13 July 2016

More than one agreement as part of Article 50 negotiations

We’ve looked in detail at Article 50 negotiations and the leaving process here and here. As we’ve noted, the process of leaving the EU will have to involve both a withdrawal/transitional agreement and a new trading relationship between the UK and EU. Article 50 is fairly clear on the first of these, saying, the EU “shall negotiate and conclude an agreement” with the leaving state “setting out the arrangements for its withdrawal”. However, it less clear on whether this should definitively include a new trading relationship, saying only that the agreement should be structured “taking account of the framework for its future relationship” with the EU. Below we look at how issues might be separated out and what this could mean for the negotiations.

What might the withdrawal agreement include?

This is quite hard to pin down, but essentially it would seek to tie up the institutional, regulatory and financial loose ends which would be created by the UK exiting the EU, both for the rest of the EU and the UK. This will have to be combined with a domestic process in the UK determining how to deal with issues such as existing EU regulation and the policy on funding regions or farmers for example.

In its pre-referendum report on the process for leaving the EU the Government outlined a few issues which would need to be sorted out in the transitional/withdrawal agreement:

  • 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.

If it becomes more of a transitional agreement, then it will also have to lay out what happens to the UK’s EU rights and obligations during a transition period to the new trade agreement.

What issues will be included in the free trade agreement?

This is slightly easier to pin down since we know the issues which are often discussed in modern free trade agreements. This involves but is not limited to: trade in goods and agriculture (tariffs), trade in services, regulatory harmonisation, procurement rules, state aid, competition policy, product standards, rules of origin (ensuring products origins fit terms of the agreement), recognition of professional qualifications, investment rules (capital movement) and international arbitration/enforcement of the agreement. Exactly which issues and to what extent they are included in the agreement will of course depend on how depth and breadth of the trade agreement.

EU might want to separate out Article 50 negotiations, UK should not

A crucial point which remains unclear is whether the negotiations over the two agreements will happen in parallel or separately. There has always been an assumption in the UK, and I dare say many member states, that they would be done together. However, recently the Commission and others have been sending out the message that the two should be handled separately. Trade Commissioner Cecilia Malmström recently suggested that the negotiations would be handled separately with the UK reverting to World Trade Organisation (WTO) rules until the new trade agreement was struck. This was then echoed by Irish Prime Minister Enda Kenny, usually a close ally of the UK in EU issues. There are a few points to make on this, two practical and one strategic.

  1. The insistence on separating the negotiations seems a bit strange as neither side wins . Falling back on WTO rules will involve an economic cost for all (even European Parliament President Martin Schulz has implied as much). It is also odd to introduce tariffs and barriers where there were few before just ahead of a negotiation aimed at keeping barriers to a minimum. It will make the trade negotiations more complex and difficult and would confuse business, which will have to make an extreme adjustment for a relatively short time period. Additionally, in terms of a transition agreement, it is hard to pin such an agreement down without some concept of what is coming next.
  2. As can be seen from the issues outlined above, it is also not obvious that the two agreements are entirely separable. Many issues, crucially including immigration, cut across both. Furthermore, the EU has already laid out its stall tying all four freedoms together (people, goods, services and capital). This stance seems a bit at odds with separating out the agreements both of which will involve elements of these freedoms.
  3. From a more strategic perspective, it seems in the UK’s interest to try and keep the negotiations linked. Some of the UK’s biggest cards it has to play in the negotiations – foreign/security policy, EU budget contribution, migration policy – could end up being separated out into the withdrawal agreement, thereby potentially reducing leverage in the trade negotiations. Furthermore, as my colleague Stephen Booth has explained, there is a good case to be made for the UK to approach these negotiations with a broader offer about the future UK-EU relationship so it does not get boiled down to another technocratic negotiation.

One final point on timeframe. As we have explained before, whether separated or together these negotiations are expected to take a number of years. If they do happen at the same time/in parallel then it’s hard to see how it can all be wrapped up in the two years outlined by Article 50. Therefore nailing down whether the agreements will be negotiated in parallel or apart as well as the timeframe for whichever is chosen will be one of the most important jobs for the new UK Government.