The EU Council’s draft Art 50 Negotiating Guidelines: the ‘cliff edge’ recedes but no free trade agreement until 2022?

31 Mar 2017

The EU Council has today published its draft Negotiating Guidelines setting out the overall positions and principles that the EU will pursue throughout the negotiation.

Article 50 provides that upon notification of a member state’s intention to withdraw from the EU “… the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.”

In her letter triggering the Art 50 process the Prime Minister stated that Her Majesty’s Government believed that “it is necessary to agree the terms of our future partnership alongside those of our withdrawal from the EU.” As things stand withdrawal will take effect on 29 March 2019.

Although written in a constructive tone the Guidelines unsurprisingly stick closely to the structure of Art 50 and confirm that the EU intends to follow a “phased approach” with the terms of withdrawal needing to be established first. As for the future relationship with the UK the Guidelines refer only to “Preliminary and Preparatory Discussions on a Framework for the Union-United Kingdom future relationship.” In particular they state that any free trade agreement (FTA) could only be “finalised and concluded once the United Kingdom is no longer a Member State.”

In his recent remarks in Malta on the EU Council’s phased approach to the negotiations the President of the EU Council, Donald Tusk, has also said,Once, and only once we have achieved sufficient progress on the withdrawal, can we discuss the framework for our future relationship. Starting parallel talks on all issues at the same time, as suggested by some in the UK, will not happen.”

In practical terms the 2-year period for withdrawal negotiations is in fact closer to 18 months because of the period likely to be needed for the ratification process of any agreements. The withdrawal issues alone are likely to be relatively complicated to settle. Some of the key ones referred to by President Tusk are: (1) settling the status and situation of citizens from all over the EU who live, work and study in the UK with reciprocal, enforceable and non-discriminatory guarantees; (2) preventing a legal vacuum for EU companies stemming from the fact that after Brexit the EU laws will no longer apply to the UK; (3) financial commitments and liabilities undertaken by the UK as a Member State; (4) solutions aiming at avoiding a hard border between Northern Ireland and Ireland. There is also a sting in the tail regarding Gibraltar giving Spain an effective veto over the applicability of the agreement to Gibraltar.

Once “sufficient progress”, which is not defined, is made on these issues the EU will then be prepared to discuss the framework for a future relationship, but this is some way from the hoped for comprehensive FTA ready to sign upon withdrawal.  Moreover, even discussions about the framework of future relations cannot according to the Guidelines commence before withdrawal issues are resolved, which include the thorny issue in any divorce of the finances.

If withdrawal with no deal is seen as unattractive by both sides and there is insufficient time or willingness to agree a comprehensive FTA, which could take effect upon the UK’s withdrawal (both likely), then the compromise solution would appear to be a transitional arrangement of some sort to enable such an FTA to be negotiated and finalised. Whilst practically and legally possible a transitional period will nevertheless raise political issues at least in some quarters of the UK as any such arrangements will need to have mechanisms of supervision and enforcement including potentially the involvement of the European Court of Justice. On the sensitivities of dispute resolution mechanisms see my colleague Peter Oliver’s blog post  The Prime Minister’s letter does not mention a transitional period in terms. It does however say that “In order to avoid any cliff-edge as we move from our current relationship to our future partnership, people and businesses in both the UK and the EU would benefit from implementation periods to adjust in a smooth and orderly way to new arrangements. It would help both sides to minimise unnecessary disruption if we agree this principle early in the process.” That is probably a realistic acknowledgment that not only is it likely that future arrangements will not be comprehensively sorted out by 29 March 2019, but also that there is no advantage to citizens or businesses in either the EU or UK in fuelling the notion that a true “cliff edge” come exit day is a realistic possibility.

The Council is not the only relevant actor in the negotiation process. As also foreseen in Article 50 any withdrawal agreement will also have to be approved by the European Parliament. On 5 April 2017 the European Parliament will debate a draft resolution setting out their conditions for a final approval by the European Parliament of any withdrawal agreement with the UK. Like the Council the European Parliament’s Press Release (29 March 2017) stresses the importance of settling the status of EU-27 citizens in the UK, the position of Northern Ireland and the need to address the UK’s financial commitments under the current EU long-term budget, even if these go beyond the withdrawal date. The draft resolution also appears to envisage that talks can start on possible transitional arrangements based on plans for the future relationship but only if and when good progress is made towards the withdrawal agreement. Furthermore any agreement regarding future transitional arrangements should not last longer than 3 years. The implication is that concluding a withdrawal agreement in addition to one governing future UK-EU relations after exit would take up to 5 years. Furthermore, to the extent that the UK remains a member of the EU during such transitional period the position is that the rules would continue to be overseen by EU institutions including the Commission and the Court of Justice.

Finally, the Guidelines are at this stage in draft and are due to be considered by the EU 27 at the end of April. The finalised Guidelines will be carefully scrutinised by those seeking to glean any change in direction or emphasis by the EU.