Don’t look at backstop in anger, says PM May

On trade in goods, the negotiators have agreed  in principle the need for  comprehensive arrangements creating a free trade area, combining deep regulatory and customs cooperation, building  on the  single customs territory provided for in the Withdrawal Agreement. Both sides wish to make the trading relationship as close as possible. Exactly what balance of rights and obligation will be compatible with the integrity of the Union's Single Market and Customs Union and the development of the UK’s independent trade policy will be the subject of the future relationship negotiations.

Also in the draft Withdrawal Agreement -

• The UK has committed to abide by the EU Code of Conduct for Business Taxation.
• The UK has pledged to abide by EU laws ensuring the exchange of information among tax authorities on a wide range of information, including interest and capital gains.
• The EU-UK withdrawal agreement also calls for an arbitration panel to be set up to referee disputes that arise if the EU believes the UK isn’t living up to its commitments during the transition phase. However, the taxation annex specifically states that the arbitration panel will not apply if there are disputes about abiding by EU tax laws.
• The draft agreement includes a provision that permits the bloc to bring state aid cases against the country for up to four years after the end of the transition period in December 2020.
• The EU and UK have agreed a settlement amount of £35 billion to £39 billion ($45 billion to $50 billion) to settle the UK’s outstanding financial commitments to the EU.
• On CJEU, the Withdrawal Agreement allows for the European Commission to bring infraction cases against the UK for up to four years after the end of the transition period for failures to comply with EU law prior to the end of the implementation period.

For further information we recommend the Institute for Government’s explainer on the Draft Withdrawal Agreement (see here) and the Northern Ireland and Ireland Protocol (see here).

The parliamentary debate

There was a wide-ranging debate in the House of Commons on Thursday after Prime Minister Theresa May updated MPs on negotiations to leave the EU and draft withdrawal agreement. A summary follows.

Prime Minister’s statement

The PM said the issue of no hard border between Northern Ireland (NI) and Ireland can best be solved through our future relationship with the EU, but the withdrawal agreement sets out an insurance policy should that new relationship not be ready in time for the end of the implementation period. The EU proposal for a NI-only customs solution has been dropped and replaced with a new UK-wide temporary customs arrangement that ‘protects the integrity of our precious Union’. There will be an option for a single time-limited extension of the implementation period as an alternative to bringing in the backstop: “I do not want to extend the implementation period and I do not believe we will need to do so.” If we choose the backstop, the withdrawal agreement is explicit that the backstop is temporary and that the article 50 legal base cannot provide for a permanent relationship, she said, and there is also a mechanism by which the backstop can be terminated. And we have ensured full continued access for NI’s businesses to the whole of the UK internal market, she added.

The declaration agrees the creation of a free trade area for goods, with zero tariffs and no fees, charges or quantitative restrictions, across all goods sectors, the PM said. No other major advanced economy has such an arrangement with the EU and, at the same time, the UK will also be free to strike new trade deals with other partners around the world. It is a deal that ends free movement; takes back control of our borders, laws and money; and delivers a free trade area for goods with zero tariffs, she said.

Labour Leader’s response

The backstop locks Britain into a deal it cannot leave without the agreement of the EU, said Labour Leader Jeremy Corbyn. Restrictions on state aid are hardwired into the backstop, with an arbitration mechanism, but no such guarantee exists for workers’ rights, he said. The list of EU measures that continue to apply to the UK in respect of NI runs to 68 pages of the agreement. This affects VAT declarations and rules of origin checks, he pointed out. It is ‘utterly far-fetched’ for the PM to say this plan means we take control over our laws, money and border because by 2021, under the proposal, the UK will either be in a backstop or still be in transition, continuing to contribute to the EU budget and to follow the rules overseen by the ECJ. There is no determination to achieve frictionless trade, or even trade as frictionless as possible, and no ambition to negotiate a new comprehensive customs union that would protect trade, jobs and industry, so uncertainty continues for businesses and all those who work in them, Corbyn concluded.

Labour backbench responses

The PM has once again told the House that we will be leaving the customs union, said Hilary Benn – chair of the DExEU select committee – but the truth is that we will be remaining in a customs union, both in the transition and in the backstop arrangement, which can be ended only with the agreement of the EU. The truth is also that the only way to protect jobs, investment and an open border in Northern Ireland in the long term is to remain within it, Benn added. A customs union is not the only way to ensure that we continue to have a good trading relationship with the European Union, replied May.

Rachel Reeves, chair of the Business Select Committee, said the agreement will ensure “that we have no say in the rules that govern how we trade, it does not include services as part of free and frictionless trade, and it offers only the illusion of future trade deals.” The Prime Minister replied that “what is important in terms of the relationship that will persist for decades between this country and the European Union is the future partnership that we negotiate with the EU. As we have said, the outline political declaration is based on the concept of a free trade area and on ensuring that we can continue to have that good trade relationship.”

The PM told Liz Kendall that the Government put forward a proposal in the White Paper which had frictionless trade and a common rulebook, but alongside that common rulebook was a parliamentary lock on determining whether or not this country would accept any changes in those rules.

Alison McGovern charged that today is truly a sad day for our country: the government is collapsing while we are riddled with food banks, child poverty rises and 30 per cent of workers are in hardship jobs.

Clive Efford suggested that the PM has to hold a vote in Commons to give an indicative position of the House on her deal before she goes to a summit at the end of this month, ‘so that she can honestly represent the views of the House on the deal she has negotiated’.  May replied that the House will be able to vote on the final deal that is negotiated with the European Council.

Conservatives backbench responses

Jacob Rees-Mogg complained that the PM “claimed that we would leave the customs union; annex 2 says otherwise. [She] said that she would maintain the integrity of the UK; a whole protocol says otherwise. [She] said that we would be out of the jurisdiction of the European Court of Justice; article 174 says otherwise”.

Steve Baker called the backstop ‘completely intolerable’, and feels confident that even in the unlikely event that legislation for it reaches the House, it will be ‘ferociously opposed’. This deal could well be a choice by the government to have no deal imposed on them at the last minute, he said, and asked the PM to trigger all the implementation of no-deal contingencies now.

Treasury Committee member Stephen Hammond said a boost to our economy and the necessary protection for constituents’ jobs can occur only if UK industry has a frictionless trade area and deep regulatory co-operation. But UK financial services and UK industry also need certainty. He did not get a confirmation that the future political framework will contain a common rulebook and a deep customs arrangement.

Caroline Johnson said the document says that the protocol gives the UK a choice either to implement the backstop or to seek an extension of the implementation period, which it does by requesting that. She said: “How is that our choice and not theirs?” It is for the UK to say whether it wishes the backstop or the implementation period to be extended, but she is absolutely right that the extension would be a matter for negotiation with the EU, replied the PM.

Nick Herbert talked of the danger that in getting hung up on issues such as the backstop or the transition period, which is by definition temporary, we lose sight of the really important issue, which is the future relationship with the EU.

Gillian Keegan cited techUK which states that failing to achieve parliamentary approval of the withdrawal agreement would ‘disrupt supply chains’, ‘hit investment’ and ‘lead to job losses’, and that ‘small and medium sized businesses would be worst affected’. The PM replied that ‘it is the jobs and futures of our constituents that should be at the forefront of our minds’.

Dr Andrew Murrison urged the PM to study evidence given to the Northern Ireland Affairs Committee this week by customs experts, particularly their suggestions around facilitation and technical ways of achieving a soft border that does not require a backstop. He asked if she agreed that the independent arbitration panel “is bound to find that, if the EU does not negotiate the future arrangement with that in mind, it is likely to be found to have acted in bad faith?” The PM replied that one change that has been made recently in relation to the backstop issue, which the UK got into the protocol in the joint statement, is precisely the ability to look at alternative arrangements rather than just at the binary choice of the future relationship coming into place or the backstop coming into place.

Robert Neill supports the deal and so, he said, does the City corporation and all the representatives of the financial services industry have supported it, because it creates the transition that is vital to take forward the complex issues in our future relationships in that sector.

The PM confirmed to Kevin Foster that when the government looked at the proposal, it specifically looked at whether it would be possible to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which the UK would like to join.

SNP responses

Ian Blackford complained that there are 100 mentions of Northern Ireland, mentions of Gibraltar, of Cyprus and of the Isle of Man, but no reference to Scotland. If Northern Ireland can stay in the single market, why not Scotland? Remaining in the single market is ‘the only credible compromise’, he added.

Neil Gray complained of the ‘’disrespect to the people of Scotland by the Government providing a differential deal to Northern Ireland, by providing briefings to the Government of Gibraltar before the Scottish Government; and because Conservative MPs from Scotland were briefed on the text of the withdrawal agreement before the Scottish Government. On a point of Order, Conservative Luke Graham said Scottish MPs were shown the withdrawal agreement statement not the withdrawal deal.

Kirsty Blackman said the Prime Minister had not explained what “in the national interest” actually means. She asked how many extra jobs she believes will be created, how much faster our GDP will grow and how much better off each family will be, compared with remaining in the EU? May replied that the OBR had said that, over the next few years, 800,000 more jobs would be created.

Other responses

Lib Dem leader Vince Cable said that the PM had rightly asserted “that there are two alternatives to her plan: no deal and no Brexit. The Government are making considerable investment in contingency planning for no deal. What contingency planning is she doing for no Brexit, including, for example, advising the Commission that article 50 may have to be withdrawn, and she herself preparing for the fact—however much she hates it—that the House may instruct her to carry out a people’s vote?” We are making no plans for no Brexit, because this Government are going to deliver on the vote of the British people, May replied.

DUP’s Nigel Dodds said the House has been left in a position where the choice is ‘subjection to the rules and laws of others who may not have our interests at heart’.

Party colleague Sammy Wilson said the Northern Ireland protocols make it clear that NI will stay under EU single market law and will also be economically separated from the rest of the UK. Articles 7, 9 and 12 show that, even if the EU allows the UK to leave the single market, NI will remain under single market arrangements, and any border down the Irish Sea will be subject to the willingness of the EU to allow that to be avoided. The PM replied that NI will leave the single market with the whole of the UK. There will be specific regulatory alignment, which she recognises is ‘uncomfortable’. It will be in that portion of the single market acquis that relates to matters that ensure that a frictionless border can take place between Ireland and Northern Ireland, she said. She added: “The checks and controls actually relate to the degree of regulatory divergence, so if there is no regulatory divergence, obviously, that has an impact on reducing the necessity for any checks and controls. Crucially, the EU wanted to say that it would determine whether a good that was produced in Birmingham could be sold in Belfast. We were very clear that the EU could not determine that in the future. It will be the UK Government who make those determinations.”

Independent MP Frank Field was told by the PM that the concept of the free trade area is based on the need for that frictionless trade in goods, to ensure that the people whose jobs depend on those supply chains do not see those jobs go.

The full exchanges can be read here.

The Withdrawal Agreement in summary

• The objective of the agreement is to ensure an orderly exit of the UK from the European Union.
• It determines a transition period that will run until 31 December 2020, with the option of extending this once before July 2020.
• During the transition period, EU law should be applicable to and in the UK, as a general rule.
• The effect of the transition period is intended to be that Member States and the UK are treated as the same and EU laws are interpreted and applied in accordance with the same methods and general principles. This seems to mean that VAT, customs and excise rules would remain unchanged.
• CJEU judgments and orders will have binding force on the UK until the end of the transition period.
• During this period, it is intended that the future relationship of the UK and EU will be negotiated.  There is a political declaration as to what that may look like.
• There is a backstop which is designed to come into operation only if the transition period comes to an end without any future agreement.
• The backstop involves a UK-wide customs relationship where Northern Ireland simultaneously remains in the EU’s Customs Union.

By Hamant Verma.