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The EU27 set out their negotiating strategy for Brexit negotiations

News / 07-04-2017 / London

On 29 March 2017, the UK sent a formal notice of withdrawal from the European Union by triggering the process envisaged by Article 50 of the Lisbon Treaty. 

Article 50 provides for a two year period (which can be extended by unanimous agreement) for the negotiation of (1) an exit agreement covering the handling of existing liabilities of the departing Member State, national frontiers and treatment of nationals of both sides; and (b) future, post-exit political and trade relations (which could be a Free Trade Agreement).  The UK’s preference is for a special and deep partnership with the 27 countries remaining as EU Member States (the “EU27”), with minimal disruption during the severance process and the negotiation of the exit agreement and the future relations agreement as a package, the entire negotiations being concluded by 29 March 2019.

 

On 31 March 2017,  the European Council, the EU Institution where Member States are represented, published its draft Guidelines for the Brexit negotiations with the UK (“the Guidelines”).  The EU27 have not accepted several of the UK’s key proposals and the draft Guidelines for the Brexit negotiations indicate a more complex and tough process lies ahead.

 

The Council negotiating Guidelines are the result of lengthy discussions between the EU27 since the UK voted to leave the EU in the June 2016 Referendum and represent their agreed common position: the Guidelines are unlikely to be changed in any significant way by the next Council meeting on 29 April 2017, which will formally confirm the Guidelines as the negotiating mandate for the EU team in the Brexit negotiations.

 

In many ways, the equilibrium of the Brexit negotiations lies on the side of the EU27 and places them rather than the UK in control of the agenda.  It is the EU 27, and not the UK, that must agree to grant the UK access to the EU market on terms they find acceptable.  While there is a common interest on both sides to achieve an amicable parting and constructive future trade relations, the EU27 Guidelines are very clear that a non-Member State such as the UK cannot expect to have the same rights and advantages; as the Guidelines state: “A non-member of the Union … cannot have the same rights and enjoy the same benefits as a member”.

 

The Guidelines are a complex document covering many delicate political, social and economic issues.  Key features to note include the following:

 

Negotiating stance of the EU27

Politically it may be rather easy for the EU27 to achieve consensus on the terms of the UK’s departure from the EU, but agreeing on the terms of a future EU-UK trade agreement may prove much more complex and difficult because different national interests will come into play.  At the moment, the declared approach of the EU27 is to maintain unity and negotiate as a bloc.  Individual Member States will not agree to special, individual arrangements with the UK.  As the Guidelines declare:  “The Union will approach the negotiations with unified positions, and will engage with the United Kingdom exclusively through the channels set out in these guidelines and in the negotiating directives. So as not to undercut the position of the Union, there will be no separate negotiations between individual Member States and the United Kingdom”; (Guidelines, page 2, paragraph 2).
 

Phased negotiations: First an exit agreement and then after "sufficient progress has been made" negotiations on a future trade agreement

Phase one: The exit agreement

There must first be an agreement on the terms of the UK’s exit before the EU27 will enter into negotiations with the UK on a future trade agreement.   Only once “sufficient progress has been made in the first phase towards reaching a satisfactory agreement on the arrangements for an orderly withdrawal” will the EU27 be prepared to discuss “an overall understanding on the framework for the future relationship… during a second phase of the negotiations”; (Guidelines, page 4, paragraph 4). This is a clear rejection of a key UK demand to conduct the negotiations for the exit and future trade agreements in parallel. It also prevents the UK using its agreement to the terms of the exit agreement as a bargaining chip in trade negotiations: the EU27 has firmly declared that it, not the UK, will decide when “sufficient” progress has been made in the exit negotiations before agreeing to start the future trade negotiations.  

 

The exit agreement will cover the politically controversial issue of the UK’s financial liabilities as a Member State (sometimes referred to in press reports as an “exit fee”) which could amount to c. €50-60 billion.  The EU27 favour a “single financial settlement” to cover “all legal and budgetary commitments as well as liabilities, including contingent liabilities” (Guidelines, page 5 paragraph 10).

 

The exit agreement will also cover the status of EU nationals living in the UK and vice versa: “Agreeing reciprocal guarantees to settle the status and situations at the date of withdrawal of EU and UK citizens, and their families, affected by the United Kingdom's withdrawal from the Union will be a matter of priority for the negotiations. Such guarantees must be enforceable and non-discriminatory.” (Guidelines page 5, paragraph 8.)  

 

Another important area of exit negotiations will be the future frontiers between the UK and the EU27.  There are three land borders between the UK and the EU, each of which involves complex historical and political issues:  Northern Ireland and the Republic of Ireland; Cyprus and British military bases at Akrotiri and Dhekelia ; and Spain and Gibraltar.   
 

•  The frontier between Northern Ireland and the Republic of Ireland is integral to the “Good Friday Agreement” which ended the sectarian hostilities and brought peace to the area.  The EU27 are pledged to seek “ flexible and imaginative solutions” aiming to avoid a “hard border” but at the same time “respecting the integrity of the [European] Union legal order”. (Guidelines page 5, paragraph 11)
 

•  The frontier between Cyprus and the British military base areas will require agreement between the EU27 and the UK  “that respect bilateral agreements and arrangements between the Republic of Cyprus and the United Kingdom which are compatible with EU law”. (Guidelines, page 5, paragraph 12) 
 

•  The frontier between Spain and Gibraltar has long been a contentious matter politically and economically between Spain and the UK.  The Guidelines state that “After the United Kingdom leaves the Union, no agreement between the EU and the United Kingdom may apply to the territory of Gibraltar without the agreement between the Kingdom of Spain and the United Kingdom” (Guidelines page 8, paragraph 22).  How this would operate in practice is unclear but the text seems to indicate that Spain’s consent would have to be obtained before any trade agreement affecting trade involving Gibraltar is concluded.  
 

Avoiding a disorderly UK withdrawal

Both sides are keen to have an orderly withdrawal.  A key concern of the EU27 is to avoid the negotiations failing to produce an agreement by March 2019.  Under existing EU rules, the EU treaties would cease to apply to the UK as from 30th March 2019 unless a future relationship treaty is concluded: this would have severe consequences for peoples living on either side of the EU/UK border and on their commercial operations.  The EU27 therefore stress that “The main purpose of the negotiations will be to ensure the United Kingdom's orderly withdrawal so as to reduce uncertainty and, to the extent possible, minimise disruption caused by this abrupt change.” (Guidelines  page 3, paragraph 3)

 

Avoiding a legal vacuum

Another concern is to avoid a legal vacuum:  “Negotiations should seek to prevent a legal vacuum once the Treaties cease to apply to the United Kingdom and, to the extent possible, address uncertainties” (Guidelines page 5, paragraph 9).  To that end, the EU27 state their intention to negotiate:   
 

•  Continuity for ongoing disputes and cases being litigated in EU Courts to remain under the jurisdiction of EU Courts;


•  Similar continuity as regards ongoing EU Commission investigations and administrative procedures; and   


•  “arrangements should be foreseen for the possibility of administrative or court proceedings to be initiated post-exit for facts that have occurred before the withdrawal date”. 

(Guidelines page 7, paragraph 15).  

 

Phase two: The future relationship of the EU27 with the UK

The general negotiating approach of the EU27

Both the EU27 and the UK have stressed their desire for a close and deep partnership.  For the EU27 this relationship “should encompass more than just trade” and should be based on “strong and constructive ties” (Guidelines page 7, paragraph 17).   

 

The UK’s declared objective is to achieve the best possible agreement for the UK and one which preserves as many as possible of the benefits of the present full membership of the EU for the UK.  The EU27 takes a different view and has stressed that “a relationship between the Union and a non Member State cannot offer the same benefits as Union membership“  (Guidelines page 7, paragraph 17).

 

A key area is participation in the EU Single Market, where no borders and duties exist as between Member States.  While access to that market is permitted to non-EU countries, that is subject to bilateral trade agreements, border tariffs and similar trade measures.  The EU27 make it clear that after Brexit, the UK may negotiate access to the Single Market but not participation in it as if it were still a Member State.  The EU27 state that “Any free trade agreement should be balanced, ambitious and wide-ranging” but cannot “amount to participation in the Single Market or parts thereof, as this would undermine its integrity and proper functioning”.  (Guidelines page 8, paragraph 19).  This is therefore a rejection by the EU27 of a key negotiating objective of the UK.  The EU27, for example, has expressly rejected a deal covering the motor vehicle industry or the aviation sector: the future trade agreement must be comprehensive.   

 

A further crucial negotiating condition set by the EU27 is that any future trade agreement “must ensure a level playing field in terms of competition and state aid, and must encompass safeguards against unfair competitive advantages through, inter alia, fiscal, social and environmental dumping. (Guidelines page 8, paragraph 19).  This makes it clear that the EU will not agree a trade treaty with the UK where there is a possibility of the UK gaining competitive advantages through lower fiscal controls, less protective labour laws and lower environmental standards.   This may significantly limit the UK’s ability to negotiate trade agreements with other countries applying different manufacturing and social standards than those of the EU27, since any re-export to the EU would then be prohibited by EU standards.  Continued observance of EU standards may therefore become unavoidable for the UK, even after Brexit, at least as regards future trade with the EU27.

 

Cooperation in renegotiating international agreements to which all the 28 Member States are a party

During the negotiations, the EU27 emphasises the need for “sincere cooperation” as regards the EU’s external legal obligations established while the EU was a bloc of 28 states including the UK. 

 

An important consequence of the UK leaving the EU is that many international agreements to which the EU as a single treaty signing party will have to be renegotiated, as the “EU” will mean only the remaining EU27 after Brexit.  It can be expected that non-EU states that have entered into such international agreements may seek to renegotiate to take account of the absence of the UK as a participant.  Nevertheless, under international law, the EU27 retain the rights and obligations of these international treaties as they each remain part of the EU as a contracting party.  To deal with the delicate diplomatic, political and commercial consequences of having to renegotiate these many agreements, the EU27 expects the cooperation of the UK:  “The European Council expects the United Kingdom to honour its share of international commitments contracted in the context of its EU membership.  In such instances, a constructive dialogue with the United Kingdom on a possible common approach towards third country partners and international organisations concerned should be engaged.” (Guidelines page 6, paragraph 13).

 

Transitional arrangements?

The EU27 appear to expect the negotiations for a future trade agreement not to be completed by 29 March 2019 and therefore clearly envisage a “transitional” period after the UK formally ceases to be an EU Member State while a new political and economic relationship is negotiated.   However, such a transitional period must have arrangements that are “clearly defined, limited in time, and subject to effective enforcement mechanisms” (Guidelines page 4, paragraph 5).  

 

Another key and well publicised objective of the UK is to end the jurisdiction of EU Courts over the UK and instead to operate under bilateral enforcement mechanisms (such as the arbitral systems created under many trade treaties): this has been expressly rejected by the EU27 as the Guidelines conclude that if any “time-limited prolongation” of EU law and procedures is considered, “this would require existing[European] Union regulatory, budgetary, supervisory and enforcement instruments and structures to apply”; (Guidelines page 4, paragraph 5). .  In other words, during any transitional period post March 2019, the jurisdiction of the EU Courts would have to be agreed to continue to apply, including the executive role of the EU Commission as the Institution responsible for enforcing EU law.   This is likely to be a major area of controversy in the negotiations as, in effect, it would mean that the UK would continue to be subject to EU law and jurisdiction during the length of the transitional period.  

 

Conclusion

Pascal Lamy, a former EU Trade Commissioner and Director-General of the WTO, described the process of Brexit as taking eggs out of an omelette: this graphic image neatly expresses the complexity of disentangling nearly half a century of common actions, laws and policies that have incorporated the UK within the European Union and its treaties.   

 

There is little doubt that the UK and the EU27 are beginning on a process of enormous complexity, where the outcomes are subject to many potential variables partly because of the large number of negotiating parties but also because the pace of these negotiations is obviously subject to external events.  A new global economic or political crisis might profoundly affect the nature and pace of the negotiations.  Indeed, even a dramatic internal political change in any one of the EU27 could put the negotiations at risk; the  future EU-UK trade agreement cannot be concluded without the consent of every Member State, no matter its size.  The UK’s own internal position is also subject to at least two important factors.  The first is the prospect of another independence referendum in Scotland: if the UK were to be dismantled, the negotiating position of what would then constitute the “UK” would radically change and make the task of negotiating a trade agreement between the UK and the EU27 even more difficult.  The second is that the UK is constitutionally required to hold a general election at the latest on 7 May 2020: should the negotiations continue beyond the 29 March 2019 date marking the end of the 2 year period envisaged by Article 50, a new UK government with a different mandate and political vision may come to power in the UK, with unpredictable consequences for the EU-UK negotiations. 

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