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Brexit: One year to go - What has happened in the negotiations so far and what needs to happen next?

  • United Kingdom
  • Brexit
  • Competition, EU and Trade - Brexit

03-04-2018

A year ago, Prime Minister Theresa May gave notice to President Tusk to leave the EU triggering the two-year period set out in Article 50 of the Treaty on European Union to negotiate the UK’s withdrawal from the EU. This means that one year from now, on 29 March 2019, the UK will leave the EU (unless an extension is agreed). With the third phase of the Brexit negotiations commencing shortly, in this briefing we explore what has been agreed so far and the next steps in the process.

Three Phases of the Brexit Negotiations

The UK Government was keen for the Brexit negotiations to progress quickly to the terms of the UK’s future relationship with the EU. The EU, however, insisted that the negotiations would take place in three phases.

Phase I – Negotiations on the separation issues covering:

  • the UK’s financial bill;
  • the Northern Ireland/Republic of Ireland border; and
  • the protection of UK/EU citizens’ rights.

On 8 December 2017, the UK and the EU published a Joint Report setting out their agreement in principle on these issues. They agreed that:

  • the UK’s financial contribution to the EU will be around €38-45 billion (estimated), and
  • UK nationals residing in the EU and EU citizens residing in the UK as at 29 March 2019 will be able to remain and that their rights will be protected.

However, no solution was reached on the issues relating to the Republic of Ireland and Northern Ireland border. Nevertheless, on 15 December 2018 the European Council decided that sufficient progress had been made in Phase I for the negotiations to move to Phase II.

Phase II – Negotiations on the transitional/implementation period

On 23 March 2018, the EU agreed to a transitional or implementation period commencing on 30 March 2019 (after the UK leaves the EU) and ending on 31 December 2020. This date coincides with the end of the EU’s multiannual financial framework, which sets out the spending priorities and maximum amounts that the EU can spend in different political fields from 2014 and 2020.

The agreed terms on the transitional arrangement/implementation period were published on 19 March 2018 in the updated draft of the Withdrawal Agreement. Businesses should be aware that during this period, there will be very little change in the UK’s relationship with the EU, as access to each other’s markets will continue on current terms. Although the UK will have left the EU, during the transitional/implementation period any reference to “Member State” under EU law will continue to include the UK. A summary of the main terms of the transitional/implementation period is provided below:

  • the UK will remain in the Single Market (meaning that the free movement of goods, services and people will continue) and the Customs Union;
  • EU law, including any new laws adopted during the transitional/implementation period, will continue to apply in the UK. There will be no regulatory change;
  • the UK will no longer be represented or have any voting rights in the EU bodies or institutions. The draft Agreement does, however, make provision for a UK representative to attend certain meetings (at the EU’s explicit invitation) in very limited circumstances. Furthermore, under the current draft of the Agreement, the UK will have no generalised right to act as an observer or even to be consulted;
  • EU legal bodies, such as the European Competition Commission, will continue to have jurisdiction to enforce EU law in the UK and, although not specifically mentioned in the draft Agreement, UK legal bodies and institutions will continue to enforce EU law in the UK;
  • the UK will remain subject to the jurisdiction of the Court of Justice of the EU (“CJEU”); and
  • the UK will remain “bound by the obligations stemming from the international agreements” entered into by the EU/EU Member States. This also means that UK businesses will continue to benefit from the EU’s existing free trade agreements. Furthermore, the UK will be able to negotiate, sign and ratify free trade agreements with other countries provided they do not come into force or apply during the transition period. These could provide new opportunities for UK businesses.

The terms of the transitional arrangement resemble the European Economic Area (“EEA”) model (or “Norwegian” model).

Phase III – Framework for future relationship between the UK and the EU

As set out in the Prime Minister’s Mansion House speech, the UK Government wants the UK to leave the Single Market, the Customs Union and the jurisdiction of the CJEU. Instead it is seeking a “deep and special” economic and security partnership with the EU covering free trade in services and tariff-free trade in goods. Furthermore, the UK Government has ruled out remaining in the EEA in the long-term.

On 23 March 2018, the European Council adopted new guidelines on Phase III of the negotiations. The EU is seeking as close a partnership as possible with the UK, but the relationship will be limited as a result of the UK’s red lines on the Customs Union and the Single Market. Therefore, the EU’s starting point is a free trade agreement covering all sectors with:

  • tariff-free and quota-free trade in goods with appropriate customs cooperation;
  • reciprocal access to fishing waters;
  • trade in services with the aim to allow market access to provide services under host State rules, but to an extent consistent with the UK’s position as a third country without a common UK/EU regulatory, supervisory, enforcement and judiciary framework;
  • partnerships on security, defence and foreign policy;
  • cooperation on education, environment, research, culture and transport; and
  • an appropriate governance mechanism which respects the requirements of the EU legal system’s autonomy including the role of the CJEU.

Negotiations on the framework for the UK/EU’s future relationship will need to be concluded by October 2018 to allow for sufficient time for the Withdrawal Agreement to be approved by the EU and the UK Parliament before 29 March 2019. The European Council aims to discuss progress on Phase III of the negotiations at its next meeting on 28-29 June 2018.

The UK and the EU cannot enter into a formal agreement on their future relationship until the UK leaves the EU. Therefore, the outcome of Phase III of the negotiations will be elaborated into a political declaration, which will accompany and be referred to in the Withdrawal Agreement.

Comment

With seven months to go until the Brexit negotiations will end, it is welcomed news that the negotiations have progressed to Phase III. Businesses need to be aware, however, that “nothing is agreed until everything is agreed” meaning that until the Withdrawal Agreement is approved by the EU and the UK, its terms cannot be guaranteed. Both the UK Government and the EU are hopeful that the Withdrawal Agreement will be adopted with David Davis, Brexit Secretary, stating that, in his view, a final deal was “incredibly probable”, but that contingency planning will continue. Whether it will be approved will be dependent on if there is adequate political consensus on all of the provisions in the Withdrawal Agreement.

One of the main sticking points at present is a solution to avoid a hard border between Northern Ireland and Republic of Ireland. However, European Council President Donald Tusk has said that he is “absolutely sure” that a solution would be found to prevent physical checks on between Northern Ireland and the Republic of Ireland and David Davis, Brexit Secretary, agreed stating that a “whole lot of technology” was available to achieve this.

Although businesses should continue to prepare their contingency plans, the current status of the Brexit negotiations should inform the implementation of those plans.

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