29 March 2017

Nine months have gone by since the UK voted to leave the EU on 23 June 2016. Today, the formal process of withdrawal under Article 50 of the Treaty on the European Union (TEU) is set into motion as the UK notifies its intention to leave the bloc.

The divorce, the future UK-EU relationship, and the issue of parallel negotiations

The first and crucial question facing UK and EU negotiators will be the sequencing of the talks. The European Commission has so far been adamant that the negotiations over a post-Brexit UK-EU deal cannot start until the ‘withdrawal agreement’ is finalised, while the UK wants to discuss the terms of the divorce in parallel with its future relationship with the EU. Article 50 stipulates that the withdrawal agreement should take into account the “framework for [the leaving member state’s] future relationship with the Union” but says nothing more than that.

Ultimately, this will be a political decision for heads of state and government to make – and the Commission will have to work with the mandate it is handed by the European Council. European governments have been sending contrasting signals on this point, and not all member states have aligned themselves to the Commission’s position. Germany and Spain, for instance, have voiced openness to the UK’s idea of running parallel negotiations. Back in July 2016, at a joint press conference with Theresa May in Berlin, German Chancellor Angela Merkel made it clear that she was in favour of “parallel processes.” Italy’s Europe Minister Sandro Gozi last week acknowledged that the two negotiations “can overlap” at some point during the two-year negotiating time frame envisaged by Article 50.

Generally, though, the EU has displayed a fairly unified position on Brexit so far. This was relatively easy when confined to a general discussion of process, the inseparability of the ‘four freedoms’, and that the UK cannot have a ‘better deal’ outside the EU than inside.

Many on the continent still complain that the UK needs to make the first move and spell out what it wants. But Theresa May’s Lancaster House speech set out the UK’s expectations pretty clearly. The UK is proposing a new ‘Strategic Partnership’ with the EU comprised of an ambitious Free Trade Agreement (FTA) and continued bilateral cooperation in security, foreign policy, science, research and several other fields. To be sure, there is much detail to be filled in. However, it is the collective EU position on the future UK-EU relationship that remains the bigger mystery.

The reality is the 27 remaining member states have different priorities for the upcoming negotiations with the UK – which explains why they have so far said very little about the substance of how they see the future UK-EU relationship. Virtually all European leaders have said they want to keep the UK close to the EU after Brexit – but ‘close’ most certainly means different things in different European capitals.

The €60 billion ‘Brexit bill’ – handle with care

There has been much media speculation that the UK will be presented with a €60 billion ‘Brexit bill’, for outstanding financial commitments and liabilities, as soon as negotiations begin. This issue could be unnecessarily poisonous if it is not handled with care. Beyond the background noise, UK ministers do not disagree with the principle of paying something for commitments into which the country had entered.

UK Chancellor Philip Hammond recently told Andrew Marr on the BBC,

We are a nation that honours its obligations, and if we do have any bills that fall to be paid we will obviously deal with them in the proper way.

However, the figure doing the rounds is a calculation made by the European Commission and has not been officially tabled – let alone formally endorsed by EU leaders or ministers. It is also far from clear that all EU member states back the Commission’s view that the UK will need to sign a multi-billion cheque before other subjects can even be talked about. The 27 are well aware that, in such a situation, Theresa May might have little choice but to walk away from the negotiating table.

In the meantime, questions have already been raised over the legal grounds for this ‘divorce bill’. The EU Financial Affairs Sub-Committee of the House of Lords, chaired by Baroness Falkner, a Liberal Democrat peer, stated in a report published earlier this month,

On the basis of the legal opinions we have considered, we conclude that, as a matter of EU law, Article 50 TEU 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.

The government received similar advice from Martin Howe QC. However, the Lords’ report also warned,

The political and economic consequences of the UK leaving the EU without responding to claims under the EU budget are likely to be profound.

There is enough material for a heated negotiation on this subject, but a more general point is worth making. In the context of a new, wide-ranging UK-EU partnership, where the UK participates in, and contributes financially to, a number of specific EU programmes (a possibility the UK government has hinted at), this is a matter that can be settled relatively easily – and certainly ought to be a sideshow compared to issues such as, for instance, the rights of EU and UK expats or future cooperation in the fight against terrorism.

The content of the withdrawal agreement is not clear-cut

So what might the Article 50 withdrawal agreement include? The UK government provided the following list in a report published ahead of the EU referendum:

  • Unspent EU funds due to UK regions and farmers;
  • Cross-border security arrangements including access to EU databases;
  • Co-operation on foreign policy, including sanctions;
  • Transfer of regulatory responsibilities;
  • Arrangements for contracts drawn up in accordance with EU law;
  • Access to EU agencies that play a role in UK domestic law, such as the European Medicines Agency;
  • Arrangements for the closure of EU agencies headquartered in the UK;
  • Departure from the Single European Sky arrangement;
  • Access for UK citizens to the European Health Insurance Card;
  • The rights of UK fishermen to fish in traditional non-UK waters, including those in the North Sea;
  • Continued access to the EU’s single energy and aviation markets;
  • The status of the UK’s environmental commitments made as party to various UN environmental conventions and currently implemented through EU legislation.

The list is comprised of mostly technical and legal issues, though undoubtedly very important.

Arguably one of the most pressing items on the agenda will be the status of expats – Europeans living in the UK and Brits living in other EU member states. Theresa May has repeatedly given reassurances that it is her intention to guarantee expats’ rights on a reciprocal basis, and reach agreement with her counterparts as early as possible in the negotiating process. Hence, I would not expect such a deal to pose particular problems. Safeguarding the rights of expats who have made the UK or any other EU country their home is, first and foremost, a matter of common sense.

Generally speaking, however, the final content of the withdrawal agreement is not clear-cut and will also depend on the tone and the political direction the negotiations might take. If the UK and the EU can agree on how they want to shape their long-term relationship after Brexit, the Article 50 deal will most likely need to include a number of bridging measures to be applied during a transition period. Besides, for some of the issues listed above (e.g. the Single European Sky or access to EU databases) it may not even be necessary to negotiate withdrawal if the UK and the EU are serious about maintaining a close partnership after Brexit. This reinforces the point that the two negotiations, on the terms of the divorce and the new UK-EU settlement, are not fully separable.

Trade-offs and sticking points

The overarching trade-off in the upcoming negotiations, which applies to both the divorce talks and the long-term agreement, is clearly between integration and control. The more integrated with the EU the UK chooses to remain, the less control over some of its future policies it will gain upon leaving the bloc. Theresa May has been adamant that the free movement of workers from EU member states is going to end. However, the UK might still have to grant more favourable conditions to nationals of EU member states after Brexit in return for greater access to the single market.

Another potential conundrum, less explored than the previous one, is the legal architecture of the successor UK-EU deal. The shape of the future dispute settlement mechanism in particular could turn into a sticking point. For the UK, it would be unpalatable to leave the role of arbitration to the European Court of Justice (ECJ). For the EU, it may be hard to accept that an external arbitration panel or court could rule on matters of EU law instead of the ECJ. Finding a compromise will require flexibility and creative thinking on both sides.

The third big question is how to handle a possible ‘transition’ – that is, how to bridge the moment the UK formally leaves the EU with the moment the new long-term UK-EU arrangements kick in. Both sides currently appear to acknowledge that some kind of transition will likely be needed, not least to ease uncertainty for business in the UK and the EU. However, it is very important that the UK and the EU are on the same page with regard to the purpose of a transition period – which does not necessarily seem to be the case at the moment.

The UK government prefers using expressions such as ‘phasing-in’ or ‘implementation’ over ‘transition’. This is not empty semantics. From the UK’s standpoint, any transition must be about gradual steps towards a new partnership with the EU. Things need to be moving. Put differently, with a general election due in 2020, the UK could not content itself with merely extending the status quo while negotiations with the EU drag on indefinitely.

On the EU-27 side, intentions currently look less clear. While one would instinctively assume that it would be undesirable and impractical for the EU to spend the next decade or so negotiating with the UK, one cannot rule out that at least some member states (and maybe the EU institutions) see prolonged negotiations as a form of leverage vis-à-vis the UK.

Danish Foreign Minister Anders Samuelsen recently said:

You have to find a solution and we will find a solution. The question is, can we do it in two years or will we take 15 years? We don’t know.

Along the same lines, European Commission President Jean-Claude Juncker said after the latest EU summit:

I don’t like Brexit because I would like to be in the same boat as the British. The day will come when the British will re-enter the boat, I hope.

As I outlined on this blog already last year, my view is that, if the UK and the EU are to agree on a transition/phasing-in period, they need to do so with a clear idea of where they want to go in terms of their long-term relationship and how long it will take them to get there – not least because, otherwise, they would risk falling foul of WTO rules. Incidentally, this further corroborates the argument that the Article 50 talks and the negotiations over the new UK-EU partnership should at least in part be run in parallel.

The timeline

This remains a moving target, but it will certainly take a few weeks before actual negotiations can kick off. The first step after Article 50 is triggered will be for the leaders of the remaining 27 EU member states to meet and agree their negotiating guidelines. This will require consensus – that is, no member state voicing disagreement. European Council President Donald Tusk has said he will circulate a first draft of the guidelines among national capitals as early as 48 hours after the UK’s notification of withdrawal is received, which means before the end of this week.

The draft guidelines will be discussed by the ‘sherpas’ of the 27 during the coming weeks, and are expected to be formally adopted at a special summit of EU-27 leaders on April 29. Based on these guidelines, the European Commission will draw up a recommendation that the negotiations with the UK be opened. The recommendation will then need to be endorsed by a qualified majority in the Council of Ministers – presumably in its ‘General Affairs’ configuration, where Europe ministers sit. The General Affairs Council is currently due to meet on 16 May and 20 June. The former looks very tight, and could clash with the passation des pouvoirs in France – when François Hollande is due to hand over the French presidency to his successor (in 2012, the ceremony took place on May 15). Therefore, in order not to wait until June 20, an extraordinary ministerial meeting at 27 might be called earlier – possibly between late May and early June.

The adoption of the recommendation by the Council of Ministers will fire the starting gun. The Commission’s lead Brexit negotiator, Michel Barnier, has said that he wants a draft withdrawal agreement ready no later than in September/October 2018. This is to allow enough time for the text to be polished by lawyers and translated into the languages of all EU countries before it can be put to a vote in the European Parliament – MEPs cannot amend the draft deal but need to give their consent. It then must be approved by the Council of Ministers, again by qualified majority.

To be sure, this is not set in stone. Barnier’s timeline is essentially based on the assumption that nothing other than the terms of the divorce can, and will, be discussed during the Article 50 negotiating period. However, things might change depending on the exact content of the negotiations. Everyone accepts that disentangling the UK from the EU after over 40 years of membership is going to be a time-consuming exercise, but once the two sides are clear on the broad political principles underpinning their future relationship, settling the technical aspects will presumably become much easier.

Generally speaking, the key for the UK government will be to get a clear feeling early on as to whether the EU-27 is really interested in a comprehensive successor arrangement and what the timeframe for concluding it would be – so that it does not approach the final stages of the Brexit negotiations (September/October 2018) not knowing what the future holds.

It goes without saying that the UK will also need to ratify the withdrawal agreement – which is going to be put to a vote in both houses of parliament. Once the ratification process is completed on both sides, the UK will formally leave the EU. The two-year negotiating period envisaged by Article 50 will expire in March 2019.

Scotland and other intervening factors

The UK and the EU will not be negotiating in a vacuum. Several external factors might have an impact on the discussions. Scotland is certainly a big one. Yesterday, the Scottish parliament backed First Minister Nicola Sturgeon’s plans to hold a second independence referendum between autumn 2018 and spring 2019 – that is, before the end of the Article 50 negotiations. The referendum needs to be agreed with the UK government, though, and David Mundell, Secretary of State for Scotland, was quick to rule out “any negotiations at all until the Brexit process is complete.” Nonetheless, questions will arise as to whether the Scottish National Party’s referendum plans might act as a constraint on the UK government during the negotiations – as any SNP grievances, raised over the negotiations or deal, might make Scotland more likely to back independence.

France and Germany will both hold elections later this year. After the 2013 German federal election, it took nearly three months to form a government. Assuming a similar timeline, Germany may not have a new government in place until the end of this year. Italy will also have to hold a general election by May 2018 at the latest. I will not enter a detailed discussion on what the victory of a specific candidate in a specific country would mean for the upcoming Brexit talks. However, the political calendar in the largest EU member states will likely have an impact on the pace of negotiations.