We now have more clues on what the terms of the EU’s divorce from the UK may look like—expect friction.

Takeaways

• The European Union has published a draft of the proposed Withdrawal Agreement covering the UK’s departure from the EU and the European Atomic Energy Community.
• The draft has been prepared by the European Commission’s Task Force 50 in accordance with the framework set by remaining EU 27 countries, although it has not formally been approved by the EU27.
• It has not been agreed with the UK but will form the basis of the withdrawal negotiations. The UK has not, to date, tabled anything equivalent by way of a comprehensive proposal.

The Withdrawal Agreement builds on the in-principle agreements already reached on key separation issues, as described in the December joint report. Stretching to 118 pages, it is a densely written, complex, legal text made up of 168 Articles and a number of Annexes. Many of the Withdrawal Agreement provisions to set out in very detailed provisions the EU’s view of points where consensus was already obtained—these paragraphs are highlighted in grey. Whilst it is too soon to have digested the entire text of the proposed treaty, this alert highlights some of the key provisions likely to be of interest to businesses with operations in the UK and the EU, or which are looking to gain access to the UK and EU markets in the future.

The Island of Ireland
The EU’s proposals to deal with the trick border issue are set out in a schedule as a “protocol,” which states that the territory of Northern Ireland—excluding the territorial waters of the United Kingdom—be “considered to be part of the customs territory” of the EU if no other solution can be found, i.e., the North and South would be treated as an “area without internal borders in which the free movement of goods is ensured”. Joint EU-UK customs teams would required to carry out checks on goods at the border, which would effectively become the Irish Sea. The UK government immediately rejected this idea out of hand, but it is not clear what alternatives are being advanced, presumably though technology will need to play a part. The EU previously produced a report proposing avoidance of a hard border by the smart use of tech solutions.

EU Law and the European Court of Justice
According to the EU’s draft document, disputes arising in connection with the Withdrawal Agreement in the future would be settled by a “joint committee” made up of representatives from both sides. However, this committee would be able to refer to the European Court of Justice for a binding ruling. The ECJ would also have the power to levy a fine on the UK and to suspend parts of the Withdrawal Agreement if the UK were found to be in breach.

Citizens’ Rights
Although agreement on citizens’ rights appears to be getting closer, with the UK government guaranteeing that no new constraints on working or studying will be imposed on EU citizens during the transitional period, the EU insists that EU citizens who arrive in Britain during this period have the same right to stay in the country as those who arrived before Brexit, whereas the UK has stated that these people should be treated differently as their “expectations” will be different.

Trademarks
The Withdrawal Agreement proposes that registered owners of EU-wide trademarks, design rights and plant variety rights (that is, rights granted under EU law rather than under domestic law of any of the EU27) are automatically given equivalent rights in the UK at the end of the transition period.

Nuclear Safety
With the UK set to withdraw from ERATOM at the same time as it leaves the EU, the Withdrawal Agreement passes responsibility for its own nuclear safety to the UK. EURATOM is the regulatory agency with oversight of nuclear materials and nuclear safety in the EU and holds nuclear cooperation agreements with third countries. The UK will have to “implement a safeguards regime applying a system offering equivalent effectiveness and coverage as that provided by the Community in the territory of the United Kingdom until the end of the transition period.”

Transitional Period
There is still no agreement on the length of the transition phase. Whilst the UK government has talked somewhat vaguely of a period of around two years, the EU has previously suggested that transition should end 21 months after Brexit day on 29 March 2019, i.e. on 31 December 2020.

Territorial Scope
The Withdrawal Agreement will apply not just to the United Kingdom of Great Britain and Northern Ireland but also to the Channel Islands, the Isle of Man, Gibraltar and the Sovereign Base Areas of Akrotiri and Dhekelia in Cyprus (to the extent EU law applied there before Brexit), as well as the British overseas countries and territories, including the Falkland Islands, Cayman Islands, British Virgin Islands and Bermuda.

Future Relationship
It is becoming increasingly clear that Prime Minister’s notion of “deep and special partnership” enabling “frictionless trade” between the EU and the UK after Brexit is going to be nigh impossible to achieve given that the UK government appears intent on leaving the single market and the customs union.

Friction is an inevitable side-effect of Brexit

—Donald Tusk, European Union President

The draft Withdrawal Agreement only deals with the proposed terms of the divorce. The EU has said that its view of the shape of its future relationship with UK will be set out in a political declaration, which is to be agreed later in the year and attached to the Withdrawal Agreement. Talks between the EU and the UK on this topic aren’t expected to start until April at the earliest.

The UK, holding the weaker hand in this high-stakes card game, has already attempted to pull one of the few available levers, with Brexit Secretary David Davis stating that the UK will not sign off on the financial payments to the EU until such time as “all the issues” of concern have been addressed, including Northern Ireland and the proposal that the ECJ be the final arbiter of transitional related disputes.