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FACTBOX-Drafted: EU pressures Britain with Brexit treaty offer

BRUSSELS, Feb 28 (Reuters) - The European Commission has published a draft of the treaty it would like to agree with London this year to avoid administrative chaos for people and businesses when Britain leaves the European Union 13 months from now.

The 118-page document in part converts into legal language interim accords reached in December, but EU negotiators have also taken the opportunity to drive forward demands which Britain rejects or on which its government has yet to formulate a clear stance.

Key points to note about the Draft Withdrawal Agreement:

IT'S A DRAFT

For all the outrage in some quarters in Britain, this is just a non-binding negotiating document. And nothing in it has not been aired before. Nonetheless, EU officials involved in the Brexit process say Brussels is fed up with delay and indecision and wants to use the text to focus British minds to cut a deal.

TRANSITIONING OUT

Britain wants to agree on a transition period by March to reassure businesses that there will be a further couple of years of virtual status quo in the economy after Brexit in March 2019. But several differences remain, notably:

THE END

The draft baldly states the end of the transition as Dec. 31, 2020; although EU states have expressed a willingness to extend that a bit if a future free trade treaty is not ready, Britain wants a more explicit assurance of that flexibility.

POST-BREXIT RIGHTS

The EU asserts that future rights for expatriates extend even to those EU citizens who arrive to live in Britain during the transition. Britain agrees they can have more rights than people who come after that but wants transition arrivals to have fewer rights than those living in Britain before Brexit -- notably in terms of rights for their families.

PENALTY AREA

The EU draft's Article 165 includes a penalty clause under which Britain could see some of its access to the EU market suspended if it ignores rules or EU court judgments. That is a weapon the EU does not wield against its own members and caused anger in London where critics say the terms of the transition will turn Britain into a "vassal state" of the EU.

IRISH "BACKSTOP"

In December, the two sides agreed to avoid a "hard border" between the British province of Northern Ireland and EU member Ireland, avoiding physical checks which might risk inflaming the political violence that blighted the region for decades. They did not, however, agree on how to achieve that. Britain said it could avoid a hard border through the design of a planned free EU-UK free trade deal. Failing that it would offer "specific solutions" for Ireland. And if all else failed it would keep "full alignment" of economic rules on either side of the border.

In the draft, the EU simply goes for this last "backstop" solution, with EU officials pointing out that Britain has yet to detail a better idea. British officials say that is unfair as the EU has refused so far to negotiate on future trade -- talks are due to start in April after EU leaders respond in March to proposals that Prime Minister Theresa May plans to make on Friday.

EU RULES NORTHERN IRELAND?

A 9-page protocol on Ireland, included at the end of the EU draft treaty, outraged May and her key allies in Belfast. That is because it outlines how Northern Ireland, separately from the rest of the United Kingdom, would remain subject to EU market rules and EU courts, effectively remaining part of a customs union with the bloc and isolated from the British mainland.

The December "joint report" included language on avoiding any divergence of rules between Northern Ireland and the rest of the UK. But EU officials said that had no place in the treaty draft as it was purely an internal matter for the British.

LUXEMBOURG RULES

The draft spells out that Britain can recover much of its judicial sovereignty but must ensure that British courts keep their interpretations of the treaty in line with those of the European Court of Justice (ECJ) in Luxembourg. And while a Joint Committee will oversee the operation of the treaty, disputes will ultimately end up being decided at the ECJ. Britain rejects that but the draft does not contain its arbitration ideas.

INKING DEALS

The EU draft will set the basis for further negotiations on a treaty, with both sides aiming for agreement around October so that parliaments in London and Brussels can ratify it by March. Until it is signed off, nothing is legally binding, including the transition deal. Alongside the treaty, they want a "political declaration" on future trade by late this year in the hope of having a full free trade deal in place to start on Jan. 1, 2021.

(Reporting by Alastair Macdonald; zmacdonaldrtr Editing by Hugh Lawson)