. Commitments would be subject to strong enforcement mechanisms domestically. The Agreement dispute settlement mechanisms, with possible modifications, would apply to all areas, with the exception of competition and taxation.

Title IV covers rules establishing a free trade area for trade in goods. The text proposes to exempt mutual trade from customs duties (zero tariffs) and product import quotas. There are details on customs cooperation and procedures. In some areas such as product-specific rules of origin, and simplified customs procedures, details are limited. The text is not proposing mutual recognition of product conformity assessment or recognition of equivalence of sanitary and phytosanitary standards.

Fisheries is covered in Title V and accompanying annexes. Overall, the text presents a position that would result in a continuation of fisheries management in the UK along the principles of the Commons Fisheries Policy (CFP). Existing current quota shares would be upheld. Failure to comply with provisions would allow the other party to impose tariffs.

With regard to trade in services (Title VI) the EU is proposing terms of market access generally on a par with its recent FTAs. EU priorities include digital trade, temporary business travel for natural persons and steps towards mutual recognition of professional qualifications where this is in the EU’s interest. Audio-visual services are excluded altogether. Market access for financial services will be based on unilateral equivalence decisions with regard to specific activities and types of financial services. In the treaty text, the EU proposes standard third country treatment. There is no mention of regulatory cooperation on financial regulation.

Provisions on energy (and raw materials) are included in Title XIII, covering areas such as support for renewable and energy efficiency technologies, and measures to maintain competitive markets. Some areas of energy policy would stay aligned. Title XIV on civil nuclear co-operation leaves open the possibility of the UK’s participation in EU nuclear research programmes.

Security Partnership

Part three of the draft treaty on law enforcement and judicial co-operation is consistent with the position set out in the EU’s negotiating mandate, providing some further detail about processes. It would provide for access to mechanisms for exchange of fingerprints and DNA; exchange of passenger records; exchange of operational information and intelligence; cooperation with Europol and Eurojust; surrender (extradition); mutual legal assistance; exchange of criminal records; and coordination of anti-money laundering and counter-terrorist financing measures. It also sets out the data protection and human rights requirements that would underpin the agreement and provides for the suspension of it in the event that these are not met. This involves a requirement for UK continued adherence to the European Convention on Human Rights and for it to continue to give effect to the Convention in domestic law.

The EU has also proposed a text on foreign policy, security and defence (Part three, Title II) whilst acknowledging that the UK does not wish to engage in negotiations on these matters.

Participation in EU programmes and financial provisions

Part four of the draft text covers UK participation in EU programmes and sound financial management. It covers financial conditions for UK participation in EU programmes, which would involve a combined sum of a participation fee and an operational contribution. EU bodies would have the right to carry out reviews and audits of persons and entities in the UK receiving EU funds. The programmes in which the UK participates would be indicated in a currently blank protocol.

Governance and Final Provisions

Part five of the draft treaty sets out the proposed governance structure for the relationship and general dispute settlement. It proposes for consultations in the Partnership Council as a first stage, with the possibility for referral to arbitration as a second stage.

The ‘final provisions’ in Part six provide that if the Withdrawal Agreement (WA) is breached by either party, retaliation to such a breach can take place by suspending aspects of this new treaty.

The final provisions also cover territorial scope: the treaty will not apply to Gibraltar, the Channel Islands, the Isle of Man, or the Sovereign Base Areas in Cyprus.