EU Brexit Directives – what they mean for the negotiations

EU Brexit Directives – what they mean for the negotiations

Michel Barnier and the European Commission have been given the formal authority to begin the Brexit negotiations by the EU’s General Affairs Council, meeting on Monday to authorise the start of the Brexit talks and adopt the Commission’s negotiating directives. The directives cover what the EU intends to be the ‘first phase’ of the negotiations: to make “sufficient progress” on securing an ‘Exit Agreement’ between the UK and the EU covering citizens’ rights, the ‘Brexit bill’, and the status of the Northern Irish border.

There are essentially no major changes from the draft negotiations published by the Commission earlier this month, with disagreements ahead still likely to centre on the size of the ‘Brexit bill’, the role of the ECJ and the extent of citizens’ rights, and at what stage the talks will move on to discussing a future free trading arrangement. Of course, there cannot be final agreement on how the Northern Irish border will work before the shape of the future customs arrangements between the UK and the EU are known, a point which Michel Barnier appears to have taken on board.

Nonetheless, there are a number of changes which provide pointers for the negotiations ahead, both positive and negative. The EU’s decision to insert additional references to the Court of Justice, for instance, spells further trouble in that regard, at the same time as other references, such as provisions for trade in services, hint at a more pragmatic approach from the EU. Here we take you through key passages which have been altered and what this might mean for the negotiations (with the changes highlighted):


The ‘Brexit bill’

This is an area where Britain holds most of the cards. The EU needs the money, and prevailing legal opinion is that the EU would struggle to find any legal grounds on which to pursue the UK for any money should Britain decide to walk away without a deal, although political expediency will likely dictate that Britain eventually agrees to a limited payment to Brussels as part of a final deal. You can read my analysis of the EU’s initial demands here.

  • 23. A single financial settlement – including issues resulting from the MFF as well as those related to the European Investment Bank (EIB), the European Development Fund (EDF) and the European Central Bank (ECB) – should ensure that both the Union and the United Kingdom respect the obligations resulting from the whole period of the United Kingdom membership in the Union. The negotiations relating to the methodology for the financial settlement should be based on the following principles.
  • 26. In accordance with paragraph 10 of the European Council guidelines, this covers obligations resulting from the MFFs, liabilities including pensions and contingent liabilities and any other obligations deriving from a basic act within the meaning of Article 54 of the Financial Regulation. In addition, the United Kingdom should fully cover the specific costs related to the withdrawal process such as the relocation of the agencies or other Union bodies.
  • 30. The Agreement should therefore contain:
    a) A calculation of all obligations that the United Kingdom has to honour in order to settle its financial obligations toward the Union budget, all institutions or bodies established by the Treaties, and other issues with a financial impact. The calculated obligations may be subject to limited future technical adjustments.

The EU has added a few specific references to liabilities it is intending to claim from the UK, including mentions of the EU’s multiannual financial frameworks (MFFs), (i.e. liabilities relating to the main EU budget) and pensions, while any “future technical adjustments” to ongoing payments have now been qualified as “limited”. Otherwise, there are no substantial changes to the EU’s demands in this area. The real squabbling over money will begin when the EU presents its ‘calculations’ of the Brexit bill to Britain once the negotiations get underway.


Transitional arrangements

 

  • 19. As soon as the European Council decides that sufficient progress has been achieved to allow negotiations to proceed to the second phase, there will be new sets of negotiating directives. In this context, to the extent necessary and legally possible, matters that should be subject to transitional arrangements (i.e. bridges towards the foreseeable framework for the future relationship) and which are in the interest of the Union, will be included in those future sets of negotiating directives in the light of the progress made. Any such transitional arrangements must be clearly defined, limited in time, and subject to effective enforcement mechanisms. Should a time-limited prolongation of Union acquis be considered, this would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply. This approach will allow an efficient allocation of the limited time that Article 50 of the Treaty on European Union imposes for the conclusion of the Agreement by avoiding the need to address the same matter several times at different phases of the negotiations.

This is one change that is likely to be welcomed by Leavers, many of whom have expressed concerns about the UK entering into a vaguely defined, half-in, half-out transitional period which ends up becoming the new permanent status quo. A clearly defined and time-limited transitional period would put these fears to rest.

However, eyebrows may be raised over the EU’s idea of what form this arrangement will take – many will wonder what exactly distinguishes an arrangement where “existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures” from continued EU membership. If it looks like a duck…


Jurisdiction of the European Court

The EU’s demand that the Court of Justice of the European Union (which includes the European Court of Justice) should have continued jurisdiction over any Brexit agreement is potentially the biggest hurdle to a Brexit deal being secured, even threatening to derail any reciprocal agreement on citizens’ rights, as I discussed when the draft directives were originally released. Indeed, responding to the directives, David Davis said that the “ideological obsession in Brussels with one-sided jurisdiction by the European Court of Justice – in the UK, after we have left the EU – is not acceptable and will not work”.

Far from softening their position on the ECJ, the EU have instead doubled down on it with several new explicit references to the CJEU added in the final version. The final phrase, calling for “appropriate institutional arrangements” to allow for the “incorporation of future amendments to Union law in the Agreement”, sets alarm bells ringing in particular.

  • 17. The Agreement should contain provisions relating to the overall governance of the Agreement. Such provisions must include effective enforcement and dispute settlement mechanisms that fully respect the autonomy of the Union and of its legal order, including the role of the Court of Justice of the European Union, in order to guarantee the effective implementation of the commitments under the Agreement, as well as appropriate institutional arrangements allowing for the adoption of measures to deal with unforeseen situations not covered by the agreement and for the incorporation of future amendments to Union law in the Agreement.

Citizens’ rights

 

  • 20. The Agreement should safeguard the status and rights derived from Union law at the withdrawal date, including those the enjoyment of which will intervene at a later date (e.g. rights related to old age pensions) as well as rights which are in the process of being obtained, including the possibility to acquire them under current conditions after the withdrawal date (e.g. the right of permanent residence after a continuous period of five years of legal residence which started before the withdrawal date). This should cover both EU27 citizens residing (or having resided) and/or working (or having worked) in the United Kingdom and United Kingdom citizens residing (or having resided) and/or working (or having worked) in one of the Member States of the EU27. Guarantees to that effect in the Agreement should be reciprocal and should be based on the principle of equal treatment amongst EU27 citizens and equal treatment of EU27 citizens as compared to United Kingdom citizens, as set out in the relevant Union acquis. Those rights should be protected as directly enforceable vested rights for the life time of those concerned. Citizens should be able to exercise their rights through smooth and simple administrative procedures.
  • 21… b) Definition of the rights to be protected: this definition should include at least the following rights…
    iii) the rights set out in Regulation 492/2011 on freedom of movement for workers within the Union (e.g. access to the labour market, to pursue an activity, social and tax advantages, training, housing, collective rights as well as rights of workers’ family members to be admitted to general educational, apprenticeship and vocational training courses under the same conditions as the nationals of the host State);

The EU have also bolstered their demands on citizens’ rights, in what could be another potential early flashpoint in the negotiations. Although both sides have made securing a reciprocal agreement on citizens’ rights one of their top priorities for both sides, the extent of the EU’s demands along with their insistence that the ECJ retains the authority to adjudicate over them may make this issue more of a sticking point than people on all sides had anticipated, and indeed hoped for.


Services

  • Goods placed on the market under Union law before the withdrawal date
    31. Agreement should ensure that any good lawfully placed on the single market on the basis of Union law before the withdrawal date can continue to be made available on the market or put into service after that date both in the United Kingdom and in the EU27 under the conditions set out in the relevant Union law applicable before the withdrawal date. Other matters, such as services, where there may be a need to reduce uncertainty or avoid a legal vacuum, will be covered by subsequent sets of negotiating directives.

This is an interesting addition to the negotiating directives. Many commentators thus far have assumed that, while the chances of Britain securing a free trade agreement with the EU on goods post-Brexit are relatively high, the chances of the deal also including services are significantly lower, in part due to the fact that the UK has a trade deficit with the EU on goods but a trade surplus on services. A free trade deal including both goods and services would likely be better for the UK given the preponderance of services, and particularly financial services, in the British economy.

Hence it is potentially significant that the EU has given a firm indication for the first time that it will be considering services as part of the negotiations, albeit only in regards to transitional arrangements at this stage. The fragility of the eurozone means that a sudden loss of access to London would, if anything, be more damaging to the EU to the UK, while EU member states are coming to the realisation that putting up barriers will not automatically translate into financial firms moving to their own cities from London. As with free trade in general, it’s not a zero-sum game – both sides will be better off.