What will the Withdrawal Agreement under Article 50(2) contain?

20 Jul 2016

It is generally agreed that the UK’s departure from the EU will involve the conclusion of not one but of at least two agreements between the UK on the one hand and the EU alone or together with the Member States on the other. First, there is the Withdrawal Agreement based on Article 50(2) TEU (see here), which by definition will concern the conditions of the UK’s exit from the EU. Second, there will be the treaty or treaties relating to the future relations between the parties. For ease of reference, I will call this the Trade Agreement, even though it is unlikely to cover trade alone, and it may take the form of several agreements.

Considerable mystery surrounds the dividing line between the two.

What is clear is that the Withdrawal Agreement will contain transitional provisions relating inter alia to transactions and operations under way on the date of departure.   For instance, what will happen to unfinished infrastructure projects financed by the Structural Funds? What about budgetary contributions? And what about cases pending before the Court of Justice of the EU? In addition, the acquired rights of British nationals residents in other Member States and vice versa should be laid down in the Withdrawal Agreement (not just as regards rights of residence and employment, but also social security and health coverage and the recognition of diplomas), as should the conditions of departure of the senior British members of the EU institutions and bodies and the relocation of the EU bodies currently established in the UK.

What else might the Withdrawal Agreement lawfully contain? It will be tempting – at least for the UK – to squeeze some other matters into that agreement, because according to Article 50(2) it will be concluded by the Council acting by a qualified majority and it should enter into force well before the Trade Agreement.

In any case, it would make no sense to conclude the Withdrawal Agreement without having a clear idea of the content of the Trade Agreement, or at least its general outlines. That is why Article 50(2) specifically provides that the Withdrawal Agreement shall “take account of the framework” of the “future relationship” between the departing State and the EU.

In April of this year, the House of Lords Select Committee on the European Union published a report entitled “The Process of Withdrawing from the European Union”, which was based on expert evidence given by Sir David Edward, a former British judge of the Court of Justice of the EU, and Emeritus Professor Derrick Wyatt of Oxford University.

Sir David took the view that “the German language version of Article 50 made plain that ‘the structure of future relations will have already have been established at the point when withdrawal takes place’”. Professor Wyatt agreed, adding that the two agreements would have to be negotiated in parallel (see here).

Leaving aside the question as to whether there is a discrepancy between the German and English versions on this point (and not everyone would necessarily agree that there is one), it seems clear that the broad thrust (“structure”) of the Trade Agreement will have to be clear before the Withdrawal Agreement can be finalised. Key points will no doubt include such issues as whether the Trade Agreement will cover the free movement of persons and passporting of British financial services, and whether it will include flanking policies such as consumer and environmental protection.

Does that mean that the last details of the Trade Agreement will have to be worked out before the Withdrawal Agreement can even be signed? If so, it would almost certainly follow that the latter treaty would have to be delayed for some years, as the Trade Agreement would no doubt take longer to negotiate.

In any case, a radically different view was expressed by Commissioner Cecilia Malmström in a recent interview with the BBC. She claimed that the UK would first have to leave the UK before it could negotiate a Trade Agreement (see here).  On this interpretation of the Treaties, there would be no question of negotiating the two agreements simultaneously. The inevitable consequence would be that for several years trade in goods and services between the UK and the EU would not be covered by any treaty other than the WTO.

However, the legal basis for the Commissioner’s position is not clear, and it may be hard to square with the wording of Article 50(2). Her position appears to be derived from the statement made after the informal meeting of the 27 Heads of State and Government held on 29 June 2016 (see here).   According to paragraph 4 of that statement, the Trade Agreement “will be concluded with the UK as a third country”. In other words, the agreement cannot be concluded until the UK has left the EU – but that does not in itself preclude the parties from negotiating it, or at least commencing the negotiations, prior to the UK’s departure.

In any case, it seems very much as though there is likely to be a gap between the UK’s exit from the EU and the entry into force of the Trade Agreement.