On May 22, 2017, the Council officially authorized the opening of Article 50 negotiations with the UK. It appointed the Commission as the EU’s negotiator and adopted a first set of Negotiating Directives outlining the EU’s priorities for the first phase of negotiations. These directives are in line with, and complement, the (more political) Article 50 Guidelines of the European Council, adopted by the EU 27 Heads of State and Government on April 29, 2017. This last step in a chain of authorization procedures means that the European Commission, led by Chief Negotiator Michel Barnier, now has all the clearances required empowering it to start Brexit talks forthwith.
As set out in the European Council’s Guidelines, and repeated in the Negotiating Directives, the EU envisions a two-step process for Article 50 negotiations: a Phase 1 aimed at providing clarity on the immediate effects of the UK’s departure and disentangling the UK from the Union; and a Phase 2 aimed at determining a “framework for the future relationship” between the UK and the EU. The EU’s position is that negotiations on a free trade agreement (“FTA”) between the UK and the EU will only take place after these two phases are complete, that is, once Article 50 negotiations are concluded, and the UK has left the EU.
The Negotiating Directives only cover Phase 1 (ensuring orderly withdrawal). They focus on: (i) securing “reciprocal” guarantees to “safeguard the status” of EU and UK citizens, including the right to permanent residence after five years of residence; (ii) a single “financial settlement,” including issues related to the Union budget, the termination of the UK’s membership in the European Investment Bank, and the European Central Bank, and the UK’s participation in funds like the European Development Fund; (iii) avoidance of a hard border in Ireland; and (iv) arrangements with respect to UK Sovereign Base Areas in Cyprus. Crucially, the single financial settlement demands that the UK honor its share of all obligations undertaken while a Member State (reported to be anything from €20 billion to beyond €60 billion).
The Directives make it clear that only when sufficient progress has been made on the most pressing issues regarding the withdrawal agreement, can the EU participate in identifying a “framework for the future relationship”, in Phase 2. In other words, the EU must be satisfied with its achievements in the areas prescribed by the Guidelines before any trade discussions can begin.
The Negotiating Directives nevertheless anticipate the need for a constructive dialogue during Phase 1 on a “common approach towards third country partners, international organisations and conventions in relation to the international commitments contracted before the withdrawal date, by which the United Kingdom remains bound, as well as on the method to ensure that the United Kingdom honours these commitments”. This may well implicate international trade commitments (for instance, regarding customs duties or subsidies) under the WTO as well as Free Trade Agreements with third countries.
The Negotiating Directives also set out the position that goods placed on the Single Market before Brexit should continue to be traded under pre-existing conditions under EU law. On the other hand, matters requiring the need to “reduce uncertainty or avoid a legal vacuum,” such as services, (which are pointedly excluded from these first Negotiating Directives) will need to be covered by subsequent sets of negotiating directives.
The Negotiating Directives also provide for arrangements relating to judicial cooperation in civil, commercial, and criminal matters, as well as administrative and law enforcement cooperation procedures, in particular with respect to on-going proceedings at the time of the UK’s departure.
Finally, the Negotiating Directives envisage a strong institutional structure aimed at ensuring implementation of the Article 50 agreement. The Guidelines call for maintaining the jurisdiction of the Court of Justice of the EU and the role of the Commission in applying and interpreting EU law. For the application and interpretation of provisions of the agreement that do not relate to EU law, the Negotiating Guidelines leave open the possibility of an alternative dispute settlement system provided it offers “equivalent guarantees of independence and impartiality” to the Court of Justice. This will arguably be a crucial point of discussion since (i) the dispute settlement system will be key to the credibility of the agreement; and, (ii) the UK Prime Minister has explicitly rejected the possibility of the UK being bound by the jurisdiction of the Court of Justice after Brexit. The Directives may offer a (narrow) path to reconciling these objectives.
Negotiations are expected to commence shortly after the UK election on June 8, 2017.
For an overview of the internal EU processes on the withdrawal agreement and the trade agreement, as well as the trade implications of Brexit, please see our earlier alert memorandum posted here. If you would like further information on how this may affect your organization, please contact: email@example.com, firstname.lastname@example.org, or email@example.com.