The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

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THE CHEQUERS CONCLUSION - Briefing Memo by Martin Howe QC

Martin Howe QC's analysis of the government's proposals for negotiating Brexit makes it quite clear that Brexit does not mean Brexit.


1. This memo is based on the press statement issued by the government on 6 July 2018, which lacks details in a number of key areas. However, some important conclusions can be drawn very clearly.

Para 4(a): the "common rulebook for all goods including agri-food".

2. A "common" rulebook? Although the phraseology is expressed as being
that the UK and EU would maintain a "common" rulebook for all goods
including agri-food, this would only be "common" in the sense that the
UK would have to obey and apply in complete detail the laws
promulgated by the EU without having a vote on the content of those
rules. Further, it is clear from 4(c) (dealt with below) that the UK would
be obliged to interpret these rules in accordance with rulings of the ECJ
under a system which would (whether directly or indirectly) bind UK
courts to follow ECJ rulings. In areas where rules relating to goods are
applied in a discretionary way under the control of EU regulatory bodies,
it is inevitable that the application of the rules in the UK and UK
regulatory bodies would continue to be bound by the decisions of EU
bodies in the same way as if the UK were still a member state but
without a vote or voice within those institutions. This would amount to
a permanent vassal relationship in the area covered by the 'common'
rulebook.

3. Ability to change current laws? There is no indication in the text of the
statement that the UK would have any ability to change any of the
existing body of EU laws, however damaging they may be or become in
the future - for example where restrictive EU laws block the development
or deployment of new technology, such as in the biotech area where the
UK has a huge opportunity to develop its leading industry and to sell its
expertise and products around the world. In order supposedly to benefit
the 12% of our economy which consists of exports to the EU, we would
accept a binding obligation to freeze the laws which cover 100% of our
economy consisting of domestic production and also imports from third
countries (see further below). In political and constitutional terms, it
would mean that Parliament would not be free to alter laws in the field
covered, however strong the wishes of voters. The present democratic
deficit whereby Parliament is unable to alter laws in the field covered by
EU competences would be worsened, since UK voters would lose their
current (limited) ability to press for changes to EU laws via the UK
government of via MEPs.

4. Obligation to follow future changes to EU laws. The statement tells us that
the UK would "commit by treaty to ongoing harmonisation" in the area
covered by the EU rulebook. First, it states that Parliament would have
"oversight of the incorporation" of new EU rules into UK law, which
suggests simply the continuation in substance of the current EU setup
whereby most changes to UK law in order to implement EU directives are
made by statutory instrument under s.2(2) of the European Communities
Act 1972. In practice, most such SIs are made by negative resolution
procedure and so Parliament exercises "oversight" only in the sense of
not exercising its theoretical right to vote down an SI.

5. Secondly, it is said that Parliament would have "the ability to choose not to"
incorporate future changes into UK law "recognising that this would have
consequences". It would appear that the government will request a
theoretical right not to implement future EU law changes but in return
will accept a treaty which allows the EU to impose "consequences" if this
theoretical right were to be exercised. It is worth noting that a similar
theoretical right under the EEA Agreement not to follow future changes
in EU internal market laws has never been successfully exercised, with
Norway being force to back down in 2013 from its refusal to implement
the Postal Services Directive in the face of threatened countermeasures
by the EU. Thus, it would appear that this reference to a theoretical right
for Parliament to block new EU laws is included for reasons of political
tokenism and is unlikely to be of real practical value.

6. Impact on UK's international trade policy. In addition to hobbling the UK's
domestic economy, the so-called 'common' rule book would require the
UK to apply EU laws against imports from third countries. Most trade
agreement today are about far more than tariffs, but deal with the
removal or reduction of non-tariff barriers which arise from differing
regulatory laws or systems. Most developed countries have in place laws
which deal satisfactorily with, for example, keeping dangerous food,
medicines or other goods off the market, but the details of those laws
may differ widely. Therefore "mutual recognition" involves accepting that
goods from another trade partner and which satisfy their own laws on
the subject of, say, food safety, are not going to poison people if
imported, so should be allowed in. An obligation to follow the EU
rulebook on goods would prevent the UK from entering into mutual
recognition agreements on goods.

7. This problem is particularly acute in the area of agriculture and food,
where many aspects of current EU laws are not based on genuine safety
issues or scientific principles, but rather are framed in order to protect EU
producer interests and methods against imports from outside the EU. A
particularly egregious example are the EU's current unscientific and
technophobic rules against improvement of crops or livestock using DNA
technology. The USA in particular has (under all colours of
administrations) had a long standing objection to the EU's unscientific
and protectionist rules in the agriculture field, and the idea that the USA
would accept a trade agreement with the UK in which the UK maintains
the EU's existing corpus of non-tariff barriers against US imports is for
the birds. Similar objections would be likely to arise on the part of
Australia given its large agricultural export interests, so this "common
rulebook" policy is likely to destroy at one stroke the two most attractive
and achievable post-Brexit free trade agreements for the UK.

8. Scope of the "common rulebook". The area of EU laws which the UK would
be obliged to apply is said to be "only those necessary to provide for
frictionless trade at the border." However at minimum this would cover all
laws and rules which have to be complied with by goods placed on the
single market, including those regulating methods by which they are
produced, inspections and certificates, etc, and rules relating to how they
are packaged and presented on the market. This is a very wide field
indeed. An example is the detailed EU rules on the requirements for
labelling vacuum cleaners with energy test results, which were framed by
the Commission to require tests to be performed in a way which gave an
advantage to German manufacturers over Dyson's more efficient bagless
designs. These particular rules were successfully challenged at one stage
by Dyson in the ECJ (Case C-44/16 P Dyson Ltd v. European Commission,
11 May 2017), but more recently Dyson may suffer a reverse since an ECJ
Advocate-General has expressed the view that EU law does not permit
Dyson to display supplementary information about its own tests
alongside the officially required EU flawed energy tests: Case C-632/16
Dyson Ltd v. BSH Home Appliances NV, AG Opinion 22 Feb 2018 - the
ECJ's judgment is expected.

9. The Dyson case illustrates how the EU regulatory system for goods can
already be skewed in favour of Continental interests and against British
manufacturers. More significantly, the system is skewed in favour of
existing technologies and against innovators. Once we leave the EU and
no longer have a vote on the framing of these type of rules, the EU will
have a positive incentive to frame its rules in order to disadvantage UK
producers who will be obliged to follow those rules.

Para 4(b): "reciprocal commitments related to open and fair trade"

10. While it is normal for Free Trade Agreements to contain some flanking
provisions relating to open markets and state subsidies, the width and
detail of what is proposed is far greater than would be accepted or
acceptable in an agreement between any independent country and the
EU. There is a commitment to apply a "common rulebook" on state aid.
While the principle of restricting state aids is acceptable, this would imply
the acceptance of the EU's detailed state aid rules, so not allowing the
UK to apply such rules flexibly and with the interests of its industries in
mind.

11. Of even more concern is that the UK would agree "to maintain high
regulatory standards for the environment, climate change, social and
employment, and consumer protection - meaning we would not let standards fall
below the current levels."
(Emphasis added). The problem with this is not
a general requirement to maintain high standards, which we would want
to do anyway, but the commitment not to let standards in these areas
"fall below" current levels. Any changes to our rules in these areas which
improves the competitiveness of UK industry would almost certainly be
interpreted by the EU as allowing our standards to "fall below" current
standards. This commitment is therefore an extremely dangerous one to
undertake, particularly if it were linked to a binding enforcement
mechanism and even more so if that binding mechanism ultimately
becomes the ECJ (see below).

Para 4(c): "consistent interpretation and application of UK-EU
agreements" - putting the UK on a par with Moldova


12. This paragraph first states that the interpretation and application of UKEU
agreements would be done "in the UK by UK courts, and in the EU by
EU courts." This is what one would expect with any treaty arrangement.
This subject has been covered in depth and the principles explained in
"Adjudicating Treaty Rights in post-Brexit Britain: Preserving Sovereignty and
Observing Comity".
(Paper by Martin Howe QC, Francis Hoar and Dr Gunnar Beck, available from Lawyers for Britain at http://lawyersforbritain.org/adjudicating-treaty-rights-in-post-brexit-britain) Put shortly, there is nothing wrong with the courts of the parties to an international treaty looking at each others' judgments, reading them with mutual respect, and trying to be consistent with each
others' interpretation if they can. This is indeed a general principle of international judicial comity in the interpretation of treaties.

13. However, it is important that this process should be mutually balanced
(i.e that the ECJ and Member State courts should pay just as much
attention to judgments of UK courts as vice versa), and absolutely
essential that it be non-binding. Para 4(c) indicates that "due regard" will
be paid to EU case law in "common rulebook" areas. This lacks mutuality
- there is no suggestion that EU courts should pay "due regard" to UK
courts, immediately unbalancing the relationship and placing UK courts
in an inferior position. More importantly, the phrase "due regard" will
be coloured by the ECJ reference procedure mentioned later in that
paragraph.

14. The paragraph states that there shall be a dispute resolution procedure
involving in many areas "binding independent arbitration". This is
commendable. Indeed, as we argue in the Adjudicating Treaty Rights
paper, (See previous note) a neutral and balanced (ie. balanced between the UK and EU,
with a neutral chairman) international arbitration mechanism is the
normal and appropriate mechanism by which parties to international
treaties agree to resolve their disagreements, and is the normal
mechanism contained in the EU's own trade and association agreements
with non-member states.

15. However, para 4(c) goes on to indicate that the binding "independent"
arbitration procedure will accommodate "through a joint reference procedure
the role of the Court of Justice of the European Union (CJEU) as the interpreter
of EU rules, but founded on the principle that the court of one party cannot
resolve disputes between the two." This Delphic and seemingly selfcontradictory
sentence is extremely important, and needs to be carefully
unpacked to be understood.

16. The first point to appreciate is that the ECJ has held that, if issues of EU
law are referred to it, its answers must be binding. In its formal Opinion
1/91 on the proposed EEA Court, it said:

"61 ... it is unacceptable that the answers which the Court of Justice
gives to the courts and tribunals in the EFTA States are to be purely
advisory and without any binding effects. Such a situation would
change the nature of the function of the Court of Justice as it is
conceived by the EEC Treaty, namely that of a court whose
judgments are binding."


17. Therefore it is impossible to implement the proposed "joint reference"
procedure without the ECJ's rulings being given binding effect, which
will necessarily overrule any contrary judgments of the UK courts. This
envisaged "joint reference" procedure would appear to be based on the
procedure in the EU-Moldova Association Agreement. In preparation for
its hoped for accession to the EU, Moldova has agreed to align wide areas
of its domestic law with EU law, and also to align the interpretation of
that law, in preparation for its hoped-for accession to the EU. The key
mechanism by which this convergence in interpretation is to be achieved
is, under Article 403(2) of the EU-Moldova Association Agreement, an
obligation on the arbitral panel in an EU-Moldova dispute to refer issues
of interpretation of provisions of the Agreement which reflect EU law to
the ECJ, rather than deciding those issues for itself. Although formally
it is the function of the arbitral tribunal to rule on the dispute between
the EU and Moldova, where the dispute is over the content of the EU
based rules which Moldova is to apply, it is the ECJ which has the sole
power to rule on the issue. Thus the closing words of para 4(c) of the
Chequers statement - "the principle that the court of one party cannot resolve
disputes between the two" are formally correct, but are in fact empty of
substance if this mechanism is used.

18. One can see the logic of entering into that kind of relationship from the
point of view of a country which is aligning its laws in preparation for
membership, but it is wholly incompatible with the status of the UK as
an independent state when it has departed from the EU. When we leave
the EU on 29 March 2019, the ECJ will cease to be a multi-national court
in which we participate alongside other members, and will become an
entirely foreign court owing its loyalties solely to the EU itself and its
Member States. It is virtually unheard of in international relations for any
independent state to agree to be bound by the organs of the other treaty
party if there is a dispute over the interpretation or application of treaty.
As a practical matter, the UK's treaty obligations in the relevant areas will
be like signing a blank cheque on which the detailed words can be
written in by an organ of the EU. By participating in this mechanism, the
UK will be placing itself lower than any other independent state which
has a treaty with the EU, and on a par with Moldova.

19. The existence of this mechanism will in turn affect the approach of the
UK courts to how they interpret and apply the concept of paying "due
regard" to ECJ jurisprudence. While (it would appear at least) direct
references from UK courts to the ECJ will cease, (except in citizens' rights cases where the UK has already conceded that such references may continue to be made in cases which commence up to 8 years after 31 Dec 2020) it is likely that the UK courts will reason that their is no point in them departing from EU caselaw, even if they disagree with it, since it will just end up in an
 arbitration in which the issue will be sent to the ECJ whose ruling will
then be binding on the UK. The courts adopted very similar reasoning in
deciding that they were effectively bound to follow clear and consistent
jurisprudence from the Strasbourg Court when applying the Human
Rights Act 1998, even though the Act itself merely required the courts to
"take into account" Strasbourg Court rulings.
(R (Ullah) v Special Adjudicator [2004] UKHL 26, [2004] 2 AC 323.)

20. Para 4(c) does not make clear what areas will be covered by this "joint
reference" procedure, but presumably at least the whole "common
rulebook" area would need to be covered, or at least the EU would insist
on that. In the areas covered by the "joint reference" procedure, even if
formally instructed to pay "due regard" to it, the UK courts are likely to
treat the case law of the ECJ as effectively binding and in any event if they
do hold to a view contrary to that of the ECJ it is likely that that view will
eventually be overruled via the arbitration and joint reference procedures.
So while the direct route of preliminary references from UK courts to the
ECJ will be ended, it will still remain the case that as a matter of
substance UK courts will be bound by the future jurisprudence of the ECJ
in the areas covered by the "joint reference" procedure.

21. The claim made in para 6(g) of the Chequers statement that this proposal
would "restore the supremacy of UK courts" is therefore simply not correct.
While the mechanism by which our courts would be overruled by the ECJ
would be changed to one that is more indirect, they would remain
subject to the ECJ's case law.

Para 4(d): "Facilitated Customs Arrangement"

22. This paragraph is very difficult to understand in the absence of any
detail. However, the first and most obvious and indeed important point
is that the attempted introduction of the "FCA" would cause significant
delay before the UK can leave the EU customs union and choose to set
its own tariffs, whether by unilaterally changing them or abolishing them
against free trade partners. We are now already over two years after the
referendum. It beggars belief that it should be contemplated that
administrative issues about customs processes could be allowed to dictate
the whole trading future of the UK by preventing us from implementing
tariff changes even after the end of the implementation period (31 Dec
2020 - 4½ years after the referendum). Yet this seems to be the message
of this paragraph. This would be severely damaging to the political
prospects of the government and of the Conservative Party, since it
would remove the chance of giving tangible benefits of Brexit before the
next general election to low income families by removing or lowering
tariffs on goods, particularly those where the UK has no or limited
producer interests to protect.

23. The multiple problems of the so-called New Customs Partnership (NCP)
were addressed in a 30-page briefing note which has become publicly
available. (https://europeanfoundation.org/customs-partnership-briefing/) The FCA attempts to address (as far as one can see from this text) only one of those numerous problems, which is that under the NCP, EU-level tariffs would have to be collected on all imports to the UK from
the EU, and then importers would have to claim a rebate in order to
import tariff free. It does so by indicating that EU level tariffs would be
collected on goods shown to be destined for the EU, and UK level tariffs
on goods destined for the UK, leaving only a residual "uncertain
destination" category (claimed to be a small percentage of imports) to
which the "pay the higher rate and claim rebate" system would apply.

24. The problem with this solution however is that goods which are declared
on importation as "UK destination" then need to tracked down the
supply chain in order to make sure that they really do end up at a UK
consumer. This entails the need for a tracking mechanism in order to
track individual goods down supply chains, imposing costs on businesses
importing goods for UK consumption and upon their customers who sell
on the imported goods in turn. It is most unlikely in any event that the
EU would be satisfied that such a system would be sufficient to prevent
leakage of goods into the EU. But more fundamentally, it would appear
that this system is vulnerable to a successful challenge that it breaches the
national treatment principle in GATT Art. III. This is one of the most
fundamental principles of the WTO system. WTO Members are not
allowed to impose burdens on imported goods (apart from permissible
tariffs levied at the point of importation) which treat those goods less
favourably than nationally produced goods. The obligation to subject
goods imported from WTO Members to burdensome tracking obligations
to which nationally produced goods are not subject would appear to be
such a prohibited measure under GATT Art. III.

25. The FCA introduces a new problem compared with the NCP, in that (at
least as far as one can see from the paragraph) there is no means of
preventing goods flowing into the UK via the EU which come from
countries against which the UK is imposing higher tariffs than the EU.
This would come about (1) when the UK imposes trade protection
measures (e.g. anti-dumping duties) on goods from a country and the EU
has not matched those UK measures itself; and (2) where the EU has
entered into a free trade agreement with a country where the UK does
not have a matching FTA. Imports from that country could then flow into
the UK tariff free by travelling via EU ports, so undermining the UK's
negotiating leverage in getting the country concerned to enter into an
FTA with itself. But there seems no suggestion that the EU will be asked
to undertake reciprocal obligations (ie. collecting UK level tariffs on goods
bound for the EU when UK tariffs are higher, and imposing tracking
obligations on third country goods imported into the EU in order to make
sure that they do not migrate into the UK). Indeed even where the tariffs
are the same, there seems nothing to prevent companies importing their
goods into EU ports for reasons of pure convenience and paying the
tariffs on UK consumed goods to the EU rather than the UK.

26. Further, there is no answer, at least in this short text, to a fundamental
problem with the NCP to do with Rules of Origin Controls. That problem
is that an FTA between the UK and the EU would not mean that UK
manufactured goods would be entitled to enter the EU tariff free. That
would only apply if the goods satisfy rules of origin controls as
"originating" in the UK. For example, cars assembled in the UK with a
non-EU non-UK content above a certain threshold would not count as of
UK origin for tariff purposes and the EU would be entitled, and indeed
bound under WTO rules, to collect import tariffs on such cars. It is not
sufficient just to collect EU level tariffs on the components: that would
not satisfy WTO rules. This means (in the absence of some mysterious
and magical solution within the details of the White Paper) that customs
controls will still be required to operate between the UK and the EU
under the FCA, so destroying its central point.

27. It is hard to take this latest evolution of this long running saga as a
serious proposal capable of actual implementation. Rather, it seems to be
a plan put forward in order to cause delays to the inevitably necessary
processes of implementing post-Brexit customs controls between the UK
and the EU. (Which does not mean that they must be enforced by means of physical installations at the Irish land border.)

The negotiation process

28. These Chequers proposals are the starting point rather than the end point
of the negotiating process, and therefore any final deal (if a deal is
negotiated) is likely to contain further concessions above and beyond
those proffered up by the UK at this stage. It will not be acceptable for
the EU to permit the UK to (as it puts it) "cherry pick" the goods element
of the single market, without also accepting the obligations of the rules
on services, the rules on the free movement of persons, and the
obligation to contribute to the EU budget for reasons of claimed
"solidarity".

29. However it is unlikely that the EU will reject these proposals outright.
Rather, it will suggest that they go some of the way but not far enough,
and keep the UK inside the "lobster pot" delaying the UK's no-deal
concessions until time runs out and the EU can demand further
concessions in return for graciously "granting" the transition period. We
are therefore firmly on course for a "Black Hole" Brexit in which the UK
continues to be subject to most of the obligations of EU membership, is
firmly stuck in the EU's regulatory tarpit and prevented from developing
our economy away from trade with the EU towards trade with the rest
of the world.  We will be unable to take advantage of the freedom of Brexit to
improve the competitiveness of our economy or respond to the demand
of our citizens for changes to the laws which govern us, and we will no
longer have the voting rights and treaty veto rights which we enjoyed as
an EU member state.

30. It is sometimes said that it is best to get any deal on leaving the EU, and
then try to fix it later. This would be extremely difficult. To get out of the
wide ranging and permanent obligations which are envisaged, it would
be necessary to give notice to terminate the agreement or the EU would
simply have no reason to negotiate. Giving such notice would generate
Project Fear 3.0 and the same hysterical nonsense that the country would
be "crashing out over the cliff edge into the abyss". Further, the
envisaged agreement might contain clauses which lock the UK in legally
for a longer period, such as an agreement to keep tariffs aligned with the
CET unless and until the EU is satisfied with procedures at the Irish
border. At least as an EU member we have the right under Article 50 to
leave on 2 years notice; under the proposed agreement we could be left
in the Black Hole without that right.

Conclusions
(1) The Chequers proposals would involve the permanent continuation
in the UK of all EU laws which relate to goods, their composition,
their packaging, how they are tested etc etc in order to enable
goods to cross the UK/EU border without controls. All goods on
the UK manufactured in the UK for the UK domestic market, or
imported from non-EU countries, would be permanently subject to
these controls.
(2) There would be a general obligation to alter these laws in future
whenever the EU alters its own laws, with a mechanism for
Parliament to block such changes which is probably theoretical
rather than practical.
(3) This would put the EU in a position to fashion its rules relating to
goods so as to further the interests of continental producers against
UK competitors, when we will have no right to vote on those rules.
(4) The obligation to follow the EU rulebook for goods would gravely
impair our ability to conduct an independent trade policy. In
particular, it will prevent us from including Mutual Recognition
Agreements for goods in trade treaties and this is likely to destroy
the prospect of successfully achieving meaningful agreements with
some of the prime candidates such as the USA and Australia.
(5) The ECJ jurisdiction proposals would put us in the same position
as Moldova, an applicant/supplicant state which is willing to accept
binding ECJ rulings on the conformity of its laws with EU law as
part of the preparations for its accession. Quite why this is thought
to be a suitable model for a country which has left the EU and is
the 5th largest economy is unclear. The supremacy of the UK courts
over laws in the UK would not be restored, contrary to the claim
made in para 6(g) of the statement.
(6) The new "Facilitated Customs Arrangement" seeks to solve one of
the problems of the NCP (collection of EU level tariffs with rebate
system on goods destined for the UK market) by imposing on UK-destined
goods the administrative burdens of a tracking system.
This would (1) increase the likelihood of this system being found
in breach of the national treatment principle in GATT Art.III, and
(2) apparently extend yet further the timescale for implementation
of this Heath Robinson system, locking the UK in the mean time
into the EU's common external tariff, preventing the electorate
from benefiting from Brexit in time for the next General Election.
(7) However, there is no indication at least from what has been made
public that the FCA has solved or alleviated any of the other
problems of the NCP proposal. It is not clear how the problem of
rules of origin controls on UK manufactured goods imported into
the EU will be addressed in the absence of customs controls on the
UK/EU border, or how this issue can be solved compatibly with
WTO rules.
(8) These proposals will not be accepted by the EU since in their
perception they amount to unacceptable "cherry picking" of the
"benefits" of the single market. However the EU is unlikely to
reject the UK's position outright, but will instead keep the UK
inside a "lobster pot" where it negotiates rather than prepares for
no-deal while the negotiation time runs down and when the EU
will demand huge last minute concessions in return for not taking
away the transition period.
(9) These proposals therefore lead directly to a worst-of-all-worlds
"Black Hole" Brexit where the UK is stuck permanently as a vassal
state in the EU's legal and regulatory tarpit, still has to obey EU
laws and ECJ rulings across vast areas, cannot develop an effective
international trade policy or adapt our economy to take advantage
of the freedom of Brexit, and has lost its vote and treaty vetos
rights as an EU Member State.

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Saturday, 22 September 2018