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What do the EU's Brexit negotiating guidelines tell us?

Wednesday, 17 October 2018
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Thursday, 4 May 2017

On 29 April 2017, the European Council published its negotiating guidelines for the Brexit talks with the UK.   We provided an overview of the draft guidelines here and most of the elements which we highlighted in that article have been retained.  On 3 May 2017, the European Commission (which will be conducting the negotiations on behalf of the EU) published its draft negotiating "directives".  These provide some additional detail - but the overall framework is set by the European Council guidelines.  This article provides some further analysis of the impact of these developments.

Timing

The European Commission's draft negotiating directives confirm that, so far as the EU is concerned, the UK will leave the EU at the end of 29 March 2019 i.e. from 0.00 (Brussels time) on 30 March, the UK will be outside the EU (unless there is an agreement to extend its period of membership e.g. to allow more time for talks).  As regards the negotiations, it is envisaged that these will start in June 2017 with a view to reaching agreement by October 2018 (so as to allow sufficient time for consideration of the deal by the UK Parliament, the European Parliament and the European Council, ahead of the March 2019 exit date).

Some perspective

Whilst some media reports have portrayed the EU27 as "ganging up" on the UK and adopting a tough line, our view is that it's not all bad news.  The good news from the UK's point of view is as follows:

  • Contrary to the impression that may have been generated by some media reports, the EU is not ruling out talks on trade until all the issues concerning the "divorce settlement" have been finally resolved.  Indeed, the European Council guidelines clearly state that the EU's objective is to reach "an overall understanding on the framework for a future relationship" (including trade) before the end of 29 March 2019.
  • Admittedly, the guidelines only envisage such issues being discussed in "Phase Two" of the Article 50 negotiations, once "sufficient progress" has been made with "Phase One" issues relating to the UK's withdrawal, such as EU and UK citizens' rights after Brexit, the UK's liabilities to the EU, the border between Northern Ireland and the Republic and so on.  However, "sufficient progress" is a somewhat elastic term;  it therefore seems to us that the EU has not excluded the possibility of starting discussions on trade before all the details of Phase One have been concluded.   This presentation prepared by the European Commission suggests that (assuming the Phase One talks go well), Phase Two could potentially start in October 2017, with talks on the future EU-UK relationship beginning in December 2017. 
  • The guidelines also emphasise the desirability of transitional arrangements; these could be used to enable discussions on trade to carry on beyond "Brexit day" in 2019, thus avoiding a "cliff edge" scenario of reversion to WTO rules (our view is that an ambitious, high quality trade agreement with the EU is unlikely to be ready to sign and bring into force on "Brexit day" – and would in any event require ratification from Member State parliaments, which would also take time).  See further our guide to transitional arrangements.
  • Lastly, the guidelines note the UK's preference for a free trade agreement and endorse the UK government's view that such an agreement should be "ambitious and wide-ranging," based on a "close partnership" with the EU. See further our guide to the UK's future trade relationship with the EU.

It should also be noted that neither the guidelines nor the draft directives contain a figure for the amount that the EU will seek in order to settle the UK's accounts with the EU – the European Commission's draft negotiating directives merely set out a framework for calculating the final sum by reference to various EU instruments.

Possible issues/flashpoints

Other aspects of the guidelines and draft directives, however, are less encouraging for the UK government in the light of some of its public statements about Brexit.  These include the following:

  • "A non-member of the Union…cannot have the same rights and enjoy the same benefits as  a member […].  [T]here can be no cherry-picking."  In the light of this statement, it is hard to see how the UK government can fully achieve its stated objective of preserving all or most of the key benefits of membership from a position outside the EU and outside the Single Market.  However, it is not surprising that the EU is adopting this stance.
  • "In accordance with the principle that nothing is agreed until everything is agreed, individual items cannot be settled separately."   Although not unexpected, this is particularly unhelpful if agreement has in fact been reached on some issues but others are proving intractable in the timescale.  It is also disappointing that the guidelines do not call for early agreement in principle on aspects of the transitional arrangements, since businesses in both the EU and the UK would undoubtedly welcome some early comfort that progress has been made on avoiding "cliff edge" risks. 
  • In relation to transitional arrangements, the guidelines state that if the UK wishes to continue participating in the Single Market until a free trade agreement has been concluded, then it will have to make budget contributions and continue to accept EU law (including the jurisdiction of the Court of Justice).  Such arrangements would, however, be hard to reconcile with some of the UK government's stated objectives, such as "taking back control of our own laws." 
  • The European Commission's draft negotiating directives also suggest that, after Brexit, the Court of Justice should retain power to adjudicate on aspects of the withdrawal agreement relating to continued application of EU law after Brexit, citizens' rights and the UK's financial settlement with the EU.  As regards other aspects of the withdrawal agreement, an alternative dispute resolution mechanism may be acceptable but only if "it offers equivalent guarantees of independence and impartiality to the Court of Justice" and is obliged to take account of EU case law both before and after the date of Brexit.
  • The European Council guidelines confirm that, in the EU's opinion, existing trade agreements between the EU and third countries will cease to apply to the UK on Brexit – although they call for a "constructive dialogue with the United Kingdom on a possible common approach towards third country partners, international organisations and conventions."
  • Any free trade agreement with the EU must also "ensure a level playing field, notably in terms of competition and state aid, and in this regard encompass safeguards against unfair competitive advantages through, inter alia, tax, social, environmental and regulatory measures and practices."  This suggests that the EU will seek to constrain the UK's ability to subsidise its industry after Brexit or to become a low tax, low regulation economy.

Citizens' rights, goods, contracts and judicial matters

Finally, among other matters, the European Commission's draft negotiating directives provide some additional detail on the following:

  • Citizens' rights:  the settlement on citizens rights should cover anyone who was an EU citizen before the withdrawal date and has resided in either the UK or the EU27 before the withdrawal date, together with their family members who accompany them or join them at any point in time, whether before or after the withdrawal date.  It should also cover mutual recognition of qualifications obtained before the withdrawal date.
  • Goods on the market:  where goods have been placed on the market before the withdrawal date, they should continue to be made available on the conditions set out in the relevant EU law.  This should mean that UK goods which have been put on the market in France before Brexit day will not suddenly become illegal to sell/use merely because the exporter has not, for example, complied with all the conditions that an exporter in a non-EU country would have to meet.   Services are not discussed – although these will have to be addressed in the negotiations.
  • Contracts: current EU rules should continue to apply after Brexit in relation to choices of governing law and choices of forum for dispute resolution.
  • Judicial matters:  pre-Brexit court decisions by UK or EU27 courts should continue to be recognised and enforced after withdrawal in accordance with current EU rules (i.e. the so-called Brussels Regime).  Similarly, court proceedings which were initiated before Brexit should continue to be governed by the pre-Brexit EU regime.  The same should apply to administrative proceedings commenced before Brexit, such as investigations by the European Commission under EU competition law.  It should also be possible to commence such investigations or bring proceedings before the CJEU after Brexit in relation to facts which occurred before the UK's withdrawal.

The full text of the European Council guidelines can be accessed here:

http://www.consilium.europa.eu/en/press/press-releases/2017/04/29-euco-brexit-guidelines/

The European Commission's draft negotiating directives can be accessed here:

https://ec.europa.eu/info/departments/taskforce-article-50-negotiations-united-kingdom_en#negotiationdocuments

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