In early December 2017, the EU Council president requested Prime Minister to make a final offer and resolve the Northern Ireland land border issue by fourth December so as to allow the EU Council later that month to consider whether sufficient progress had been made to move on to the second phase of negotiations. It was made explicit that if the offer was not acceptable to the Irish government, it would be unacceptable to the European Union.

On 8th December 2017, the EU and UK negotiators issued a Joint Report on progress in the negotiations for a Withdrawal Agreement between the United Kingdom and the EU. It confirmed that the parties had reached an agreement in principle on the key areas set in the EU negotiation guidelines for the first phase of negotiations namely protection of mutual protection of citizens’ rights, the financial settlement and the unique position of Northern Ireland.

The proposals regarding citizens’ rights and the financial settlement were largely uncontroversial. The provisions in relation to Northern Ireland proved very controversial. In large measure, the UK had conceded most of the EU’s requirements.

Article 49 of the Joint Declaration declared that the United Kingdom remains committed to protecting North-South cooperation and to its guarantee to avoid a hard border. Any future arrangements must be compatible with these overarching requirements. The United Kingdom’s intention was to achieve these objectives for the overall EU UK relationship. Should this not be possible, the United Kingdom would propose specific solutions to address the unique circumstances of the island of Ireland.

In the absence of agreed solutions, the United Kingdom would maintain full alignment with those rules of the internal market and customs union which now and in the future support North-South e co-operation, the all-island economy and the protection of the 1998 Agreement. It was declared that the arrangement would not be a precedent for the new UK EU trade relationship generally and was specific to the unique circumstances on the island of Ireland.

On December 4, 2017, an earlier draft of the above provision was leaked and drew an immediate negative response from the Democratic Unionist Party on whom the Conservative Party relied to maintain its government. While the Prime Minister was meeting the EU Commission president Junker a call from the DUP leader made it clear that the proposed text would not be accepted by it. The proposed publication of the draft Withdrawal Agreement was deferred, and after a number of days of intensive talks, new provisions were inserted to address the concerns raised by the DUP.

The new paragraph 50  provided that in the absence of agreed solutions, the United Kingdom would ensure that no new regulatory barriers developed between Northern Ireland and the rest of United Kingdom unless consistent with the 1998 Agreement, the Assembly and Executive agree that the distinct arrangements are appropriate for Northern Ireland. In all circumstances, the United Kingdom would continue to ensure the same unfettered access for Northern Ireland businesses to the whole of the United Kingdom market.

This principle later expressed in the Withdrawal Agreement came to be called the Northern Ireland backstop. The conditions for its not coming into effect or its cessation would involve a solution to the seemingly impossible conundrum of an open border with free North-South trade but without UK/NI membership of the EU customs union and single market. It was widely expected that if it ever applied, it might remain in place for a significant length of time and possibly forever.

The combined effect of the two key paragraphs would be to keep Northern Ireland effectively in the customs union and single market and keep Great Britain closely aligned with Northern Ireland. Many ardent Brexit were furious at the apparent tying of the whole of the United Kingdom into a close relationship with the EU customs union and single market.

Moreover, the backstop would continue until the EU agreed that satisfactory alternative arrangements had been made for Northern Ireland so that ensuing relationship might continue indefinitely at the behest of the EU. The Joint Report seemed to undermine the UK red lines requiring that it would leave the customs union, the single market and jurisdiction of the European courts.

The EU took the view that Article 50 was an internal UK commitment only, whereas Article 49 was a commitment to the EU. It was the U.K.’s choice to remain closely aligned. This was not a necessary requirement for the purposes of the Northern Ireland backstop.

This sequence of events and circumstances locked the Theresa May government in a bind for which it would not extricate itself. The Lancaster House red lines the UK government’s s commitments to the EU and its commitment to the DUP on whom it relied were incompatible, in the absence of alternative arrangements to avoid a hard border which seemed unlikely to be found. While it pleased the remain wing of the Conservative Party, it enraged the Brexiteer wing which saw it as potentially leaving the UK in a perpetual transition period and or backstop.

The December 2017 Joint Report provided an agreed methodology for the financial settlement. This included a list of component principles for calculating the value of the settlement arrangements, for the continued participation of the UK in programs of the current multiannual financial framework until closure and financial and related arrangements for the European Investment Bank, the European Central Bank and certain other agencies.

The UK agreed to contribute to participate in the EU’s annual budgets for 2019 and 2020. The UK would contribute its share to the financing of budgetary commitments outstanding at the end of 2020.

It would contribute its share of the financing of the EU liabilities incurred before that date except for liabilities with corresponding assets and those which are related to the operation of the budget and EU own resources matters. The UK would remain liable for its share of the EU’s contingent liabilities as established at the date of withdrawal. They include guarantees given to support financial obligations such as back to back loans for financial assistance and operations managed by the European Investment Bank and other similar bodies.

The UK and the EU recognised the need to provide legal certainty and minimise disruption with respect to the availability of goods placed on the market before Brexit. They agreed the principles that goods placed on the market before withdrawal may circulate freely on both the UK and EU markets with no need for product modifications or relabelling.The provisions in relation to citizens’ rights were as discussed above, save that future spouses could be excluded.

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