Review Of Draft Agreement To Leave EU

NB this is a review of the first draft published on 14^th November 2018.  Small changes have been made since, for example the “20XX” date is now 2022.

Executive Summary

• This is not Brexit. Certainly not on 29 March 2019. Statements from the PM in the media to that effect are being economical with the actualité.
• It could become Brexit on 31 December 2020 BUT
  • The EU and UK can jointly, or if the Irish border issue is not resolved by then, the UK can unilaterally, extend the end of the transition period to 31 December 2022
  • And if extended the end date needs the joint agreement of the EU and the UK.
  • There is precedent for transition periods, for example we are currently still in a transitional regime for VAT which started 1 January 1993 and was supposed to end 31 December 1997. 21 years later and it is still there.
  • The very last paragraph of the very last article says that Parts Two and Three (see below) continue from the end of the transition period !!! e. forever.   How is that Brexit?
• Otherwise it is as you were, business as usual, we are in the EU and pay for it but immediately lose our votes and rights to attend meetings as soon as this is signed, IF and until the transition period finishes.
• There is no EU / UK Trade deal, just an agreement to negotiate in good         faith
• We pay our usual Budget contribution as long as we are in the Transition Period
• The longer we stay in, the longer we remain what others have called a “vassal” state.
• This draft could have been prepared in English style and language, before the UK invoked Article 50 of the TEU, had anyone in the UK government had any understanding or shown leadership.
• The Draft Agreement does, however, provide every other member state, or part thereof, a template for the starting point to leaving the EU.
• We are committed to contribute to the EU pension funds in perpetuity, and that liability is huge.

 Theresa May Said…

Let’s compare the above with the PM’s promises.

• Brexit means Brexit (except in respect of the items below [1]). Given Brexit is leaving the EU, lock, stock and barrel, as both sides of the debate told us before the vote, this is not Brexit, even after 2020.
• We [the UK] will leave the EU on 29 March 2019. Not correct.  The UK remains fully subject to EU Law, pays its usual contribution but has no votes until 31 December 2020 at the earliest.
• The UK leaves as a whole (except there are special rules for Northern Ireland and others (except Scotland)), including an entire Protocol for Northern Ireland which could lock us into a Single Customs Territory (forever).
• There will be no border in the middle of the Irish Sea  (not if the Protocol is extended).
• We will be out of the Customs Union (unless we are trapped in the Protocol).
• This is the best deal we can get (which is great as a threat to the MP but appalling as a negotiating position with the EU).
• We are leaving the Common Agricultural Policy – correct unless we are locked in by the Northern Ireland Protocol.
• We are reclaiming our fishing grounds – correct(ish) as there seem numerous carved out agreements to agree in the Agreement and unless we are locked in by the Northern Ireland Protocol and also subject to the Gibraltar Protocol.

The first two are not achieved even if the draft agreement is fully implemented.  Five other bullets are “true” if the transition period is NOT extended past 31 December 2020 and the best deal is the PM’s opinion, to which she is entitled.

Background

In 1973, the UK joined the EEC aka the Common market.  In 1975, the UK had a referendum as to whether it should stay in the Common market or not.  It voted to stay.   The overall idea of a common market was to create a protectionist trade bloc with the size and muscle to compete with the USA.   However, the 1957 Treaty of Rome was also a measure to prevent another European War and was therefore an inherently political project.  In 1992, that stepped up a gear with the Maastricht Treaty which created the EU (as a combination of the EC and other bodies) and set out the goal of political union.  So “1992” was the big thing even though it started on 1 January 1993.

By way of example, the European VAT system entered a transitional regime to move to an origin system of VAT.   This transition was to end in 1997.  We are still in that system and following an EU Green Paper in 2011, TAXUD, the relevant Commission directorate, formally abandoned the goal of the origin system thus leaving everyone in a transition to nowhere.   The Draft Agreement envisages a transitional period.  The VAT case is a good example of a transitional period which never ends.

In 2009 I took up a European Post and was asked by the German media, how did I see my role in the political unification of Europe?   My answer, you can’t ask me that, I am English and the only ones talking about political unification are “considered paranoid and mad”, later described as “mad swivel eyed loons”[2].  Of course, the British public now know that those “loons” were speaking the truth.  And therein lies part of the problem, the British people have been misled by the politicians of all parties, especially Tony BLiar, for so long that they do not believe any of them.

What is the EU and what does it cover?

Let us start at the beginning, which as Mary Poppins sang, is a very good place to start.

The EU is founded on four pillars, the four freedoms, the freedom of movement of goods, services, capital and labour (note this does not say people, it says labour i.e. workers).   This last freedom is thought of commonly as freedom of movement of anyone who is an EU citizen, e.g. students, but alas, full time education is not labour.

The EU Commission, as it is now, is organised into Directorates, each one with a competency covering various issues within its scope.    Whilst not absolutely definitive, the list of Directorates, each one with a Commissioner and a Director-General, gives one a good idea of how much the EU looks into our lives at present[3].  And it is by reference to this one can judge whether the Draft Agreement is Brexit, Hard Brexit, Soft Brexit, Chewy Brexit, Brexit on toast etc.

When I voted I voted out, Extremely hard Brexit, completely out.   No doubt we would continue our welcome to EU nationals who are already lawfully here, and various bodies would co-operate with each other as they have always done, unless the EU’s protectionist rules prevent it, and as net contributors, then it must be the case that any “lost” EU funding (there is no such thing as EU money) can be funded from our own resources with more to spare.

Why did people vote for Brexit?

I would say, first and foremost, that a large number of people who voted for Brexit were those who have not benefited from globalisation, who lost their jobs and never found another one, who saw cheaper goods in the shops but could not afford to buy them, traditional Labour strongholds which Labour had let down.  The second main reason was being tired of the EU imposing costly rules, regulations and generally seen as bullying the UK and as out of touch.   Some people will moan at anything, but the sense that we were being subsumed into a super state, which no-one had voted for; especially if it meant being ruled from Brussels or Berlin, was a step the people of England and Wales were not prepared to take.

It is said that Winston Churchill was in favour of the political union of Europe, but that was when he thought that Britain would lead it and it would be centred on London.   Then there was immigration.

In six years in charge of the Home Office, Theresa May oversaw a huge increase in immigration, mainly from outside the EU.  Whether this was deliberate or incompetence, only time will tell.   However, it is a fact that if we took away every non-British born person in London, London would grind to a halt.  If you are reading this from London, think of your street, your work place, and think through how many non-UK born people are there.  There have been many occasions where I have been in a lift, in an office, or somewhere in London and the UK born numbered 1, me.   Take these people away and our hospitality trade, NHS, transport network, facilities management and many other sectors would collapse.  So, immigration is good and bad, but works better if it is controlled, which, at present it is not.   You might also wonder why the many refugees are (i) mainly single males under 30 and (ii) not happy to stay in the many countries that they have travelled through to get here?   It is not as if France is a horrible place to live.   The answer, our language and our economy.  A lot of the world population speaks Spanish, French, Portuguese or even German, and of course Mandarin.  But the vast majority of people with a second language speak English, which is also one of the two official languages of India (1.339 billion people and counting).   Plus, our economy is one of the most liberal in the world, and with immigrants prepared to travel thousands of miles to do a job that the indigenous population will not get out of bed for; well you can see why they come.

Finally, as Jeremy Corbyn has always believed, and is clear from the response of the capital markets, Remain benefits big business, and not the voting public.

Lessons not learnt

In September 2014, Scotland has its independence referendum.  My perception from England was that notwithstanding the “not quite” majority support for the SNP, turkeys do not vote for Xmas and that the Unionists would win.   However, every time David Cameron and George Osborne opened their mouths, espousing their mini version of Project Fear, you saw the Independence vote go up by 5%.   It was almost as if, secretly, they wanted Scotland to leave!

Fast forward to June 2016, and Cameron and Osborne obviously thought Project Fear worked well, and threatened us with World War 3[4], had impartial government departments and bodies publish reports saying that Leave would be a disaster[5], and that there would be plagues of frogs and locusts and the angel of death would kill the first-born son of every family[6].   They were complacent.  And horrified when, having given the public a vote, 72.21% turned out, a figure not seen since 1997, and 52% of those voters voted to Leave, i.e. for every 12 Remainer votes, the Leave campaign had 13.   Close, but no cigar for Cameron, instead it was “taxi for Dave”.

Theresa May became Prime Minister.   A true leader leads.   I suspect no-one would follow the PM out of a burning room.   England and Wales voted 54/46 and 53/47 to leave (including Greater London).   Greater London, Northern Ireland and Scotland voted 40/50, 44/56 and 38/62 to stay.  Anyone with half an ounce of vision would have acknowledged the marked contrast in voting patterns, and called for a second independence referendum in Scotland, and a referendum on the unification of Ireland in Northern Ireland.   Whilst not a betting man, I bet that this would have solved the problems of the Irish border and Scotland at a stroke.

Fast forward again to today.  We have a draft agreement.  What does it say?

Preamble

I will refer to England as that is the country whose laws I know best and Scotland and Northern Ireland have different legal systems.   It appears to be written in English, but it is not.    It is written in what the EU believes is English.   For example, the VAT Directive refers to “cessation” and “recapitulative”, a word that does not roll off the English tongue.  In its context, cessation, meaning sale, and has not been used in England for over 300 years.

In England, a preamble is general background, why we are here, what got us to this place etc.  In Europe, the preamble has legal force.   For example, the seventh recital says that the agreement is there to provide legal certainty to citizens and economic operators (that is businesses in English; admit it, no one in England has ever described themselves as a self-made economic operator).   Accordingly, any provision which manifestly does not do this can be struck down by the CJEU[7].

The next recital talks of avoiding disruption and the tenth says that both the UK and the Union will honour their commitments to each other.  Why?   Probably because that eliminates a lot of discussions on past agreements.

Part One – Common Provisions

After some definitions and territorial scope (uncontroversial), comes Art.4.1, the second paragraph[8] of which gives everyone the right to rely on the Agreement where it has direct effect under Union Law[9].  The Agreement is to be interpreted in accordance with EU law and when interpreting the Agreement, the UK courts will have regard to the case law of the CJEU “handed down after the end of the transition period” which means that our courts, when considering your rights under Brexit, will be obliged to consider decisions of the CJEU in perpetuity.   Let’s see if this is made clearer later.

Art. 8 says, unless otherwise provided, the UK loses all access to EU networksand databases and will ensure that it will not allow anyone to access them.   Rather naïve as Mossad probably has full access without anyone knowing. 

Part Two – Citizens rights

Art.10 says that this part applies to citizens who have exercised their rights to reside in the UK or the Union before the end of the transition period.  So, the end of the transition period is important for this Part and many other items.  Right to reside continues.  As does non-discrimination, rights to travel, recognition of passports and identity cards etc.   The mutual recognition of professional qualifications and rights of self-employed continue, as does the co-ordination of social security systems (who knew that they were co-ordinating?) (Title III) and Title III applies to citizens of Iceland, Liechtenstein, Norway and Switzerland.   Art.38 does allow us to keep a more favourable provision if we wish to.

One could argue that Part Two is not required as all it does is confirm the acquired rights of citizens which cannot be removed, i.e. if you are already living in France, you can continue to do so.

So, the key questions so far are

• When does the transitional period end?
• Is it definitely going to end?
• And what will be agreement afterwards?

Until it ends it looks like this Agreement is going to maintain the status quo.   But we are only at Part Two.  Only four more Parts and 146 Articles to go.

Part Three – Separation Provisions

Title I – Goods placed on the market

This deals with the movement, control and quality of goods in the Union and the UK and continues the current state of affairs.  It also includes market surveillance (i.e. trading standards and anti-competitive practices).

Title II – Ongoing Customs Procedures

In short, as you were until the end of the transition period.

Title III – VAT and Excise Duty, Title IV – Intellectual Property, Title V –  Judicial Co-operation in Criminal matters (including the much mis-used European Arrest Warrant), Title VI – Judicial Cooperation in Civil and Commercial Matters, Title VII, Data Protection, are all, as you were until we leave.   Title VIII – Public procurement, carries on for 9 months after the end of the transition period.   Title IX – Euratom, Article X, Union Judicial and Administrative Procedures, Title XI Administrative co-operation and procedures, including, in Art.100 the Mutual assistance for the recovery of taxes, duties etc.    Although of course the Common Reporting System (CRS) is not an EU measure but one overseen by the OECD and peer pressure.

Title XII deals with diplomats etc. i.e. diplomats of the Union to the UK and UK diplomats to the Union.   Articles 111 and 112 deal with Taxation and Domicile, which in Angleuese (a word I have just invented and pronounced Ang – leeyou – eez and  meaning the EU version of English, and which I hope will make it in to the Oxford English dictionary), means tax residence in France (the official lingua franca of the Union), and not domicile which has different meanings in England from Scotland.   Of course, Anglaise is the lingua franca of the planet.   We should have drafted it first!  As lawyers say, he who controls the drafting controls the deal.   And Title XIII, is a bit of a poubelle.

This might sound a lot but may I remind you, by reference to the main operational parts of the European Commission, the Directorates, led by a Director General.

When decisions are made by the Council, then that Council is made up of the relevant politicians.  So Council decisions relating to Economic and Financial Affairs, including tax, is called ECOFIN and is attended by the Finance Ministers of each country.

They are: Agriculture and Rural; Budget; Climate Action; Communication; Communications Networks, Content and Technology; Competition; Economic and Financial Affairs; Education, Youth, Sport and Culture; Employment, Social Affairs and Inclusion; Energy; Environment; European Civil Protection and Humanitarian Aid Operations; European Neighbourhood Policy and Enlargement Negotiations; Eurostat – European statistics; Financial Stability, Financial Services and Capital Markets Union; Health and Food Study; Human Resources and Security; Informatics; Internal Market, Industry, Entrepreneurship and SMEs;  International Cooperation and Development;  International Cooperation and Development; Interpretation; Joint Research Centre; Justice and Consumers; Maritime Affairs and Fisheries; Migration and Home Affairs;  Mobility and Transport;  Regional and Urban Policy; Research and Innovation; Taxation and Customs Union; Trade and finally, Translation.

Who knew?    All the EU needs now is an army, navy and air force!

Part Four – Transition

Arguably the most important Part in the agreement.  No not arguably, IT IS THE MOST IMPORTANT PART OF THE DRAFT AGREEMENT.

When do we leave?   The answer in Art 126 is 31 December 2020.  BUT, Art 132, says that the Joint Committee (Art. 164, co-chaired by the UK and the Union, meets once a year and governed by the rules in Annex 8 – see below) may extend the transitional period until “[31 December 20XX]”.  I am not sure when that is, but it must be before 2100 CE.   They could at least have put in 202X.   [Later drafts inserted 2022].

Article 3 of the Protocol, which deals with Northern Ireland, (which has the longest UK land border with the EU, (Gibraltar has the other land border but that is, by any standards, a very hard border EU law notwithstanding;   it seems one rule for the EU, another for the UK and Gibraltar)), states that the UK can, at any time before 1 July 2020, ask for an extension of the transitional period in Art 126 of the Draft Agreement, in accordance with Art 132, which suggests to me that if we cannot sort out the Irish border issue, then everything is held up by it.   If ever there was a time for a referendum on the unification of Ireland, it is now.

Where is the incentive to deter the EU dragging their feet and forcing the extension of the transition period and/or forcing the UK to extend the Protocol, the consequence of which is that the UK can only leave if the EU agree?

That is the general rule, but this would not be the EU unless there were exceptions.  During the Transition Period we retain the benefit of the EU trade and other agreements; the EU will notify the counterparties that instead of EU, they should, until the end of the transition period, treat it as the EU and the UK.

Then Art.130 has special provisions on fishing rights.  Why?  I do not know but someone will.  But it has to be a concern that our fishing rights could be under EU control or agreement in perpetuity.

Part Five – The Money

The UK’s financial exposure is in Euro.  Rather hilariously, Art.134 says the UK must provide audited numbers, while the Union, well what do you expect from an entity which has only managed to produce accounts in an adequate form since 2007, and even then, 4.4% was spent unlawfully.  Further, the UK can only see what evidence the EU decides to show them. Art.135 makes it clear that we continue paying in our usual contribution until of course, the end of the transition period.   However, it appears from Art.136 that we are mere guests and experts in relevant meetings (by exception) and lose our vote forthwith (Art.136(3)(d)).   Well that sounds nicely unbalanced, and as someone who focuses on cash, unbalanced in a very important area.  Further, Art.136(3)(e) says that the EU can make adjustments based on VAT and gross national income (which is generally what our contribution is based on), but no later than 31 December 2028!  Where did that date come from?   I am beginning to think that the UK has not been attending the negotiation, or drafting, meetings.

Euratom carries on in accordance with some decision we have signed up to.   I personally have no issue on that provided we have a say on the Budget; but I suspect Art.136(3)(d) overrides that.

Art.138 states that in respect of the items referred to in that article (MFF[10] 2014-2020 or previous financial perspective) continues until those programmes end, which will be ….?   When?   Expect many things to be badged as under the MFF 2014-2020, which is the plans for the EU Budget 2014 – 2020, see http://ec.europa.eu/budget/mff/index2014-2020_en.cfm, so plenty of wiggle room.

Art. 140 is rather opaque but refers to further payments being made as notified by 31 March in each year, starting in 2022!  From my reading of Art 142(5) and (6), the UK appears to be funding to the general pot of EU pensions, not picking up the pensions obligations of British nationals working for or within the EU.   Given that historically, the increasing pension fund costs have been a major factor in the UK’s ever increasing contribution, this must be a matter of great concern, especially as the UK will have no control over the pensions it offers, or how its funds are managed.

Art.143 deals with the various bail our funds the UK has contributed to since the financial crisis.  To be fair this does provide for payments each way but does seem to go on without end.

We do get back our share in the European Coal and Steel Community, the first European Treaty organisation when wars relied on coal and steel, in five annual instalments starting 30 June 2021 (and therefore ending in 2025).  Ditto in the European Investment Fund, (Art. 146).   Art.148 list payments to be made after 2020 (and presumably assuming the UK does exit on 31 December 2020).

Art 149 says that the European Central Bank will return to the Bank of England its share of the ECB’s capital in accordance with the ECB statutes.   Art 150 covers the European Investment Bank in similar terms, ditto Art.152 in respect of the European Development Fund.

The UK will also honour its prior commitments to the Trust Funds for refugees in Turkey and for irregular migration and displaced persons in Africa.

In short, the UK has been done up like a kipper.  That is so disappointing that I will move on to Part Six.

Part Six – Institutional and Final Provisions

Article 158 allows UK courts to make references to the CJEU provided the case has started within 8 years of the end of the transition period (which could be 2107).  This can be extended by the Joint Committee (Art.158(3)).

Article 159 covers the monitoring of Part Two, which governs citizen’s rights.   This is to be done by an independent authority.   I would, the Jedi Council, suggest.  (I am never quite sure why this is funny, after all it is English in German word order if the sentence, with a conjunction or preposition, starts).

Articles 160 to 163 cover the CJEU and again, basically as you were, BAU.

Article 164 we referred to in Part Four.

Title III, covers dispute settlement.   Basically we end up at an International Court of Arbitration appointed arbitrator.  The ICA is based in Paris (not good) but on the plus side the CJEU did come out with an outrageous (for which read, at best strained, at worst, simply wrong) decision on the place of supply for VAT purposes, of the services of arbitrators[11].  So fingers crossed. Is this the right way to resolve the UK’s future?

As Vanessa Williams, the former Miss America, sang in her biggest hit, you go and save the best for last, Article 185, final paragraph.

This says that Parts Two and Three carry on forever!

THE BACKSTOP – The Protocol on Northern Ireland

Article 1, para 4 expressly states that the protocol is not intended to be permanent, only temporary.  And as we know, the road to hell is paved with good intentions.   Also intentions can change.

To be clear this protocol only applies if the EU and UK fail to solve the Irish border issue by 31 December 2020.  If they do not, then the Protocol continues, and then we might as well be in the EU for all the difference that it makes as we will still have to contribute as if a member but have no say or votes.

Protocol on Gibraltar and Sovereign Bases in Cyprus

A lot of words which do not affect the main agreement.

Conclusion

This Agreement is merely an agreed plan, an agreement to agree, with a certain deadline of 31 December 2099, when we will finally must leave the EU.  This is not Brexit but a road map to Brexit.  As the Germans could say, welcome to “die unendliche geschichte”.

Two years to get a map of what to do next – this should have been prepared by HMG in 2016 before invoking Article 50 of the TEU.  At least then it might have been an English style agreement with a definitions section instead of having to get to Article 164 to find out what the Joint Committee is, and Part 4, plus the Protocol on Northern Ireland, to find the crucial meaning of transition period.  It is not a work of genius; it is not something that the respective parts of government could not have prepared on their own for their area, had they been asked to.  The combination of that work would look like this agreement but drafted in English not Angleuese.

Ireland could be a disaster but given examples such as the Congestion Charge, chips placed in goods, e.g. to check sell by date, a technology system should be feasible. I am pretty sure that Vodafone and Capita could solve this between them with ruthless efficiency.  Even better, give them control of tax collections and a percentage.  OR unite Ireland.

What I think has been lost is that if we leave, the UK can do and decide what it wants.   If we want EU citizens to remain, we can do it.  It is our decision.  We can decide to admit only Mexicans, Martians or anyone we want to.

One huge positive (as football managers like to say) everyone can take from this is that any other state or region of the EU wishing to leave now has a template to work from.  All they have to do is open it in Word, do Find and Replace “UK” for “Poland/Hungary/Italy/Northern Italy” and the job is done.

References

[1]Part Two (Citizens rights) which preserves the rights of UK and EU citizens as they are at the end of the Transition Period, and Part Three namely, Title I – Goods placed on the market, Title II – Ongoing Customs Procedures, Title III – VAT and Excise Duty, Title IV – Intellectual Property, Title V –  Judicial Co-operation in Criminal matters, Title VI – Judicial Cooperation in Civil and Commercial Matters, Title VII, Data Protection,   Title VIII – Public procurement,   Title IX – Euratom, Article X, Union Judicial and Administrative Procedures, Title XI Administrative co-operation and procedures, including, in Art.100 the Mutual assistance for the recovery of taxes, duties etc.

[2] Per anonymous close ally of David Cameron, Leader of HM Opposition 2013.

[3] For example Agriculture and Rural Development. Budget, Climate Action.

[4] See https://www.telegraph.co.uk/news/2016/05/08/cameron-brexit-will-increase-risk-of-europe-descending-into-war/ which also includes the outcome of his attempt to have carve outs from the TEU to appease Eurosceptics.

[5] Eg Bank of England, Treasury.

[6] OK I made that bit up, or rather stole it from the Old Testament.

[7] Court of Justice of the European Union.

[8] EU laws have Parts, Chapters, and Articles and rather than give each paragraph a number, an article can have many paragraphs, hence “the second paragraph).  This is not how it is done in the UK.

[9] A principle of EU law that where a provision is capable of being sufficiently clear and certain, a person can rely on it even if it has not been implemented in domestic /  member state law – see Van Gend en Loos v. Nederlandse Administratie der Belastingen (Case 26/62); [1963] ECR 1;and in VAT cases Ursula Becker v Finanzamt Münster-Innenstadt Case 8/81 and first applied in the UK by the VAT Tribunal in Merseyside Cablevision v CCE (1987) VATTR 134.

[10] Multiannual Financial Framework.

[11] Bernd von Hoffmann v Finanzamt Trier Case C-145/96.