4 May 2017

The past few days have seen the temperature rise in the Brexit talks. The briefing to a German newspaper of last week’s private Downing Street dinner between Theresa May and Jean-Claude Juncker has sparked an angry reaction from the Prime Minister, who has taken the unprecedented step of accusing Brussels of interfering in a General Election.

With so much background noise, it is easy for the substance to become lost. Last weekend EU leaders adopted their official negotiating guidelines. These guidelines are important in that they steer the EU’s official negotiator (the Commission, under chief negotiator Michel Barnier), and signpost its objectives in these talks. They inform the Commission’s more detailed “negotiation directives”, the first draft of which was released yesterday. This more detailed mandate will be adopted by EU ministers at a meeting on 22 May.

The Commission’s detailed mandate only covers “the first phase of negotiations” – the issues it believes need to be resolved to ensure an orderly withdrawal. The document clarifies that the details of any transitional arrangements or the future UK-EU relationship “will be identified at a later stage.” This reiterates and follows from the EU’s position that the talks should first concentrate on the technical details of withdrawal – the rights of EU nationals, the budget and disentangling the UK from various institutions and agencies – before moving on to discussion of the long-term relationship in trade and other areas.

UK and EU still at odds over sequencing of negotiations

The UK has consistently requested that talks over its withdrawal and the new UK-EU relationship (a new trade deal but also continued cooperation on security, research, development and foreign policy) be conducted in parallel. The Commission mandate states that a new relationship with the UK can only be “finalised and concluded” once the UK “has become a third country”. The EU document however recognises that the Article 50 process must take into account the “framework for the future relationship” with the UK and that the objective should be to reach “an overall understanding” about this before 30 March 2019. But this will only be possible once EU leaders have decided that “sufficient progress has been achieved” on the technical aspects of UK withdrawal.

As we have argued elsewhere, a strict adherence to this position significantly increases the prospect of a breakdown in talks since, politically, the UK cannot reasonably be expected to agree to a detailed multi-billion euro budget settlement, for example, without the concrete prospect of a trade deal at the conclusion of the talks. Agreeing a long-term vision about the future relationship sooner rather than later would build trust and lower the stakes in technical talks over the divorce.

This back-to-front approach also sows confusion. Take this sentence from the Commission’s document:

As an agreement on a future relationship between the Union and the United Kingdom can only be concluded once the United Kingdom has become a third country, the negotiations will not address matters relating to the framework for the future relationship between the EU and the United Kingdom, except by taking into account that framework in the negotiations.

So, the EU is proposing that the talks will take into account a future framework that it is unwilling to negotiate?

Demands that ECJ must supervise rights of EU nationals after Brexit are never going to fly

Turning to the concrete negotiating points set out in the document, the rights of EU nationals is at the top of the list. The EU is calling for the rights of EU citizens who currently (and up to the point of UK departure) have rights established under EU law to reside, work, study, and access healthcare and pensions in the UK to be guaranteed. The rights of UK nationals in the EU would be guaranteed on a reciprocal basis.

The UK shares this objective. Speaking yesterday on the Radio 4 Today Programme, Brexit Secretary David Davis stated that:

It is the intention that [EU nationals living in Britain] will have a generous settlement, pretty much exactly what they enjoy now, and our British citizens abroad will do the same.

The problem is the form of this guarantee. The EU is demanding that the guarantee be applied under EU law and that the EU’s Court of Justice should therefore continue to have jurisdiction over how these rights are applied in the UK after Brexit. At yesterday’s press conference, Barnier said:

Whenever EU law is involved on citizens and [the] financial settlement we will have to go and depend on the Court of Justice of the European Union. Otherwise the rights defined by the agreement for citizens are just an illusion, a promise.

In effect, Barnier is saying that the UK cannot be trusted, either to respect any promises it makes under the withdrawal agreement or to respect the rights of EU nationals under its own legal system. It seemingly wants any individual to be able to take a case to the ECJ. No British Prime Minister could accept the EU’s demands for extra-territorial jurisdiction.

It is also questionable whether this demand is faithful to the guidelines set out by EU leaders. As former Justice Minister Dominic Raab told BBC Radio 4,

Paragraph 16 [of the European Council guidelines] does say that cases that are already before the European Court of Justice at the point which the UK leaves would have to be heard by the ECJ, but is not saying any disputes, claims or cases that arise after that. And in fact paragraph 17 says very clearly in terms that the withdrawal agreement, the exit deal, would need a separate dispute settlement mechanism – separate from the ECJ.

The EU is playing hardball over money, but there’s still scope to negotiate a number acceptable to both sides

With regard to what has been dubbed the ‘Brexit bill’, the Commission’s draft negotiating directives state that,

This single financial settlement should be based on the principle that the UK must honour its share of the financing of all the obligations undertaken while it was a member of the Union.

This suggests the UK should keep contributing to the EU budget until the end of the current Multi-annual Financial Framework (MFF), which expires in 2020, and potentially for longer – if one considers specific projects that kick off under the current MFF but whose funding is spread over a few years beyond 2020.

However, as we noted in previous blog posts, this is not a clear-cut issue. At the end of the day, EU budget contributions are set out in secondary EU law based on the EU Treaties. Once the Treaties cease to apply to the UK in 2019, it is far from obvious how, from a purely legal point of view, the UK would still be bound by financial commitments made while still a member of the EU. Incidentally, this point was made by the EU Financial Affairs Sub-Committee of the House of Lords in a report published in March. The Committee said,

On the basis of the legal opinions we have considered, we conclude that, as a matter of EU law, Article 50 TEU [Treaty on the European Union] allows the UK to leave the EU without being liable for outstanding financial obligations under the EU budget and related financial instruments, unless a withdrawal agreement is concluded which resolves this issue.

In other words, Article 50 and the EU Treaties do not provide a legal framework to calculate the ‘bill’. Therefore, the entire process of agreeing a number is a political one. The UK has showed some openness to making some form of payment after Brexit, as long as these come across as a display of goodwill – i.e. sparing other large contributors topping-up holes in the current long-term EU budget – or takes into account its future participation in EU programmes on research and innovation, for example. However, the Commission’s draft suggests the UK would simply be paying what it owes – which, as noted above, is not the legal opinion in the UK. A compromise will need to take account of this important presentational aspect.

On the size of the settlement, it is worth noting that Barnier refused to mention a specific amount. All he said was,

Our objective in the first phase will be to agree with the UK on a rigorous methodology to calculate those obligations.

Indeed, the headline figures doing the rounds – the Financial Times reported yesterday that the estimated ‘bill’ had risen from €60 billion to some €100 billion – are all gross figures. The UK would continue to get part of that money back, as is currently the case under the EU budget system. The Commission’s draft directives currently make no mention of whether the UK would actually be entitled to its share of EU assets – which in practice would also reduce the size of the bill. However, some recent reports are quoting EU officials as saying the UK has no such right because the EU has its own legal personality and therefore owns those assets. But, ultimately, these are opening positions for the negotiation.

The EU wants to talk trade in goods, but not services

The Commission wants guarantees that “any good lawfully placed on the market” of the EU before UK withdrawal con continue to be placed on the UK and EU market after the withdrawal. This does not refer to goods placed on the market in future so therefore satisfies the EU’s desire not to talk about a future trade deal. However, it is curious why the EU has stipulated that this certainty be provided for existing trade in goods but not for existing contracts for the provision of services or capital. Cynics might point to the EU’s trade surplus in goods and the UK’s surplus in services.

EU constructive when it comes to addressing Brexit issues on island of Ireland

The passages in the Commission document that refer to how the issues between the Republic of Ireland and the UK should be addressed are helpful and constructive. The draft directives note that existing agreements, such as the Common Travel Area, should continue to be recognised and that the negotiations should aim to avoid a hard customs border between Northern Ireland and the Republic.

We are set for a bumpy ride

Only time will tell whether tempers are restored in the coming days, but the EU’s opening salvo in these negotiations suggests that the first UK-EU talks after the 8 June will be incredibly difficult. The chance of ‘no deal’ has certainly increased.

The media briefing of the last few days, over the dinner, budget and Theresa May’s role in the talks, and the Prime Minister’s statement yesterday illustrate that trust is in short supply. The leak of the Downing Street dinner is particularly telling, since only a few EU representatives (Juncker and Barnier) were present. How do all the 27 national governments feel about the leak? EU leaders in the European Council might reflect that leaving, what is highly political negotiation, entirely in the hands of the European Commission is a mistake. If they do not, there is likely to be much more of what we’ve seen in the last few days and not much progress.