Halftime: The state of Brexit negotiations one year before the UK’s withdrawal from the EU

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Exactly one year has passed since Prime Minister Theresa May triggered Article 50 of the Treaty on the European Union (EU). Accordingly, London and Brussels have only one more year to agree and ratify the details of the United Kingdom’s (UK) orderly withdrawal from the bloc and the principles of their future relationship. Otherwise they will divorce without any deal unless both sides agree to extend the two year period intended by Article 50.

Since the European Council (EC) opened the final and decisive phase of Brexit negotiations on 22–23 March 2018, time seems just perfect to reflect on what has been negotiated so far and what we can expect from future talks.

Phase 1 – Withdrawal Agreement

After six months of negotiations between both sides, the EC announced sufficient progress on the three crucial points of the divorce on 15 December 2017:

  1. Financial Settlement: The UK commits to pay its share of the current EU budget period until 2020. While the EU so far avoids estimating a final number, UK officials said it will be 40–45 billion euros.
  2. Citizens’ Rights: Rights of EU citizens living in the UK – and vice versa – should remain the same after the UK’s exit. This means about four million people can continue “to live and work as they currently do”.
  3. Irish Border: Both the UK and the EU commit to avoid a hard border between the Republic of Ireland and Northern Ireland (NI) to protect the Good Friday Agreement.

As in most divorces, trouble starts when legal terms and details are introduced. After the European Commission put the overall December results into a legal draft of the withdrawal agreement, it turned out that the border issue remains the biggest problem. Theresa May said that no UK Prime Minister could ever agree to the EU border proposals, which would effectively keep NI in a Customs Union with the EU, but only if no other solution is found. This way, a hard border could be avoided. However, further British conservatives said this would be a de facto annexure of NI by the EU, which is unacceptable.

The Irish border question is a very sensitive one. It is politically so because of the Good Friday Agreement (1998), which helps to guarantee peace in NI and has removed border checks that will become necessary again as soon as the UK leaves the EU (and the Customs Union). It is economically sensitive because border checks will lead to friction in trade, especially between the highly interconnected economies of NI and the Republic of Ireland.

While you are reading this, diplomats from both sides discuss a new British proposal that would keep the UK aligned with parts of the Single Market rules (did someone say “cherry-picking”?). Expect results at the next Council meeting in June.

Phase – Transition Period

It took European leaders only minutes to agree on the details of the transition period at the Council meeting on 22–23 March. The period’s purpose is to provide clarity for people and businesses for the immediate time after the UK’s withdrawal. During the transition, the UK remains a member of the Single Market and the Customs Union with all its obligations, and it is allowed to negotiate and sign trade agreements with other countries that obviously can come in effect only after the transition has been finalised. However, the UK loses many of its political rights, e.g. seats and voting rights. This period ends on 31 December 2020 with no extension possible according to the latest draft.

While these conditions might have been hard to swallow for the British government, their agreement reflects the immediate desire to discuss the future relationship and can, in my opinion, very well be seen as a tactical move to secure more concessions when entering the next round of talks.

Phase 2 – Future Relationship

Donald Tusk said: “We all know that breaking up is hard. But breaking up and building a new relationship is much harder”. The fact that the central part of the future relationship between the UK and the EU is not love but trade does not make it necessarily easier, especially since this is the first time that a free trade agreement will not improve trade relationships compared to the status quo.

Britain’s so-far-clearest vision of how this future relationship should look like was set out by Theresa May in her third major Brexit speech at the beginning of March, and it surprisingly did not trigger civil war within her own deeply divided cabinet. Most importantly, she stuck to previous red lines as leaving the Single Market and the Customs Union, but blurred others like the acceptance of jurisdiction by the European Court of Justice.

May’s speech was welcomed in Brussels. However, the above mentioned and still existing red lines give the EU not a lot of room to maneuver when negotiating the future relationship. While London hopes for a unique and special EU–UK free trade deal that includes financial services and as much Single Market as possible (except for free movement of people, of course), the guidelines published the by EC clearly show the limits of a future EU–UK trade deal. As a future non-member with fewer obligations, the UK cannot have the same rights as a member of the EU. It furthermore says that the UK will not be allowed to participate in the Single Market on a sector-by-sector approach and thereby the guidelines should put an end to the debates about a Norway Minus model (leaving the Customs Union, remaining member of the Single Market but abolish free movement of people and the European Court of Justice) and a Canada Plus model (leaving the Single Market and the Customs Union, incorporating financial services in trade agreement) as possible future relationships.

Whatever diplomats from London and Brussels will agree on, the official schedule by Michel Barnier, EU chief negotiator, gives them time until October 2018 to finalise the terms of withdrawal as well as transition and to set out the principles of their future relationship. This time buffer before 29 March 2019 is necessary because the European Parliament, the EC, and the British Parliament (where May will face heavy fights in the near future) have to approve the final Brexit deal. Oh, and in case you are wondering, yes, the possibility of a no deal Brexit is still on the table until the very end because one of the most famous negotiation guidelines applies here too: nothing – no transition, no withdrawal, and no future relationship – is agreed until everything is agreed.


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