The UK Internal Market Bill 2019-21 will return to the House of Commons for consideration of Lords amendments on 7 December. This paper explains the central issues and the reasons for the amendments.
Documents to download
The October 2019 EU UK Withdrawal Agreement (846 KB, PDF)
Path to the Agreement
After a period of intense negotiation, the EU and UK have reached a new settlement formed of an updated Withdrawal Agreement (WA) and Political Declaration (PD). These were published on 17 October 2019.
This paper focuses on the new WA, and in particular what areas of the WA have changed.
Theresa May’s Government finished negotiating a Withdrawal Agreement and an accompanying Political Declaration on the framework for the future relationship with the EU in November 2018. However, it was not able to obtain Parliamentary support for this package.
When Boris Johnson became Prime Minister in July 2019, he said that there would be no further delays to Brexit, and that the UK would leave on 31 October. His preference would be to leave with a deal, but only if this was on the basis of a renegotiated WA amending the provisions of the WA Protocol on Ireland/Northern Ireland, also known as the ‘backstop’, which the Prime Minister said had to be abolished.
The Government initially proposed changes that would keep Northern Ireland to be in the UK customs’ territory and out of the EU’s VAT area, and would enable Northern Ireland’s democratic institutions to consent to entering into the Protocol and continuing to adhere to it.
These were rejected by the EU. It reiterated its position that the border between Ireland and Northern Ireland should remain open, without infrastructure. It also expressed concern that the Government’s proposals would risk the integrity of the EU’s Single Market and its legal order.
If the UK is to leave the EU with an agreement on 31 October, the Withdrawal Agreement will need to be ratified by both the UK and the EU. Ratification by the UK requires approval of both the WA and PD by the House of Commons and the passage of legislation implementing the WA in UK law. Ratification by the EU requires approval of the WA in a Consent motion by the European Parliament, and final approval by the Council of the EU by a super-qualified majority.
The main Withdrawal Agreement text
Only two Articles in the main Withdrawal Agreement have changed from the November 2018 text, and the changes are minor.
This means that the rest of the Agreement remains the same. This covers the following areas:
- Common Provisions. These set out the WA’s territorial scope, key definitions, and how it (and particularly, its EU law content) is to be given effect in the UK after exit day.
- Citizens’ rights. Free movement will continue until the end of the transition (or implementation) period enabling EU and UK nationals to move between the UK and EU Member States as is currently permitted by EU law. EU citizens living in their host state before the end of transition will have permanent residence rights under the withdrawal agreement, subject to certain requirements. The UK and the EU27 have discretion under the agreement to require EU or UK nationals to apply for a new residency status.
- Separation provisions. These are intended to create an orderly exit from the EU. Ongoing processes and arrangements will be allowed to come to an end under current rules following the end of transition.
- Transition. The transition period, also described as the ‘implementation period’ is meant to bridge the period between the date of the UK’s exit from the EU and the entry into force of the new, yet to be negotiated, UK-EU partnership arrangements. The transition will run until the end of December 2020, with the possibility of extension for up to two years. The extension of Article 50 to 31 October means the transition period is now shorter. A decision on extending the transition period must be taken by 1 July 2020.
- The UK will continue to apply EU law during the transition period, with a few exceptions, as if it were a Member State. But the UK will have no institutional representation and no role in decision-making. The EU institutions, including the Court of Justice of the EU, and other bodies, offices and agencies will continue to exercise their powers under EU law in relation to the UK.
- Financial Settlement. After the first round of withdrawal negotiations, the UK and EU set out an agreed approach to the financial settlement in the December 2017 Joint Report. The settlement sets out the financial commitments that will be covered, the methodology for calculating the UK’s share and the payment schedule. Although these provisions remain unchanged, estimates of the total financial settlement are now less than previously envisaged as the original calculations were based on the UK leaving the EU on 29 March 2019 and provided that the UK would continue to pay previously agreed budget contributions until the end of 2020. The UK has continued to make budget contributions as an EU Member State since then and the amount it will need to pay until the end of the current financial framework period (2014 to 2020) is therefore now less.
- Institutional and Final Provisions. This sets out the institutional arrangements underpinning the Agreement, and how disputes about the WA are to be resolved.
- The Protocol on Sovereign Base Areas in Cyprus
- The Protocol on Gibraltar.
Changes to the Protocol on Ireland/Northern Ireland
The most significant over-arching difference between the October 2019 proposals and those set out in the November 2018 WA is that the previous ‘backstop’ maintained a much more complete and encompassing set of relations on trade in goods between the EU and the UK through an envisaged UK-EU customs territory (although this would not have prevented other barriers for economic relations as it did not cover trade in services, movement of people/workers, movement of capital, transport services etc).
The potential relationship under the previous ‘backstop’ also came with much more alignment with EU law and standards, and therefore potentially restricted the UK’s ability to diverge from such standards and pursue an independent trade policy should it wish to.
Under the revised October 2019 Protocol if the UK and EU are unable to conclude a new future relationship agreement by the end of the transition period, an open border will be maintained between Northern Ireland and Ireland.
However, in this scenario there would be a much steeper cliff edge for trade in goods between the rest of the UK and the EU. There would also be new trade barriers for goods moving from Great Britain into Northern Ireland. This because without a trade agreement the UK would revert to ‘WTO’ trading terms with the EU, as this Protocol does not include substantive arrangements for trade in goods between the EU and the UK, other than for Northern Ireland. The previous ‘backstop’ did, and that ‘backstop’ could not be exited without the agreement of both the EU and the UK.
That notwithstanding, the EU and UK are committed to reaching a future trade agreement, and the transition period can be extended for up to a further two years (if it is extended for two years it would end in December 2022).
The focus for the revised Protocol is much more firmly on gaining the greatest possible freedom for the UK to manage its economic relations, while still maintaining as far as possible an open border on the island of Ireland. It is less concerned with maintaining frictionless trade with the EU for the rest of the UK.
Other than the wider picture of a looser relationship between the UK and the EU post-transition, the most significant changes to the Protocol are in four main areas:
- Democratic consent
- The level playing field
- There were less significant revisions to the rules on state aid. The EU’s state aid rules will apply to Northern Ireland only, rather than the whole UK, and will be enforced by the European Commission.
While the previous ‘backstop’ kept the UK in a customs union with the EU, the new WA sees the whole of the UK (including Northern Ireland) leave the EU Customs Union. In legal terms, Northern Ireland remains part of the UK customs territory. Northern Ireland will be included in UK free trade agreements.
In practice, however, Northern Ireland will apply many EU customs rules and there will effectively be a customs and regulatory border between Great Britain and Northern Ireland in the Irish Sea.
The new arrangements are permanent, provided consent is given. They are no longer a ‘backstop’ – i.e. an insurance policy which will only come in effect if other measures fail to keep the Irish border open.
Initially the Government proposed that Northern Ireland would be treated as part of the UK for VAT purposes, entirely outside the scope of EU VAT law. It is now anticipated that EU VAT rules for goods would apply in Northern Ireland to avoid the creation of a hard border, although the UK would continue to collect receipts from both VAT and excise duty. In addition, it is proposed that the VAT base and VAT rates in Northern Ireland could be amended, to be aligned with the VAT system in Ireland. This would maintain a level playing field.
The revised Protocol allows the Northern Ireland Assembly to provide “consent” for certain EU regulations continuing in Northern Ireland. The first vote would take place four years after the end of the transition period, and every four years thereafter if passed by a simple majority. If endorsed on a cross-community basis, then the period would be every eight years. If rejected, then the regulations will cease to apply after two years.
The level playing field
Annex 4 of the previous Protocol has now been removed. It contained references to EU laws and international conventions that would apply to the whole UK in what were called ‘level playing field’ commitments. The EU wanted these in the Protocol in order to limit the UK’s capacity to gain what it would see as an unfair advantage by lowering standards. This was of particular concern due to the UK’s close geographical proximity to the EU, but also because in the previous ‘backstop’ the UK would have been in a Single Customs Territory with the EU, meaning tariff free trade. The EU would therefore not have been able to use tariffs to compensate for any competitive advantage gained by the UK through lowering standards of regulation.
The level playing field provisions were in the areas of taxation, environmental protection, labour standards, state aid and competition. These have now been replaced by less specific and non-binding commitments in the Political Declaration to uphold such principles in any future trade agreement between the EU and the UK.
The ‘backstop’, however, may never have come into force, and the issue of what level playing field provisions, if any, would apply to the UK in the long-term, would also have been dealt with in the negotiations on the future relationship, as they will be now.
Areas that remain the same in the Protocol
Provisions on areas like individual rights, the Common Travel Area, North-South cooperation, the Single Electricity Market, the governance arrangements, and safeguarding measures, remain the same as under the November 2018 Withdrawal Agreement Protocol.
For more information on the November 2018 Withdrawal Agreement see our briefing paper ‘The UK’s EU Withdrawal Agreement‘.
For more information on the new Political Declaration see our briefing paper ‘Revisions to the Political Declaration on the framework for future EU-UK relations‘.
Documents to download
The October 2019 EU UK Withdrawal Agreement (846 KB, PDF)
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