Updated: First EU draft of the Future Relationship

Update 18 March 2020: Subsequent to our post below, the Commission has released an official version of the draft agreement which we understand has hardened the position in some respects. Also, on 18 March 2020 the UK provided the EU with a copy of its draft proposed agreement, although this is not yet available so far as we are aware.

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A first EU draft of the Future Relationship between the UK and the EU has emerged.  It is a Commission draft that has been sent to Member States and the European Parliament for consultation (available here) and may therefore change considerably.  The UK government had announced that it would produce a draft in time for the next round of consultations. Both sides may be trying to set the agenda but it is unusual to see complete drafts at this stage.  From a negotiating standpoint, such action risks showing one’s cards (or giving away one’s trump cards) too early.

The first thing that can be said about this draft is that it is ambitious, providing for complete duty and quota free trade in goods.  Even for services, it appears to go much further than WTO commitments since there is no schedule of sectors that are excluded from the national treatment (non-discrimination) obligation.  It also includes provisions on fisheries, data flows, capital movements, intellectual property, public procurement, transport, energy and raw materials, judicial and security cooperation, and for the continued participation of the UK in EU programmes.   There are of course exception clauses, including safeguards and provision for trade defence measures but, although such comparisons are problematic, this would, overall,  probably be the most far-reaching partnership agreement that the EU has ever proposed with a sovereign third country.  See non exhaustive list of issues covered at the bottom of this post.

Of course, this is only a first draft and should be viewed as a first step in a complex negotiation. There are many difficult issues to resolve in the negotiations on which the parties seem to be far apart.  For example, the EU is proposing an overall framework with a common governance structure, which would also cover future supplementary agreements, whereas the UK seems to want a “suite” of separate agreements.  Also, the EU draft contains extensive “level playing field” commitments on State aid, competition, taxation, social protection and the environment.  The State aid provisions in particular are likely to be unacceptable to the  UK since they provide for “dynamic alignment” with EU rules and give the EU enforcement and intervention powers that are not available to the UK against the EU.  Although the other level playing field provisions are apparently more even-handed, in that the disciplines are drafted so as to apply to both parties, in reality they are not since the substantive disciplines are those chosen for inclusion by the EU and the EU is “deemed” to comply with the procedural requirements.

The provisions for the settlement of disputes will be another area of controversy.  Not only are there many grants of jurisdiction to the ECJ, which the UK has declared a red line, there is also provision of autonomous interim sanctions (fines) where one party considers the other not to be in compliance.

It is difficult to say whether this draft makes an agreement more likely by the end of the year or not.  Apart from the known controversial issues and the fact that this has not yet even been agreed internally within the EU, the draft contains, despite its 441 pages, many blanks to be filled in and negotiated.  We also await, of course, the reaction of the UK government and, presumably, its conception for the structure for a draft agreement.

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Issues covered by the draft agreement include:

• ECONOMY AND TRADE
  • Transparency
  • Good regulatory practices and regulatory cooperation
  • Level Playing Field and Sustainability (State aid control, Competition, State-owned enterprises, Taxation, Labour and social protection, Environmental protection, Fight against climate change and Other instruments for trade and sustainable development)
  • Trade in goods
    • National Treatment and market access for goods [including trade remedies]
    • Rules of origin
    • Sanitary and Phytosanitary Issues
    • Technical barriers to trade
    • Customs and trade facilitation
  • Fisheries
  • Services and investment
    • General Provisions
    • Investment liberalisation
    • Cross-Border Trade in Services
    • Entry and Temporary Stay of Natural Persons for Business Purposes
    • Regulatory Framework
      • Domestic Regulation
      • Provisions of General Application
      • Delivery Services
      • Telecommunications Services
      • Financial Services
      • International Maritime Transport Services
  • Digital trade
    • Data flows and personal data protection
  • Capital movements, payments, transfers and temporary safeguard measures
  • Intellectual property
  • Public procurement
  • Mobility of natural persons
  • Transport
    • Air transport
    • Aviation safety
    • Transport of goods by road
    • Rail transport
  • Energy and raw materials
    • Sustainable Energy
    • Electricity and Gas
  • Civil Nuclear
  • Small and medium-sized enterprises