Oral evidence: The progress of the UK's negotiations on EU withdrawal, HC 372

Oral evidence, 25 October 2017.

Chair

Good morning and welcome, Secretary of State. It is very good to see you here today. A great deal has happened since you last appeared before us.

Mr Davis

Just a bit, yes.

Chair

We therefore have a lot of ground to cover this morning. By the way, we look forward to seeing you again after the December Council meeting.

Mr Davis

Yes, I am sure.

Chair

I trust that will be okay. Can I begin with the transitional arrangements or the implementation period—whatever you want to call it? What the Prime Minister said in Florence was widely welcomed and it is significant. I would like to explore with you what the Government intend will be part of that implementation agreement—what it will look like. First, would the UK in practice have the same access to the single market and the same freedom to operate during the implementation period as we have currently?

Mr Davis

Thank you, Mr Chairman. It is a pleasure to be back. Congratulations to you and all your Members for your re‑election. The first thing to say as a sort of caveat to this is, of course, we are going to engage on this prior to the negotiation. We do not even know what the Council’s guidelines to Michel Barnier will be—or at least to the Commission and then theirs to Michel Barnier will be afterwards. But there will be a couple of guiding principles. Number one, we really only want there to be one change that business has to deal with, not two. We do not want there to be a big change from going out of the membership of the Union, which happens automatically on 29 March 2019, and the implementation period. As she said, it will be very close to the existing circumstances. Yes is the answer.

Chair

Would you envisage, for example, that passporting for financial services would continue during that period?

Mr Davis

That is one of the things I would expect to see.

Chair

You would expect to see it. Would EU citizens continue to be able to come and live and work in the UK during that period?

Mr Davis

Yes. The conditionality we put on that was that there would be a registration scheme. Although it would look like free movement to them, the rights may be a little different.

Chair

Okay. We would remain in a customs union with the EU during the implementation period.

Mr Davis

We will remain with access. It will probably be a customs agreement. The legal status of this is something we are really, at the moment, leaving with the Commission, because they have not shown any concern about the legal status, nor has the European Parliament. Whether or not it is a customs agreement that gives effective access to the customs union, the idea is for it to look the same.

Chair

What will happen to the trade agreements the EU has negotiated with over 50 countries that we are party to during the implementation period?

Mr Davis

We would seek to maintain them. As you know—I think I told you last time—there have already been a considerable number of discussions with them, the existing ones, to look at grandfathering anyway, in any event. All the big ones have said—this is second hand from Liam Fox, of course—they are interested in doing that. Some of them are interested in improving them, but that will take time. There have also been comments from Prime Minister Abe on the future economic partnership with Japan—that they would want that to continue with us—and from Mr Trudeau that CETA would continue with us too.

Chair

But would it be us asking those countries, “Can we carry on on this basis?” or would it be the EU saying, “We are asking for Britain to be allowed to continue to access these deals?” That is really quite an important distinction.

Mr Davis

It could be either or both. That is where my original caveat comes down, because it depends exactly on the guidelines given to the Commission by the Council.

Chair

Okay. What will happen to the membership of the common fisheries policy during this time? Would we still be bound by it?

Mr Davis

Again, that is a negotiating issue. The problem there would be that there would be quota‑setting during that period, so we have to have a resolution to that. We have not come to a policy conclusion on that.

Chair

You have not come to a policy view. That is fine. We would accept the jurisdiction of the ECJ.

Mr Davis

Certainly initially, yes. Remember their phrase is “transition period”; ours is “implementation period”. By the end of it, we would want to be under alternative administration arrangements in terms of international arbitration, but that is something we would need to talk to the Commission about. That is something we do need to talk to them about.

Chair

By “the end of it” you mean at the end of the implementation period, and we would then move on to the new relationship.

Mr Davis

Yes.

Chair

That may have some court representing both parties, but during the length of the implementation period the EU has been very clear that ECJ oversight would apply.

Mr Davis

Barnier has been clear. We have not heard from the Council yet, of course. The point about the next two and a half months is that the Council will be coming to its conclusion and its guidelines, and the Commission will be drawing from them.

Chair

But, Secretary of State, you say we have not heard from the Council. I thought the Council was quite clear in its negotiating guidelines that it gave to Mr Barnier.

Mr Davis

Are you talking about the first round?

Chair

Any period of transition would have to—

Mr Davis

They have not given guidance on an implementation period yet. The final one will be in December, at the December Council, I would expect.

Chair

Right. Let me take the example of the EU‑US open skies agreement and membership of the European Aviation Safety Agency or the European Medicines Agency. All of those things would continue to operate as now.

Mr Davis

I would expect so.

Chair

You would expect so. That is extremely helpful. What about access to the Schengen Information System, which is absolutely vital for our security, as you know?

Mr Davis

Yes, I would expect all of the security and home affairs issues to continue as well.

Chair

I also have one very specific question. Do you know what fees would be charged to EU students starting courses in September 2019? Would they be treated as home students or overseas students? Would you expect them to be included in home students?

Mr Davis

I would expect home. We have at every turn treated them as home for purposes of fee‑setting and for loans, so we treat them as home so far. I would not see that would change in 2019. Thereafter it might, but not in 2019.

Chair

Right. That would be very helpful for universities, because they have to print their prospectuses next spring.

Mr Davis

I know. Ironically—again, forgive me if I have said this to the Committee before—it was one of the miracles of 1 August that we actually got the Treasury and the Department for Education to agree to change those things very rapidly first then and thereafter.

Chair

I am sure further miracles will be required before this process—

Mr Davis

Miracles come with the department, sir.

Chair

That is very good. Can I turn to the timing of all of this? The Prime Minister seemed to suggest recently that agreeing the deep and comprehensive partnership will in some way have to happen before the implementation period is agreed. Is that in fact the case?

Mr Davis

Yes. We are aiming for the conclusion of negotiations on all fronts—on the grounds that nothing is agreed until everything is agreed—by the end of March 2019, so in effect that is the case. Yes, in principle what she said in the Chamber is right. I am just trying to think. Follow the question on, sir, and I will take it from there.

Chair

If I can repeat it, the Prime Minister appeared to suggest that agreeing the deep and comprehensive partnership would have to come before the agreement of the implementation period. This led to some comment and consternation, because I think all of us had assumed it was the other way around. You get the implementation deal first, and then you negotiate.

Mr Davis

I am at risk of misleading you, so let me get it exactly right.

Chair

Yes, please.

Mr Davis

What we are intending to do is get the form of the implementation period agreed quickly, December or thereafter. But we want to conclude the overall negotiation—whatever the outcome may be—by the end of March 2019. There are a number of reasons for that. One of them is looking at what the implementation period is taking you towards. Are we going from where we are now to a free‑trade agreement? Are we going from where we are now to what you might call a bare-bones agreement, which is WTO plus agreements on the fundamentals like aviation and so on? You need to know where you are going.

Chair

Given what you have just said, you would agree with the Chancellor of the Exchequer. When he gave evidence to the Treasury Select Committee, he described a transitional arrangement as “a wasting asset”. It is very valuable now, but by next summer “its value to everybody will diminish significantly”.

Mr Davis

He is right. It is not entirely a wasting asset. There are three reasons for the implementation period. These are not in order of importance. Number one, it gives the UK Government longer to put in place any changes it needs to put in. We think we can put in place all the critical ones by March 2019, but it would give us longer—and therefore make it more reliable. Secondly, and critically, it gives European countries time to put in place any structures they might need to put in place, whether those are new customs arrangements, new data‑exchange arrangements or whatever else. Thirdly—this is the point the Chancellor is making—it gives businesses time, after the decision is made on what the final outcome is going to be, to make any subsequent changes to their own dispositions. The most obvious example is American banks, which are the most sensitive to these things. They would not have to make a decision, as it were, on a worst‑case outcome from their point of view today. They would know broadly where they would be before they needed to move. That was the reasoning of it, and that is the bit that is a wasting asset. The longer we take to do that, the more they will feel they have got to move before they know the outcome.

Chair

Yes, absolutely. Indeed, that is why the Select Committee, in its first report in January, observed that we thought there would need to be transitional arrangements.

Mr Davis

May I say something, Chairman? I do not wish to be critical, but you said in the Chamber at one point that you welcomed the Florence statement because it showed we were taking the implementation period seriously. The notion of an implementation period was aired in the Lancaster House speech as well.

Chair

Indeed it was. Now, as you told the House of Lords Select Committee when you appeared in July, I believe you have just said, “I believe we can get a free‑trade and customs agreement negotiation concluded in the period before March 2019.” Do you really think all of that can be done in 12 months?

Mr Davis

Yes.

Chair

You do.

Mr Davis

Yes. I will air them again, but the arguments against tend to be based on other free‑trade agreements, which are just very different from ours. We start with identical regulatory arrangements; we start with an existing virtually €600 billion trade exchange, and all the vested interests and arrangements that go with that. We aim for a comprehensive free‑trade agreement, which would be tariff‑free. The customs agreement that would follow on from that, if we achieve that, would be one whose primary aim, depending on some of the other components, would be on rules of origin—on identifying and determining whether rules of origin met the tariff‑free requirements. The bits of the agreement that are more regulatory and more complex tend to be those that do not fall within the free‑trade agreement directly. These are issues like aviation service agreements, data exchange, recognition of driving licences and those sorts of things. That is a very broad range of issues, and we would have to have a significant number of simultaneous negotiations on them, but they are effectively independent; they are not interdependent. These things become problematic when you have got to do one before you have got to do another.

Chair

Okay, all right. Now, it is the case, is it not, that under EU law a trade deal could not be signed with the United Kingdom until after we had left and become a third country? Is that correct?

Mr Davis

Technically yes: it could be a nanosecond.

Chair

Right, okay. It could be one minute before midnight to one minute after.

Mr Davis

From your days as a Minister, you will remember that the clock has a habit of stopping at midnight during negotiations sometimes.

Chair

It can follow the example of Big Ben.

Mr Davis

It is probably more nimble than Big Ben.

Chair

Secretary of State, can you confirm that such an agreement would be done under Article 218?

Mr Davis

That is what I would expect. Article 50 refers to Article 218. From memory, it is Article 218(3).

Chair

If it is deemed to be a mixed agreement, does that mean it would require ratification by all the Parliaments of all the member states?

Mr Davis

I would expect the trade‑agreement element of it, probably some of the other elements of the justice and home affairs parts of it, and maybe the defence part to be mixed. The withdrawal agreement would be QMV and European Parliament.

Chair

That is fine. You have expressed great optimism—as has the Prime Minister—about concluding all of this before the Article 50 period comes to an end, but Michel Barnier has a completely different view, as you know. In July at the House of Lords Select Committee, he spoke about “the scoping of the future relationship, which will continue after 30 March 2019. We will need a few years, most likely, to continue with that negotiation on the free and fair trade agreement.” Would you like to comment on that? It is one thing for the Government to express optimism that they can conclude the deal, but when the person with whom it is negotiating says, “I am afraid that is not going to happen,” how is that circle being squared?

Mr Davis

I disagree with him. This is not the first time he and I have had this discussion. We are having it by proxy now, but the very first time I had a meeting with him his original plan for the timetable was effectively to do the withdrawal agreement up until the end of March 2019, and then start and carry on with the trade agreement in a sort of infinite transition arrangement. That would have put us in a very difficult negotiating position, because we would want to solve quickly and they would want to solve slowly. Now, these are judgment calls, of course, Chairman, but the judgment call that impinges on this, in my view, is what the view of the Council will be. This is why I say it is very important to remember the Council is the decision‑maker here. Now, this is not true for all of the European countries, but we often have this argument about it being a big proportion of our trade and a small proportion of their trade. For some of them, however, it is incredibly important: Belgium, France, northern France certainly, Holland, Denmark. The littoral states, if you like, have really serious investment in this. Some of the Low Countries have made forecasts of the impact on their economy of, as it were, a WTO or no deal of 3% or 4%, so they have a very strong interest in making pace on this. The best expert I can cite from the Commission side is an ex Trade Commissioner, Karel De Gucht, who is very antagonistic to Brexit but has said in terms this is eminently doable within two years if the political will is there. Now, that is why we come back to what the Council decides.

Chair

Right, so you have very clearly laid out the considerations the Council might bear in mind. You said you have discussed this with Michel Barnier. Are you telling the Committee that Michel Barnier no longer holds to the view that it will take years?

Mr Davis

No, I am not saying that at all. I am saying he started from a position that was further out from the one he now described in our conversation before the negotiations. We were not in a position to negotiate. Remember the phrase “no negotiation without notification”. But he was just laying out how he saw it, and I said I thought that would not work—so we are where we are now. This is one of the more important things the Council will have to consider when it discusses this in December.

Chair

Okay, thank you very much.

Sammy Wilson

Can I just come back, Secretary of State, to the sequencing of all of this? Under Article 50(1), as you have stated, we have to know the kind of end destination before a transitional arrangement can be put in place. If we know the end destination, if the framework or the form is known, why is there then a need for a transitional period? For example, if it is agreed that the end destination is that we are going to have a free‑trade arrangement between the United Kingdom and the EU that allows trade to continue as it is presently, what is the need for a transitional period?

Mr Davis

I gave the reasons for this. The first one we can probably get by, which is the time for British mechanisms and systems to be put in place: customs agreement, customs procedures, customs software, customs staff and new border arrangements in all sorts of ways, including Northern Ireland. The second one was European changes. We will undertake the changes, investment and expenditure necessary to be ready to go in 2019 in case there is a complete non‑agreement anyway—it is very unlikely but in case that happens—but other states would view that as nugatory expenditure until they know what they are aiming to do at the end of it. You might see, for example, the French not investing in enough customs hardware and software to inspect British vehicles coming into France and causing backlogs in the UK. The third one, as I mentioned to the Chairman earlier in reference to his “wasting asset” question, is giving companies the ability to make the decisions on the basis of the actual decision, not their guess. For example, we have heard a number of American banks—American banks are the most sensitive, because of their regulatory structures—say that they would have to move to Frankfurt, Paris, Dublin or wherever in January through March/April of next year if they do not know where we are going or we do not have some sort of arrangement. In March 2019, they will be in the position of having two years to carry out the regulatory adjustments they need to do. That is the reasoning. That is all part of the reasoning, and that is it, I am afraid. I am sorry to be long‑winded, but it is quite an important question.

Sammy Wilson

You have mentioned that there are some issues that would need to be addressed in a transitional arrangement: for example, whether we are full members of the customs union or there is some other understanding, the role of the European Court, movement of people and what the issues might be around that, and a number of other issues. Given that many of those are contentious, how long do you see a transitional arrangement negotiation going on?

Mr Davis

Not very long. One of the reasons for making it quite close to what it looks like now is to cut that period down. We could sit down and say, “Okay, financial‑services companies will need this amount of time. French customs will need this amount of time”, and so on. We could do a sort of detailed, tailored one. It would take about two years to negotiate that. That would be as complicated as the final deal, so we are not going to do that. It will be something quite simple and quite similar. That is one of the reasons it will be quite simple and quite similar.

Sammy Wilson

Many people see the dangers of a transitional arrangement that really reflects the status quo. Although the Prime Minister has said she sees it lasting no longer than two years, there is still an area of ambiguity there. Really, we could find ourselves indefinitely tied in to that transitional arrangement, because there would be no incentive for the EU to negotiate seriously the changes that are required to take us out of the EU.

Mr Davis

No. One of the reasons we need the negotiations concluded by the end of March 2019 is to avoid that circumstance. You are dead right: if we were doing a negotiation during the period of transition, I suspect what we would get offered is a year extension and then another year extension—and each time we would be paying a fee. That would solve one of the European Union’s biggest problems with our departure: money. That would happen over and over again. It is not a good position to get into to be still negotiating during such an arrangement. That is why the sequencing as I have described it is the case.

Sammy Wilson

The finalisation of those negotiations for 2019 is not entirely in the UK’s hands.

Mr Davis

No.

Sammy Wilson

It also depends on the EU. One of the reasons why it is important—perhaps you would like to comment on this—is that we should be making it very clear to the EU that in the event of that kind of scenario being played out, no deal is an option for the UK.

Mr Davis

No deal is an option. We have made that clear. It is not our preferred option: let’s be clear about that. I am careful about the way I phrase it. At the moment I start talking about no deal, people say, “That is what you really want.” That is not the case; we want the deal. But of course we have reasons why we need no deal as an option literally right up to the moment of signing: because it would not be the first time in European negotiations where sudden, last‑minute claims come in because they think they have got you over a barrel. That has happened. Not that I agree with his politics, but I recommend to everybody reading Adults in the Room by Yanis Varoufakis. It is a very interesting read on negotiating tactics. But you are right: we do need to have no deal as an option throughout—both for reasons of policy but also for reasons of accident, if for some reason no outcome is possible at the end.

Sammy Wilson

Are you satisfied the Government are preparing for that scenario as well by putting resources into what is required?

Mr Davis

Yes. The Chancellor has already said this year it is about £250 million, and it is stepping up. If you look at the graph of the projects and so on, it is going up like that. It is not going to be easy to do—do not get me wrong—but it is eminently doable; it is eminently achievable. It will just require a lot of effort, a lot of work. If we get to a point where we really think it is a high probability, there will be quite a degree of redirection of effort.

Chair

There was a very quick question from Peter Bone.

Mr Bone

Secretary of State, this is all rather difficult. You have explained it is very difficult. Why do we not just extend our membership of the EU until March 2021?

Mr Davis

We did have a referendum. You probably missed it, Mr Bone. A decision was taken to leave—and leave effectively in reasonable time, which was a balancing act the Prime Minister made in triggering Article 50 when she did. It is also not quite the same. We are leaving the Union on 29 March 2019, and some things will alter. Now, I have not been asked about it, but we will be looking to do two things that we are currently prevented from doing by the duty of sincere co-operation, which is a part of our membership of the Union. For example, in conversations or negotiations on free‑trade arrangements we cannot get to the point of signing, let alone bringing into force. It seems to me one of the things I would look for—I hope I will be successful but let’s see how the European Union responds—is the right to sign those deals in that time. That would not be the case if we extended our membership. Furthermore, if you extend it by two years, this is a one‑off two‑year thing. The Chairman asked about the decision procedure for this for the various negotiations. It has not come up very much in public discourse, Mr Chairman. I know a number of politicians around Europe take the view that a two‑year extension is just about acceptable under qualified majority voting. For more than that, either there is a unanimity requirement—because that is what it is: what you are talking about is a unanimity requirement—or there is a mixed agreement, which is even more onerous. Those two things would come up as well. Normally speaking—I do not want to appear too cynical in front of this Committee—when a requirement for unanimity comes up, a price comes from somewhere. A price comes from somewhere.

Wera Hobhouse

You pointed out quite rightly that a transition period can only happen if you have negotiated a deal, i.e. something we transition into. You put the date of 29 March 2019 out there, but is it not the case that, in order for all countries to ratify the deal, this deal would have to be negotiated by around the same time next year, so in about a year’s time?

Mr Davis

No. It is interesting, because Michel Barnier has said he wants to achieve that timetable, because he wants ratification before 29 March. Ideally, that would be perfect. That would be the whole thing wrapped up. My concern is that we get the deal agreed with the Council and with the Commission by 2019. I would prefer to have it ratified before then, but I would not be mortified if the ratification process ran into the implementation period—as with CETA.

Stephen Crabb

Will you be publishing a position paper on the implementation period?

Mr Davis

We have not decided as yet to do so. What we have tended to do—you have seen it in the last six months—is to publish papers when we need to and when we think it suits our negotiating book. For example, we have never published a paper on the financial negotiation, because it just seemed to me like making a counter bid, and I do not want to make a counter bid. I wanted to take their bid down. If we need to, we will do so, but at the moment I have not decided we should do so. If, as various people have said, it looks very like now but with a few variations, we may not need such a paper.

Stephen Crabb

In terms of agreeing the form of an implementation period ahead of March 2019, do you have in mind a final date by when agreement on the form of an implementation period should be reached?

Mr Davis

It should be as quick as we can, in truth. If we get a ruling on sufficient progress, of course, from the Council in December, I would expect it to be the very first thing we deal with at the very next negotiating meeting—and we would plug away at that for as long as it took, frankly.

Stephen Crabb

Would it be by first quarter 2018?

Mr Davis

For the implementation period, it would be earlier than that. I will be aiming to get certainly the outlines of it agreed, if we could, in the first quarter. That is if we could. It is a negotiation, as everybody remembers.

Stephen Crabb

You mentioned the example of American banks. Some of them have indicated that they are already in the process of making decisions on investing in new capacity in Frankfurt out of contingency. It is not necessarily a black-and-white decision to move a bank lock, stock and barrel from London to Frankfurt. But given those decisions are already being made, does that reflect the fact we are already seeing the wasting asset of an implementation period in action?

Mr Davis

If I were the European chief executive of an American bank, I would look at the Florence speech and the response to the Florence speech from the Council, and even the body language, and I would say to myself, “There is going to be some sort of transition arrangement. The telegraphing we are getting is that it will give me two years to make up my mind. Should I go in for nugatory expenditure? Will I be able to turn around to my shareholders and say it was a very good idea to buy that office in Frankfurt in November 2017?” I might think not. All businessmen would like things in black-and-white law. They like things that take uncertainty away from them, but they are not beyond making judgments, too. I used to be a director of two FTSE 100 companies, and executive director in one. I would have taken on board what would happen.

Stephen Crabb

The problem is that the London directors are saying to their bosses in New York, “Read the body language. It will be fine.” Their bosses in New York have to take risk‑averse decisions and build in contingency. They are not into reading the body language.

Mr Davis

I am sorry: that was a metaphor. Read the language. Also read the language of people like Herr Schäuble in Germany. We are grown-ups around this table; we are adults in this room. We know that Germany has a bigger influence than most. We know they broadly or strongly welcomed the idea of an implementation period when the Chancellor was talking about it a little while ago. You make calculations now. What it might mean is they reduce the size of the office they open. There are all sorts of possibilities. Their difficulty is the statutory lag on getting approved in a new regulatory framework and so on. That may also shorten as the European authorities put in place the regulatory structures that are not there now. There is a variety of reasons. If I were asked this in front of a bunch of American bankers, I would give them the advice to save their money for the moment—at least until January.

Mr Rees-Mogg

Thank you, Chairman. Good morning, Secretary of State. Could we move on—

Mr Davis

You have been listening to me rather than me listening to you.

Mr Rees-Mogg

It is much better that way around.

Mr Davis

The last time we spoke, I was awe‑struck with the rest of his audience at the Conservative Party Conference.

Mr Rees-Mogg

That is very funny. Hansard will have enjoyed that. Thank you very much, Secretary of State. I want to move on to the money, please. The starting point is our legal obligation if we leave without a deal. Do you or do the Government broadly accept the conclusions of the House of Lords report of 4 March this year entitled Brexit and the EU budget?

Mr Davis

It said it is sort of undecided.

Mr Rees-Mogg

No, it did not. It set out that, if we left without a deal under Article 50, we had no legal obligation under EU, international or UK law to pay anything.

Mr Davis

I think no obligation is a step too far. I am not going to share with you, as Governments never do, the legal advice we have been given, but let me outline for you the approach we took. It might inform the answer rather more thoroughly than just me giving you a yes or no on that. The Commission put a proposal to us. It was pretty high‑level, by the way. It was not quite as detailed as people suspect. But it was a kitchen-sink proposal: it took in every conceivable liability, including things like contingent liabilities, and it did not take in any assets. Even when looking at the EIB, it took the liabilities and not the assets. It presented that to us. We went through it, and basically we felt that they were on poor to non‑existent ground under both Article 50 and Article 70 of the Vienna convention. Those are the two primary tests. We also thought the approach on things like ignoring assets was just illogical in some respects. That was why in the fourth round of negotiations—I believe it was the fourth round—there was a pretty frosty write‑up everywhere, because it was one of those ones where Mr Barnier was not very happy. From the beginning, from my very first meeting with him, we took the view that this is not an issue of legal responsibility; it is an issue of political, moral maybe, and operational responsibility. You pick your words: different people put it differently. But it is not a legal responsibility. The thrust of your argument is right, however. What the legal argument tends to show is that we might be on the hook for one year, basically, not five or 10 years.

Mr Rees-Mogg

This was basically what the House of Lords report said. It said there may be a moral obligation to pay but there was no legal one, because Article 50 of the Treaty knocks out the Vienna convention’s alternative provisions. But does this not become very important in the event we leave without a deal? Is the Prime Minister’s commitment to pay under the multiannual financial framework an unconditional one or is it conditional on an agreement?

Mr Davis

We have not gone into the speculative outcomes of no deal. Let me just say why for a second. Much of the arguments about deal and no deal are phrased in polemical rather than logical arguments. They use phrases like “crash out” and all this sort of thing. There are various sorts of no deal. There is a no deal where we go to WTO arrangements but we have a bare-bones deal on other elements. I listed them to the Chairman: aviation, data and maybe nuclear—or not—and so on. Then of course there is a complete failure to agree and a hostile outcome. That is so incredible that it is off the probability scale. But in those circumstances, it is conceivable there will be no deal of any sort.

Mr Rees-Mogg

If there is, we pay nothing.

Mr Davis

Under those circumstances, you could imagine the country paying nothing.

Mr Rees-Mogg

This is our strongest negotiating card, is it not? The multiannual financial framework needs the £20 billion over the next two years to make it work, otherwise somebody has to pay more.

Mr Davis

I would not put it in such crude terms, but I am sure it is on the mind of some continental countries.

Mr Rees-Mogg

They are aware of it. You made a statement saying the days of making vast yearly contributions to the EU budget will end when we leave, but that will be when the transition period ends, not—

Mr Davis

I am excluding from that what the Commission delightfully calls the divorce bill, but, yes, there will not be a continuous future payment for access to the market, for example, which is what I had in mind.

Mr Rees-Mogg

But there may be contributions to individual projects beyond that.

Mr Davis

Yes, absolutely. It is quite likely—so long as we are still friends, which is what I expect we will be—that we will be taking part in things like Horizon 2020, some of the other space issues like the GPS system, and some of the nuclear things. There is a variety of things where I can see us continuing to be part of it, just as—I do not know—Israel is part of some of them.

Mr Rees-Mogg

What about loans to the Ukraine and things like that?

Mr Davis

That is a separate issue. I slightly need notice of that question, but my instinctive reaction to that is that it would be a discretionary decision thereafter. It would be one of our foreign policy decisions. Bear in mind that one of the things that we are looking towards is a deep and special partnership that includes a warm and close relationship on foreign policy thereafter. We view Europe as our nearest and largest ally, effectively.

Mr Rees-Mogg

But that is not sincere co-operation.

Mr Davis

I am sorry.

Mr Rees-Mogg

The UK would not expect itself to find itself—

Mr Davis

No, sincere co-operation stops when we leave.

Mr Rees-Mogg

It stops when we leave rather than at the end of the implementation period.

Mr Davis

Yes.

Mr Rees-Mogg

On the sequencing of agreements, you set out that we would get a deal under Article 50, which requires an enhanced qualified majority vote and the European Parliament’s approval. There are then the JHA and trade issues. Assuming they are mixed agreements, they will require more complex application procedures. Do we fulfil our obligations under the Article 50 agreement before they have fulfilled their side on the other parts, or does our commitment under Article 50 to pay money, for example, become contingent on those agreements being ratified?

Mr Davis

“Nothing is agreed until everything is agreed” is the famous, favourite phrase of the European Union, and we think it applies both ways.

Mr Rees-Mogg

Are you saying we would suspend payments during the implementation period until an agreement on JHA and trade has been reached?

Mr Davis

This is about as far down the speculative route as I am going to follow you.

Mr Rees-Mogg

But it is very important, because if there is sequencing in the agreement, it is perfectly possible that it will take more than two years to ratify the trade deal. It may be possible to continue with it pending ratification, but in that two‑year period we would have paid over £20 billion and we may not have the trade deal. This seems therefore to be very important.

Mr Davis

That is one of the reasons we need agreements at least at Council level and Commission level before it starts.

Mr Rees-Mogg

But does it not go back to—

Mr Davis

But we do not necessarily need ratification. There is an element of risk in it; I accept that.

Mr Rees-Mogg

There is an element of risk. But can you reduce that risk by making it clear the British Government will not, during the implementation or transition period, make payments until those ratifications are done?

Mr Davis

That is why I said I am not following you down this route any further.

Mr Rees-Mogg

All right, because the worry is—

Mr Davis

I can see what you are saying.

Mr Rees-Mogg

You can see what I am saying.

Mr Davis

I am conscious of the trade‑offs.

Mr Rees-Mogg

To follow on from Mr Bone’s question, the worry is when we get to 29 March 2019 we stay under the auspices of the European Court; we are still in the customs union; we accept new rules as they come through; and we keep on paying money with the promise of a trade deal on the never‑never. We are still therefore within the European Union for a further two years. All that has happened is the endpoint has been delayed and the uncertainty in 2021, which the aim is to avoid, is just as great—but we have stayed in the European Union for two years longer and not achieved what we are aiming for.

Mr Davis

There are ways around that, but, if you forgive me, I am not going to detail them here today.

Chair

That is very helpful. A moment ago you said it is quite likely we will continue to participate in Horizon 2020. Can I just be clear that the Government’s policy is that they wish to do so?

Mr Davis

We have not yet engaged with the Union on those things. As you are aware, Mr Chairman, we have not engaged with the Union on any of these ongoing relationships.

Chair

I appreciate that point, but saying “quite likely” presumably suggests there is an intent on the part of the Government to wish to do so.

Mr Davis

The phrase “quite likely” is exactly what it is: it is quite likely. We will formalise that before December.

Mr McFadden

Good morning, Secretary of State. I want to ask you some more questions about this transition period, but can I just give you an opportunity, before I do, to comment on the letter from your colleague Mr Heaton‑Harris to universities asking them about the content of prospectuses and lessons on—

Mr Davis

I have not seen it.

Mr McFadden

You have not seen it. It has been all over the media. Let me fill you in. He has asked universities to supply him with—

Mr Davis

I can save you the trouble, Mr McFadden: I am not going to comment on other colleagues’ activities that I have not seen for myself. I am sorry.

Mr McFadden

You are not going to give us any comment on that.

Mr Davis

No, I am not going to comment. I have not seen the letters; I am not going to comment on it.

Mr McFadden

Let’s continue, then, on the transition period. Can you just set out for clarification, again, when you hope this to be agreed? Is it to be agreed by the end of the year in December in terms of the Government’s intent—I appreciate you are not fully in control of this—or is it dependent on the shape of a future trade agreement being agreed?

Mr Davis

First, in terms of timing, the Council is on 13 or 14 December, so it is unlikely to be agreed before then, because the guidelines to the Commission will only go down at that point, assuming we hit the timetable. Then we will get as much agreed as we can, but, like all these things, nothing is agreed until everything is agreed at the end. But it will be pretty plain what we are trying to deliver.

Mr McFadden

By when do you mean?

Mr Davis

It will be by when we have negotiated it, which I hope will be in the first quarter of next year.

Mr McFadden

You are saying the first quarter of next year. If it is dependent on the future shape of the trade deal, should we expect the shape of that to be agreed by the first quarter of next year?

Mr Davis

No, that will not be agreed in detail until 2019.

Mr McFadden

In Parliament the other day, the Prime Minister said that “the point of the implementation period is to put in place the practical changes necessary to move to the future partnership, and in order to have that you need to know what that future partnership is going to be.” That is why I am probing you on this.

Mr Davis

I see where you are going, Mr McFadden.

Mr McFadden

Will we know that—

Mr Davis

It gives you the time to do it. Let me go back to the answer I gave to two people now, the Chairman and Mr Wilson. I said the reason for the time available or creating the time‑space available was to enable three things to happen. First, for the Government, if need be, to conclude its modifications, whether it is to customs or immigration systems or whatever—

Mr McFadden

I heard that point—“when?” is what I am asking.

Mr Davis

The second is to enable foreign governments to do the same, but they would only start much later because they would not start until they knew what the deal looked like. That is the point: they would not start until they knew what the deal looked like. Thirdly, this allows companies to make their arrangements once they also know what the deal looks like. Now, we have accepted there may be a ratification risk in that, but, beyond that, they will have a pretty good idea of this. If you look at what happened with Canada, Canada had a mild modification to the CETA deal after the ruling in Parliament. That was it, but the main shape of the deal was the same. I expect the same sort of circumstance to apply post March 2019: we will know where we are going, and all those three sets of agencies—our Governments, EU 27 Governments and companies, and indeed people maybe—can make their arrangements accordingly.

Mr McFadden

Can I ask you about the content of the final deal? Mr Barnier said the other day, “From the moment the UK told us it wants out of the single market and the customs union, we will have to work on a model that is closer to the agreement signed with Canada.”

Mr Davis

Closer to what, sorry?

Mr McFadden

An agreement that is closer to the agreement signed with Canada. Is the CETA agreement or something like that what the Government is aiming for?

Mr Davis

No, it is not. The Prime Minister made plain that we are looking for a bespoke agreement. That is a term of art used. But Canada, for example, has very little in it on financial services and on services generally. It is bespoke to Canada in a way. What we are looking for is pretty plain in outline terms: tariff‑free access for goods and, as much as possible, free access to services without non-tariff barriers where we can get them.

Mr McFadden

I will leave it there, with the Arsene Wenger defence.

Mr Davis

I am afraid I not up with the cultural reference, sadly, as is probably the case with Mr Rees‑Mogg. Probably neither of us understands it.

Chair

I suspect that is the first time Arsene Wenger has been mentioned in this Committee.

Joanna Cherry

Good morning, Secretary of State.

Mr Davis

Good morning, Ms Cherry.

Joanna Cherry

Can I go back to the transitional period or the implementation period? What is your understanding of the legal basis for a transitional deal or an implementation period?

Mr Davis

The presumption we have been working on is that it comes under the Article 50 proposal. It was raised with us by the Commission. The European Parliament sees it in those terms. I am assuming the Commission legal service does. But in many ways it is a question almost for the Commission rather than me.

Joanna Cherry

Do you have any legal advice of your own as to the basis of a transitional deal or implementation period?

Mr Davis

I am not going to share the legal advice for the reason I gave earlier: that is the convention. But our belief is that it fits under Article 50.

Joanna Cherry

Legal advice exists, and it is your belief that it is under Article 50.

Mr Davis

I am not going to be drawn any further on that. I said I believe it is going to be under Article 50.

Joanna Cherry

Article 50 does not actually say anything about transitional deals or implementation periods.

Mr Davis

Article 50 does not say very much about anything, if you read it. It is the blandest and unhelpful phrase you are ever likely to come across, but there we are: that is that.

Joanna Cherry

What it does make clear is that, during any period of deferred withdrawal, the treaties would continue to apply, so if we went into a period of deferred withdrawal under Article 50 we would still be in the single market; we would still be in the customs union; and we would still be under the jurisdiction of the European Court of Justice. That is correct, isn’t it?

Mr Davis

My response to that is the same as my response to Mr Bone: we are not looking for deferred withdrawal; we are looking for an implementation period.

Joanna Cherry

But if it is the case that, as a matter of law, all you could have under Article 50 was a deferred withdrawal, we would not be leaving on 29 March 2019, would we?

Mr Davis

That is not what we have been negotiating for. The phrase “deferred withdrawal” has never been used to me by the Commission. The phrase they use is “transition period”. Our term of art is “implementation period”.

Joanna Cherry

Earlier, when the Chair was asking you questions, you said that you were very much leaving the legal status of the transitional period with the Commission, and they had shown no concern and neither had the European Parliament. I wonder whether that is correct, because it has been reported that yesterday Manfred Weber, the leader of the European Parliament’s largest political group, said that his party would oppose any plan for a transitional deal that gave Britain the same benefits outside the EU as it had inside. He said, and I quote, “But I already have got to clarify that we cannot accept that a country outside the EU will have the same conditions and the same status as inside the European Union, so there must be a difference.” That is a very prominent politician in the European Parliament, the leader of the biggest political group, saying that you cannot have a transitional deal from outside; you have to be either in or out.

Mr Davis

That is interesting. I have not seen that. All I am noting is that the European Parliament voted for a proposal that included what they called a “transitional period”. In my conversations with Mr Gualtieri, Mr Verhofstadt and other members of the Brexit committee, nobody has raised it.

Joanna Cherry

I asked the Prime Minister about this in the House on Monday. I asked her what the legal basis of a transitional period would be, and her answer was, and I quote, “The European Union raised a similar concept to the implementation period in its April guidelines, and that would be on the basis of the Article 50 process.” Do you know what the European Union’s legal advice is about the legal basis of a transitional period?

Mr Davis

I have not asked, no.

Joanna Cherry

The Prime Minister will not know what the legal advice is either. She is just making this up.

Mr Davis

You will have to ask her.

Joanna Cherry

I will do.

Mr Davis

No, no, she is not making it up. She is referring to Council documents and, indeed, the responses we have got from the Commission today.

Joanna Cherry

But she is referring to the April guidelines. If anybody looks at the April guidelines, there is nothing saying the legal basis for a transitional period is Article 50. That is correct, isn’t it?

Mr Davis

I do not have it in front of me.

Joanna Cherry

Okay. Let’s move to something else. I want to ask you about the economic impact assessments that the Chancellor told the Treasury Select Committee have been carried out. In his evidence to the Treasury Select Committee, he said the Treasury has developed a model that can explore the impact of leaving the single market and customs union on individual sectors, regions and bilateral trade pairings. That is correct—that was his evidence, wasn’t it?

Mr Davis

Go on, yes.

Joanna Cherry

Why have the Government not published this data?

Mr Davis

We have said this before. This is a repeat of a conversation we have had in this Committee before. The decision of the House of Commons back in December of last year was that we will be as transparent as possible with the House and the public, subject to not giving away negotiating advantage or undermining the national interest. Now, listing out the details of impacts on individual industries is like giving a price list to the other side, and it is not something I would do.

Joanna Cherry

You will appreciate that, as the MP for Edinburgh South West, a large number of my constituents work in the second biggest financial sector in the United Kingdom. I am concerned about the impact on the Scottish economy. Will you release the analysis that your Government has carried out in relation to the impact of Brexit on the Scottish economy?

Mr Davis

No, we will not publish it. What we have been doing is, at official level, being in conversation with the Scottish Government over various sectoral issues. Indeed, that came up at the last JMC(EN).

Joanna Cherry

Yesterday, when the Secretary of State for Scotland gave evidence to the Scottish Affairs Committee, he was asked whether the Government had made their own assessment of the impact of Brexit on Scotland and whether he would share it with the Scottish Affairs Committee. He said there had been such an assessment and it would be shared between Governments. Will you now confirm that that assessment of the impact of Brexit on the Scottish economy will at least be shared with the Scottish Government?

Mr Davis

You will need to take this up with the Secretary of State for Scotland, but that is rather what I said to you about what happened at the last JMC(EN).

Joanna Cherry

Well, no. The question yesterday from the MP for Edinburgh West—

Mr Davis

Not yesterday, no. The JMC(EN)—

Joanna Cherry

Just let me put to you what he said. The MP for Edinburgh West asked yesterday whether the Government had made their own assessment of the impact of Brexit on Scotland and, if so, whether it would be shared with us. He said at the JMC meeting it was agreed that both Governments have done a degree of analysis and that it would be shared between the Governments. The MP for Edinburgh West asked whether it would be shared between Governments, and he said it would be, so can you confirm that the assessment of the impact of Brexit on the Scottish economy will be shared with the Scottish Government without further delay?

Mr Davis

I said to you at the beginning of that question that at the last JMC(EN), which was before the start of this meeting, the other day, we discussed this very thing. We agreed that there would be official‑level contact on these issues, yes.

Joanna Cherry

The assessment setting out the impact of Brexit on the Scottish economy will be shared with the Scottish Government.

Mr Davis

I am assuming it already has been.

Joanna Cherry

I do not think it has, Secretary of State. That is why I am seeking clarification that the Scottish Government will be favoured with a copy of your Government’s assessment of the impact of Brexit on the Scottish economy.

Mr Davis

What we have agreed is to go through the individual sectoral effects with them. They have done work of their own as well. It is an exchange; it is going on.

Joanna Cherry

But it is clear from the answer given by the Secretary of State—

Mr Davis

I am sure that whatever the Secretary of State for Scotland said will be the case. It will be true, and it will happen. I am sure that is the case. He may be organising that, but what I am telling you is what has already happened.

Joanna Cherry

If the Secretary of State for Scotland has said that that information will be shared with the Scottish Government, we should assume that it will be.

Mr Davis

I am sure that is correct, yes. When a Minister says something to a Committee, that is what I assume happens. It certainly does with me.

Mr Djanogly

Good morning, Secretary of State.

Mr Davis

Good morning, Mr Djanogly.

Mr Djanogly

Having heard previous questions, Chairman, can I just clarify for my understanding that during the implementation period we will remain in the single market and the customs union but we will no longer have a place on the EU’s decision‑making bodies that affect both the single market and the customs union?

Mr Davis

We will remain in, have access to it or it will look alike, yes. We will get back to the legal basis, Mr Djanogly, if we are not careful. I am sorry. What was the last part of the question? It was about whether we will have a say on decisions.

Mr Djanogly

It was about whether we will have a say about how those are moulded.

Mr Davis

Yes, how they are changed, yes.

Mr Djanogly

During that period, will the UK have to accept new EU laws made during that period?

Mr Davis

One of the practical points of this, which anybody who has dealt with the European Union knows—as you will have done, I guess—is that it takes two to five years from inception to outcome for laws to make it through the process. Anything that would have impact during those two years we are talking about will already have been agreed with us in advance. Anything that happens during it will be something for subsequent discussion as to whether we propose to follow it or not. That is where the international arbitration procedure might become important.

Mr Djanogly

If I could also just have a say on the sequencing—everyone else seems to want to—most businesses I speak to seem to have been thinking, until yesterday probably, that we were just going to have a two‑year implementation period. They thought it had been negotiated and agreed, but of course that is not the case either from the European Union’s point of view, who have been saying that they have only agreed to consider it, or from our perspective. Yesterday, the Prime Minister made it quite clear that we firstly need a trade deal to implement. Given how little time there is, can I just go a stage before the stage Mr Bone was talking about? Will there come a point in time when your department and you take the decision, “Actually, we are running out of time here. There is no time to do a deal before March 2019”? In that situation, would you consider a two‑year standstill from March 2019, giving business time to sort itself out and you time to finalise an FTA?

Mr Davis

The first thing is that trying to finalise an FTA under those circumstances would be very disadvantageous from a negotiating leverage point of view. You might get into the circumstance Ms Cherry raised of putting it off and putting it off and putting it off, which we do not want to do. Secondly, it is no secret that the way the Union makes its decisions tends to be at the 59th minute of the 11th hour of the 11th day and so on. That is precisely what I would expect to happen here. In technical terms, there is no reason why we cannot do this in the time available. That is the point Karel De Gucht made, the previous Trade Commissioner, an antagonist of Brexit. Even he accepted that, given the political will. But we do have to maintain a degree of determination to achieve it, but I am quite sure in my mind that we can do that. My jibe or joke—if it was a joke—to the Chairman about the clock being stopped at midnight is precisely what happens. If there is a time limit on a negotiation, the Union stops the clock. It assumes it is still at 11.59 or whatever it may be until it is concluded—sometimes over the course of 24, 36 or 72 hours thereafter. That is what I imagine it would be here, and there would be a lot of pressure. It would be very high‑stress and very exciting for everybody watching, but that is what would happen.

Mr Djanogly

These will be the very final points. What if, six months before or a year before, you are very far apart? You can only be so far apart to take that strategy.

Mr Davis

If the experience to date is anything to go by, we will have a pretty good idea of where their end game is from what is published. What people do not often ask me about at this Committee but is the unseen element of this is the huge amount of diplomatic activity, personally by me, by Olly Robbins, by UKRep and by our diplomatic corps as well, across the whole of Europe, across the 27 members, to know what they are after, what they are accepting from this and what they want out of that final Council meeting. We have a pretty good idea of the economic interests of every single member state. They are not always focused on them, all the time. They have other issues. We have Germany, Austria, Holland—I have forgotten somebody—and the Czech Republic[i] all without new Governments in place at the moment, so this is not at the top of their tree. There are other reasons, Catalonia in Spain, people’s eyes are being taken away from it. Nevertheless, we have a pretty good idea of where they will end up as the end game, even if there are delays along the way.

Mr Whittingdale

On your answer to Jonathan Djanogly, from April 2019, you have suggested we should continue to enjoy the benefits of being part of a single market and the customs union, as much as possible, even though technically we are no longer in it. Obviously we will no longer have representation on the Commission, at the European Parliament or round the table at the Council of Ministers. I think you also suggested in an earlier answer, but I would like you to expand on it, what positive benefits this country will have in April 2019 that we did not have the week before.

Mr Davis

Bear in mind an implementation period is there for just that. I would not describe it as a positive benefit, but you have the time to make the things happen that are going to deliver the later benefits. What you are probably referring to are my comments on not being a member of the Union anymore, therefore not being subject to the duty of sincere co‑operation and therefore being able to negotiate and sign, but not enter into force, free-trade treaty arrangements with other countries.

Mr Whittingdale

We would be able to negotiate but not actually be able to sign.

Mr Davis

Bear in mind that we are at the beginning of a negotiation that we have not concluded. I am telling you what we are aiming for, but it is a perfectly reasonable aim. One of the things that will affect inward investment in the years straddling this period will be what people see as the future markets for the UK. If I were in my old job many years ago of running a public company, I would be looking to actual free trade agreements—not aspirations or nice words from Justin Trudeau or whoever, but actual free trade agreements. Now, they do not have to enter into force, so long as they are signed. Some of them will enter into force in a couple of years when we are out, and those sorts of things will be very beneficial.

Mr Whittingdale

The week after we leave the European Union, we will have lost some things—representation and the ability to put our case—but we will not yet be enjoying any new freedoms or opportunities, which are the reason we decided to leave in the first place.

Mr Davis

We will not at that stage, no.

Chair

Craig Mackinlay, were you on this same point?

Craig Mackinlay

It is the same sort of point. Secretary of State, it is good to see you. There are quite a few things happening here. You have the Article 50 divorce agreement, then we have a potential free trade agreement and now we have in the mix the transition period agreement. Now, I am just getting a little confused as to who has the competence to negotiate these and to agree them. Say in the Article 50 agreement we agree the Irish border, EU citizens’ rights, driving licences, open skies and those fundamentals, but say we have not agreed the money. We would have a partial agreement, perhaps. Would that be a mixed competence or a Council competence? I am a little confused as to who has the competence to say, “This is mixed and this is just us.” If it is a mixed one, it has to go to the EU 27 and the Parliament on four-fifths of the agreement. If that is agreed, does it then have to go back later to the same 27 and the Parliament to agree the money? Is the transition potentially a treaty issue, because is something new that affects the 27? There are a number of things here. Later on, and it is something we all want, is the free trade agreement. Would that have to go to the 27 and the Parliament? You can see the confusion of getting this body to move as one.

Mr Davis

I can see the point. The withdrawal agreement, which I judge includes the implementation period or transition period, whichever you prefer, is under Article 50. That is QMV on the Council and majority agreement of the European Parliament. Now, my hunch, bluntly, is that the Council will be seeking unanimity on it, in truth, but the legal basis is QMV. For any trade agreement and the wider justice, home affairs and foreign policy agreements that we do with them—counterterrorism and security arrangements—almost certainly both of those will be mixed. They will go through Council, they will go through Parliament and they will go out to the 36, maybe 35, Parliaments, including the infamous Walloon Parliament, and all that goes with that.

Stephen Kinnock

In your exchange with the Chair right at the beginning of this meeting, you said that the European Council had not yet come to a view on the legal basis for any potential transition arrangement, but that is not actually true, is it? In the EU Council negotiating mandate of 22 May, paragraph 19, the Council says, “Should a time-limited prolongation of Union acquis be considered, this would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply.” In essence, that phrasing was copied and pasted into the European Parliament’s resolution of 3 October. It is crystal clear that any transitional arrangements would be governed by the same regulatory, budgetary, supervisory, judiciary and enforcement instruments. Can you therefore confirm that that would be the basis for any transitional arrangement?

Mr Davis

What I actually said was that they had not agreed the final guidelines. I did not say “legal basis”; I said “the final guidelines”, unless I misspoke, which I do not think I did. Those final guidelines will be agreed assuming sufficient progress, of course, which we still do not have, in December. At that point that may well be their stance. Bear in mind, however, that this is a negotiation. Broadly speaking, that is consistent with what the Prime Minister said too. This structure will look quite like where we are now.

Stephen Kinnock

Do you feel that the Cabinet and your parliamentary party also understand that the transitional arrangements will be on this basis?

Mr Davis

There will be something like that. As I said, this is the negotiating position. This is not handed down. One of the things that always irritates me, frankly, about British public life is that people assume that anything that comes from Europe is on tablets of stone and everything we have is an opinion. It is not quite like that. That is their start position. It may be where we end up, but our position is what the Prime Minister laid out. It is not that dissimilar, but it is not identical.

Stephen Kinnock

Thank you. I wanted to move on now to the issue of a potential no‑deal scenario. I thought it might be useful to look at the issue of the port of Dover, as an illustration of the potential impact of a no‑deal scenario. As you may know, the Select Committee visited the port of Dover last week and we were told there that every two minutes added to customs processing and proceedings would create an additional 17 miles of tailback of heavy goods vehicles from Dover to Ashford. Of course, the port of Dover is processing around 10,000 HGVs per day. How do you feel is the state of preparedness for a no‑deal scenario in that particular context?

Mr Davis

I feel it is reasonable. Dover is not the only one. Dover is probably the sharpest example, because of its lack of parking capacity, bluntly. We would need to create some workaround for that. Now, there is a variety of ways of doing that. We are not in a position to publish it yet but, at some point, we probably will publish some of the components of the contingency planning. A lot of work is going into that, both in the Department for Transport and in HMRC.

Stephen Kinnock

Just to be clear then, for our no‑deal play, if you like, or negotiating position to have any kind of realism, you need to have this kind of issue absolutely clear and settled by very soon, because otherwise it becomes absolutely clear that the no‑deal scenario is just a bluff.

Mr Davis

It is not very soon. It has to be in place to work on 29 March 2019. That is what it has to do. It is not a bluff. In any event, Mr Kinnock, even if it were not a useful negotiating tool, we would need to do it anyway. The other way round, if we suddenly felt that parts of our economy would grind to a halt, the pressure on us to give in anything would be enormous. Two minutes leading to a 17‑mile queue sounds incredibly dramatic. At Dover we are talking ro‑ro, which is a little different. However, to give you a measure of the sorts of numbers we are talking about, for containers coming in across the common external tariff barrier into other ports, say Southampton or wherever, the clearance time on a single container is four seconds. That is for 98%. Those are the ones that do not get inspected. Most traffic across the borders does not get inspected; 2% does. You have got issues like that. On other countries, I went to the Canadian/American border at Windsor/Detroit. I went there because I knew it from running business across it myself. I have sold across borders myself in the past and I knew this border well. It is an incredible choke point. It is a choke point like Dover is a choke point. Their clearance time is 54 seconds on an average truck, but they also use a whole series of systems clearing things before they get to port and authorised economic operators. These things become very important in Northern Ireland as well. An authorised economic operator is a trusted trader. We use them much less than other countries do and will increase that. Electronic pre‑notification is what accelerates most of the container traffic that goes through. There is a huge amount of work going into all this deliberately to make sure that this is not a bluff, Mr Kinnock. This is the reality we have to cope with if we end up in that circumstance—not that we intend to. I keep stressing every time that that is not the aim, but it is what we may need to do in that circumstance.

Stephen Kinnock

The fundamental difference between this and those examples you just gave is, when the systems were being designed to enable that processing and that administration, the people designing the systems knew what kind of circumstances they were going to be in. In this case, everyone is in the dark. We do not know whether there will be a deal, no deal at all or whether it will be certain aspects of authorised economic operators, for example, or what will happen with the rules of origin. I really felt for the staff and management in Dover, I have to say, because they are being asked to design systems—I do not even know if they are being asked—without knowing what the future reality looks like. How can you design an infrastructure and an IT system without knowing your direction of travel?

Mr Davis

I sympathise with the staff at Dover too. They are not designing the system, by the way. That is being done by HMRC and physical aspects of it are being done by DfT. It is not true to say that we do not know what the parameters of the worst‑case outcome or the most‑stressed‑case outcome would be. For a start, in the event we are talking about WTO, we are then talking about the application of Union Customs Code, which we already apply in all the ports where we bring things in from outside the European Union. This is exactly what is being applied, and the Union Customs Code is what is already in the CHIEF system, which you probably saw. That is the green‑screen system. It will also be in the CDS system, which was under way before all of this started and will come into effect at the very beginning of 2019—1 January. Those two systems will operate in parallel, if need be, which gives us an extra contingency. They are not intended to but, if we need to, we can do that. What is the case, and I do not think one should blink in the face of it, is that there would be an increase in volume of checking. It would not be quite pro rata what you see, because some of the stuff is coming from the European Union. We would have pretty good ideas of where it is coming from, what its phytosanitary background is and so on. It would be the same as the day before, but there is a lot of work to do on it and it is under way.

Richard Graham

Secretary of State, good morning. Some people take the view that any deal is better than no deal. Part of the answer to that has to be what the worst‑case deal would look like. What was the size of the original EU bill presented to us?

Mr Davis

It is not sized in terms, but the number being thrown around in the press of €100 billion was one of the aspirations. Of course, one of the things that is very apparent in negotiations is, if we had gone and said, “Yes, we will pay €100 billion,” I suspect they would have added something to it at the next stage.

Richard Graham

How important were pensions as a part of that initial bill?

Mr Davis

I cannot remember the number off the top of my head, but they are quite a significant proportion, yes.

Richard Graham

What is your view on the pension liabilities?

Mr Davis

With the best will in the world, Mr Graham, I am not going to go into a line‑by‑line critique of this, because that is precisely what we are doing internally. We are going to have to make some political judgments later on, rather than legal ones. As I think I said earlier to Mr Rees‑Mogg, the legal basis is not strong for many of the claims.

Richard Graham

During the transition period, the implementation period, what is your belief about the likelihood of us being able to clone all the existing EU free trade agreements?

Mr Davis

It is pretty high. We will need co‑operation from the EU on it, as well as from the other side. On the other side, we have not done all of them yet, but Liam Fox has certainly talked to the big ones. All of them have indicated interest in grandfathering and/or improving. We will probably have to do it in two stages: grandfather first and improve second.

Richard Graham

Would you expect that to include any new agreements that the EU signs during the transition period?

Mr Davis

The two new ones coming along are obviously CETA—and Justin Trudeau has expressed explicitly to the Prime Minister that he wants to see an equivalent for us—and Prime Minister Abe said the same thing about the Japanese one, which is still informal at the moment. That is the significant one that is most likely during the transition period.

Hywel Williams

Good morning. Just moving on from the question that you were asked by Stephen Kinnock to one that I had hoped to ask you later about the arrangements at ports, of course Dover is not the only one. You mentioned Southampton but, in Wales, we have Fishguard and obviously Holyhead, which is, if I may characterise it as such, the Wales/Ireland border. What discussions have you had with the Welsh Government regarding any arrangements that might need to be made there?

Mr Davis

There has been nothing explicit to Holyhead yet. All the DAs will have explicit port issues for themselves. As you say, because Holyhead is the sort of Wales/Ireland border, it may even have an extra layer of complexity later on, if we get special arrangements there. The truth of the matter is it is one of the objectives. Forgive me if I see it from the Irish point of view rather than the Welsh point of view for a second, but one of my aims in this is to try to get an outcome that does not do harm to Ireland. Ireland is the country that is most dependent on us for trade. I think it is about a €1 billion a week in both directions. They have a great deal of investment in maintaining sales, both to us and through us to the continent. Of course, much of that comes through Holyhead. It is in our mind, but we have not had an explicit discussion on it yet.

Hywel Williams

Can I ask you if you know if the Welsh Government has engaged in any planning, as far as Holyhead might be concerned?

Mr Davis

I do not. I can find out if you wish and let you know. I will write to the Committee.

Hywel Williams

There is a money question here: they are responsible for the roads, not the ports themselves, I think, but there is also a specific issue around the bridges across the Menai Strait and the possibility of a third one, which might cost anywhere around £100 million, all of which is of great interest to people locally. Anybody exporting from Ireland to the continent might also be very interested indeed if you could provide us with any information on that.

Mr Davis

I suddenly feel like the Chancellor receiving a bid, but I will find out what I can.

Hywel Williams

I assure you we will be putting the same questions to our colleagues in Cardiff as well. Can I then go on, Chair, to another point made earlier about the intense diplomatic activity taking place with the 27? Can you confirm that there is a certain amount of activity with certain member states’ Governments, such as Wallonia and Flanders possibly? I will not introduce Catalonia, because we might not know where they are next week, let alone in 18 months’ time.

Mr Davis

No, Catalonia would not be one we would be looking at. We are very supportive of the Spanish Government in terms of maintaining the rule of law and so on, but the issue with respect to the regional governments in some of the littoral states is very important. For example, Mr Bourgeois is the President of Flanders and Mr Xavier Bertrand is the President of Hauts‑de‑France, which includes Calais and Dunkirk. It is north France, in effect. They have already expressed an interest and I have asked to see them. I have not seen them yet, but I have asked to see them specifically about this. Of course, I have got my pitch in to see the new Dutch foreign secretary once he is appointed. His name is known, but he has not been appointed. My specific aim is saying that these are areas that are particularly sensitive to our issues here. We will aim to do what we can and work with them. The other example I can give you of the equivalent of a devolved Administration is the Minister-President of Bavaria, Mr Seehofer, who I went to see. I went to see him because they have a very large trade balance with us in BMWs, Siemens, agriculture and so on, and they are a very large entity in their own right. I have been doing that too. As you can imagine, it is a pretty sizable number of people.

Hywel Williams

It is just a point of detail. I do not expect you to be able to respond in any real sense, but Flanders has had diplomatic representation here in London. I assume that they are being involved as well. They are very competent people who might be able to participate.

Mr Davis

I do not know the answer to that. We have made an overture for me to see Mr Bourgeois certainly.

Hywel Williams

Can I therefore turn to devolved Governments in the UK? What consultation have you had with them regarding the proposals for the implementation period? You have answered that already, to some extent.

Mr Davis

It has not been formal. As you will be aware, I speak to Mark Drakeford quite a lot and Mike Russell, the Scottish Europe Minister. I cannot think that we have formally done this. Carwyn Jones welcomed the direction of travel of the Florence speech, and my strong impression is that they will be favourable to this, just from our general conversations.

Hywel Williams

The Joint Ministerial Council, which is one formal way of discussing between the Governments, met in this month—a couple of weeks ago—and also in February. There is quite an intervening period there, when many detailed and exciting things were happening. Can I assume that there were consultations at senior levels?

Mr Davis

I spoke to them. This tends to fall to the First Secretary more than me these days, because he now chairs the JMC; I used to chair it. I know he talked to both Governments shortly before the Florence speech was delivered to walk them through it and so on. I talk to them after each negotiating round, in essence directly, just telephone conversations to Mark Drakeford and Mike Russell fairly frequently. There is a deal of discussion going on, but the real meat of this will start after December when we go to the ongoing relationship. For the immediate ones, we know the stance of the Welsh Government, for example on citizens’ rights, in detail. We have discussed that in JMC in the past. We know the stance on Northern Ireland. Of course, one of the problems with JMC(EN) is there is no Northern Ireland Executive. I tried as long as I could to keep seeing the old Ministers until there was nothing, until after the election, and then I could not even do that. We do what we can and, as you say, the JMC(EN) is reinstated now and it is under way. I have to say that some of the members of the JMC were not really happy with the way it worked, but they have decided to go back to it. It is a good way to do it.

Hywel Williams

Can I finally ask you, therefore, what the formal relationship is between you and the First Secretary of State who is handling this. Is there a formal relationship between your department and his on this specific issue?

Mr Davis

No, there is none at all. He is one of my oldest friends.

Hywel Williams

He is a very fine man, I am sure.

Seema Malhotra

Thank you, Secretary of State, for coming today. I want to come back for a point of clarification on some of the points raised by colleagues on the timetable again to clarify further what we see happening or you envisage happening. You will have a transition agreement that you think will be agreed by the end of quarter one.

Mr Davis

Hopefully it will. That is what we are aiming for anyway.

Seema Malhotra

When do you think the withdrawal agreement will be agreed by?

Mr Davis

That is actually a very good point, because I have not answered that question. Bear in mind the withdrawal agreement includes citizens’ rights, which I think we will get to a conclusion on. For Northern Ireland, the next stages require the onward relationship to be resolved. These are things like the north/south strands. There are about 142 of them. They include things like the single energy market for Northern Ireland and the Republic of Ireland, and we cannot deal with that until we know what we are doing on that basis, and border issues, which will be affected by whatever conclusion we get to on customs agreement and free trade agreement.

Seema Malhotra

When is it in your mind? I am just trying to get a date clear. Is it October next year?

Mr Davis

My hunch on this is it will be coterminous in terms of agreement, not quite in terms of signing, with the forward relationship.

Seema Malhotra

Do you have a specific date in mind?

Mr Davis

I am sorry; I did not mean to cut across you. That is why the Council used the phrase “sufficient progress” not “conclusion”.

Seema Malhotra

When do you envisage that? Would you give a quarter next year?

Mr Davis

No. Parts of it will go on. Take Northern Ireland; we cannot address some of the Northern Irish issues, of which there are a number.

Seema Malhotra

It could be as late as March 2019.

Mr Davis

It could be at the same time, yes. That is why I said it could be coterminous with it.

Seema Malhotra

At which point do you envisage Parliament having a vote?

Mr Davis

As soon as possible thereafter.

Seema Malhotra

This Parliament, our Parliament?

Mr Davis

As soon as possible thereafter, yes.

Seema Malhotra

The vote of Parliament could be after March 2019.

Mr Davis

It could be, yes. It could be. It depends when it concludes.

Seema Malhotra

Sorry, the vote of our Parliament, the UK Parliament, could be after March 2019.

Mr Davis

Yes, it could be. It could be. It cannot come before we have the deal.

Seema Malhotra

What would be happening at that point with the European Parliament?

Mr Davis

We have said that it is our intent and our expectation that we will bring it to the British Parliament before it goes to the European Parliament. It will be after that, and then it will go to the EP and then it will come back to the Council.

Seema Malhotra

I am not sure I feel much clearer, but that is very helpful. I will move on to my other questions. Could I just ask why Oliver Robbins was moved from DExEU to the Cabinet Office?

Mr Davis

Yes. I do not like speaking about individuals but, when we started, the task of being the Prime Minister’s Sherpa was that of going around most of the member states, establishing the arrangements there. The department was 50 people. Now, in the next stage it is going into, the negotiations, which Olly runs for me, are going to become enormous. They are pretty big now. We take 100 civil servants with us when we go to Brussels for the negotiating week, if you like. My department is now 500 people and climbing, in terms of size. It was plain a little while ago that we were going to have to divide the role. That is why I brought in Philip Rycroft, first as a deputy or the Second Permanent Secretary, and now to take over as Permanent Secretary.

Seema Malhotra

Was it your decision for Oliver Robbins to move?

Mr Davis

Yes, it was my request. No, I thought the organisation needed to be divided. That was all.

Seema Malhotra

Do you think it sends a confusing message, however, that 16 months after the referendum we seem to be moving the deckchairs a little bit in Whitehall? Do you think there is any confusion about who might be in charge of negotiations?

Mr Davis

No, not at all. The person who is in charge of the negotiation is the Prime Minister. Both Mr Robbins and I report to the Prime Minister. When we are out doing the tactical stuff in Brussels, he effectively reports to me. It is the sort of thing that is interesting to Whitehall correspondents. I do not think there is much reach beyond that. Everybody knows Olly on the continent. Everybody knows Tim, the UKRep ambassador. The dramatis personae are the same in operational terms.

Seema Malhotra

In the last evidence session, Secretary of State, you confirmed that DExEU was carrying out 57 sets of sectoral analysis on the impact on the economy of Brexit. MPs and the public have raised concerns that the analyses have not been placed in the public domain. That has also been the subject of freedom of information requests. Could I ask you, Secretary of State, who decides what information, if published, would undermine the ability of the Government to negotiate the best deal for the UK? Would that be your department?

Mr Davis

The Government do. To a very large extent it comes to me, but it would depend on which department it is in. Some of the stuff is also held in other departments.

Seema Malhotra

All of those assessments and the decision to not publish them at this point would be in your department.

Mr Davis

Of that 57, yes they would.

Seema Malhotra

Do you have clear criteria on which you are making that assessment?