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BREXIT: SUFFICIENT PROGRESS MADE TO MOVE TO TRADE NEGOTIATIONS

  • United Kingdom
  • Brexit
  • Competition, EU and Trade

12-12-2017

On 8 December 2017, after nearly six months of negotiations between the UK Government and the European Commission (“Commission”) on the UK’s withdrawal from the EU, the Commission declared that sufficient progress had been made in the first phase of the negotiations for trade discussions to commence. The Commission’s recommendation will almost certainly be adopted by the European Council when it meets on Thursday, 14 December 2017. The Prime Minister is pushing for trade negotiations to commence shortly thereafter. In this briefing we consider what has actually been agreed and the next steps in the process.

What has been agreed?

The objective of the first phase of the Brexit negotiations was to ensure the UK’s orderly exit from the EU and focused on three main issues: the protection of UK/EU citizens’ rights, the Northern Ireland/Republic of Ireland border and the financial settlement.

Citizens’ rights

On citizens’ rights, the Commission and the UK Government agreed to:

  • allow EU citizens and UK nationals, as well as their respective family members, to continue to live, work or study as they currently do under the same conditions as under EU law. They will continue to benefit from the full application of the prohibition of any discrimination on grounds of nationality;
  • protect the current rights of spouses, registered partners, parents, grandparents, children, grandchildren and a person in a durable relationship, who do not yet live in the same State as the EU citizen or UK national, to join them in the future. There is currently no agreement on whether this reunification right should also cover future partners/spouses of EU citizens and UK nationals, who are not yet partners/spouses when the UK leaves the EU;
  • protect all children wherever they are born before or after Brexit, or whether they are born inside or outside the Member State where the responsible EU citizen or UK national resides. The only exception foreseen concerns children born after Brexit and for which the parent not covered by the Withdrawal Agreement has sole custody under the applicable national family law, and
  • allow citizens to maintain their right to healthcare, pensions and other social security benefits, and if they are entitled to a cash benefit from one Member State, they may generally receive it even if they decide to live in another Member State. When citizens claim a benefit, event after Brexit, previous periods of insurance, work or residence in the EU or in the UK will be taken into consideration.

The main outstanding issue on citizens’ rights is whether UK citizens will automatically be able to move from one EU Member State to another and maintain all of their current EU rights after Brexit.

The agreement on citizens’ rights will be enshrined in the Withdrawal Agreement, which will be binding on the EU and its Member States, and implemented into UK law. The Commission will monitor the implementation and application of the agreement on citizens’ rights in the EU, and an independent national authority will undertake a similar role in the UK. Furthermore, the agreement on citizens’ rights will be enforced by both the UK courts/tribunals and the Court of Justice of the EU.

Northern Ireland/Republic of Ireland border

Both the EU and the UK Government agree that the Good Friday Agreement must be protected to ensure peace and stability on the island of Ireland and, at the same time, the integrity of the Single Market must be preserved. The UK Government, therefore, offered a number of commitments to the Commission including that:

  • there will be no hard border between Northern Ireland and the Republic of Ireland. This means that there will be no physical infrastructure or related checks and controls. Northern Ireland will remain an integral part of the UK;
  • the UK will maintain full alignment with the Single Market rules and the Customs Union, which “now or in the future, support North-South cooperation, the all-island economy” and the protection of the Good Friday Agreement until the UK can meet these objectives through the future agreement between the UK and the EU;
  • the UK will ensure that “no new regulatory barriers develop between Northern Ireland and the rest of the UK” unless the Northern Ireland Executive and Assembly agree that such arrangements are appropriate for Northern Ireland;
  • the UK will ensure unfettered access for Northern Ireland’s businesses to the whole of the UK market;
  • the Northern Ireland economy will be fully aligned with the UK economy, and
  • the Common travel area between Northern Ireland and the Republic of Ireland will continue.

The Commission and the UK Government agreed to continue negotiations on the issues arising from Ireland’s unique geographic position in the second phase of the negotiations. This will include the transit of goods to and from Ireland via the UK.

Financial Settlement

The Commission and the UK Government agreed a methodology to calculate the financial settlement. The UK will:

  • continue its budgetary contributions to the EU, as originally agreed, until 2020. The UK will benefit from any surplus or will be obliged to contribute to any shortfall in the budget, as if the UK had remained in the EU, and
  • continue its share of the financing of the EU’s liabilities incurred before the end of 2020 which fall within the EU’s 2020 budget. It will remain liable for its share of the EU’s contingent liabilities as established at withdrawal date with a cut-off date of 31 December 2020. If the EU recovers any contingent liabilities for which the UK is liable, the UK will receive its share of any subsequent recoveries.

The Commission and the UK Government agreed that the second phase of the negotiations will address the practical modalities for implementing the agreed methodology and the schedule of payments, and the European Court of Auditors will audit the data to calculate the financial settlement.

Is the agreement legally binding?

The terms of the agreement is set out in a Joint Report agreed by the negotiators of the EU and the UK Government, which was endorsed by the UK Prime Minister and Jean-Claude Juncker, President of the Commission. The Joint Report is a so-called “gentlemen’s agreement” and is not legally binding. If the European Council (as well as the European Parliament) endorses the Joint Report, it will form the basis for the Withdrawal Agreement. This will be a legal document and will need to be approved by the Council of the EU (“Council”), which represents the governments of each EU Member State, the European Parliament and the UK Parliament. According to the EU, the final text of the Withdrawal Agreement will need to be finalised by October 2018 in order to obtain the relevant approvals before the UK leaves the EU on 29 March 2019 (subject to any agreed extension). However, as the EU keeps saying, “nothing is agreed until everything is agreed”.

Next steps in the Brexit process

The next European Council meeting will take place on 14-15 December 2017 when it will decide whether to endorse the Joint Report and authorise the second phase of the negotiations to begin. In advance of that meeting, Donald Tusk, the President of the European Council, issued draft negotiating guidelines relating to a possible transition period, and the framework for the future relationship between the UK and the EU (“Draft Guidelines”). Once these are endorsed (which is expected to be early next year) the Commission will prepare its draft negotiating mandate, which will flesh out the details on the EU’s negotiating strategy. The Council will then need to approve the mandate before the Commission can commence the second phase of the negotiations with the UK.

EU’s Position on a transitional arrangement

The UK Government has requested a two-year transitional arrangement from the date it leaves the EU during which the UK will remain aligned from a regulatory perspective with the EU. What is not clear is whether the UK will definitely remain in the single market at the Customs Union. However, this may just be a question of semantics for a transitional period. The Draft Guidelines recognise this request and propose that a transitional arrangement will be subject to the UK respecting:

the whole of EU law including new law adopted during the transitional period;

  • EU budgetary commitments;
  • the jurisdiction of the Court of Justice of the EU; and
  • all related obligations.

It will, however, no longer be represented in the EU institutions or have any decision-making powers. This sounds very similar to the obligations imposed on members of the European Economic Area (which are not in the EU) such as Norway and Iceland. Norway is inside the single market but outside the Customs Union and therefore able to negotiate and enter into their own free trade agreements with third countries. If the UK wishes to remain in the EU Customs Union and the Single Market during the transition, it must “apply and collect EU customs tariffs and ensure all EU checks are performed on the border vis-à-vis other third countries.”

The terms of the transitional arrangement will form part of the Withdrawal Agreement.

EU’s position on a future trade agreement with the UK

The UK Government has stated that it is seeking to secure a deep and special partnership with the EU, which should cover both a new economic relationship and a new relationship on security.

The Draft Guidelines reconfirm the European Council’s position to establish a close partnership with the UK, and that it will engage in initial discussions to identify an “overall understanding of the framework for the future relationship”. The Draft Guidelines clarify that this understanding will be elaborated in a political declaration, which will accompany the Withdrawal Agreement.

The Draft Guidelines do not, however, provide any real insight on the EU’s position regarding a future trade agreement with the UK. Instead, it states that the European Council will need to “ensure a balance of rights and obligations, avoid upsetting existing relations with third countries” and “preserve the integrity and proper functioning of the Single Market”. Furthermore, the European Council requests that the UK provide further details on its position for the future relationship. The European Council will then adopt additional guidelines focusing on a framework for a future trade agreement between the UK and the EU.

Any future trade agreement between the EU and the UK can only be finalised and concluded once the UK leaves the EU.

Comment

An agreement on the first phase of the Brexit negotiations is welcomed. It means that the parties can now focus on the terms of a transitional arrangement and is a step forward towards the EU establishing a framework for the UK’s future relationship with the EU. As President Tusk stated, however, “the most difficult challenge is still ahead”. EU trade agreements have historically taken years to negotiate, but as the UK’s laws and regulations are, already aligned with EU law and are likely to remain so during any transitional arrangement, it is hoped that a trade deal between the UK and the EU will be reached much more quickly.

 

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