What the EU’s draft guidelines mean for the negotiations

What the EU’s draft guidelines mean for the negotiations

The European Council yesterday released its draft negotiating guidelines for the future relationship between the UK and the EU, following Theresa May’s Mansion House Speech last Friday which set out the UK’s position. European Council President Donald Tusk delivered a press conference in Luxembourg, saying that his “proposal shows that we don’t want to build a wall between the EU and Britain.”

The guidelines are uncharacteristically concise by EU standards at only 5 pages, but their central thrust is that the future relationship will be on the basis of a Free Trade Agreement, rather than “participation in the Single Market or parts thereof” or as part of the Customs Union. This will please many Brexit supporters who have long been proponents of a ‘Canada-plus’-type arrangement, which is effectively what the EU has put on the table at this stage.

On goods, the EU has offered a zero-for-zero deal on tariffs and quotas but with a major catch – it wants continued existing access to the UK’s fishing waters on current terms as part of the deal. The draft also calls for continued cooperation on security, defence, intelligence, aviation, research and education. However, the EU’s offer on trade in services and data flows is more limited.

There is also discussion of “robust guarantees which ensure a level playing field”, which points to areas where the EU will attempt to force the UK to continue adhering to parts of EU law, potentially under the jurisdiction of the Court of Justice of the EU. The guidelines also omit the more comprehensive mutual recognition arrangements sought by Theresa May, which would smooth trade to a greater degree than the provisions of Canada’s CETA deal while allowing the UK to retain its legal autonomy (the FT has an excellent explainer on this here), while also including a calculated jibe at the UK’s decisions to leave the Customs Union and Single Market.

In sum, there is a large degree of EU cherry-picking going on here. The EU is proposing the creation of unprecedented bespoke arrangements to secure the best possible terms on the areas in which it considers itself to be a net beneficiary from its existing relationship with the UK, while in the same breath insisting that areas more important to the UK should be limited to existing ‘Third Country’ provisions.

It wants to preserve the goods access which supports its massive trade surplus and keep the benefits of superior British defence and security capabilities as well as access to the UK’s top universities, while offering little ambition or flexibility in the way of services, which it knows is the priority area for the UK.

Essentially this puts both sides in the position of negotiating a CETA+++ deal, but with the pluses very selectively chosen to favour the EU. The UK, and indeed other EU member states, will rightly ask, why is the EU prepared to cherry-pick certain areas where it will countenance bespoke arrangements, but not offer to do so across the board?

Here we take you through the key points of the EU’s draft guidelines and what they mean for the negotiations [emphasis added]:

  1. [The European Council welcomes / notes the progress achieved in negotiations on an orderly withdrawal and transition, including on the consolidation of the text of the Withdrawal Agreement.] The European Council recalls that negotiations can only progress as long as all commitments undertaken so far are respected in full, and calls for intensified efforts on the remaining withdrawal issues. The European Council reiterates that nothing is agreed until everything is agreed.
  1. The European Council recalls and reconfirms its guidelines of 29 April and 15 December 2017, which continue to apply in full and whose principles will have to be respected by the future relationship with the UK.

Here the EU is restating its commitment to the guidelines it has already set out on ‘orderly withdrawal’ (April 2017) and the transition period (December 2017), as well as the Joint Report agreed in December on withdrawal issues and the draft legal text it published last week. The implicit threat that negotiations “can only progress as long as all commitments undertaken so far are respected in full” is likely to raise a few eyebrows given the fact that the EU’s draft ignored key commitments made in paragraphs 44, 45 and 50 of the December deal. Of course, “nothing is agreed until everything is agreed” works both ways, including on the UK’s Brexit ‘divorce payment’.

  1. At the same time, the European Council has to take into account the repeatedly stated positions of the UK, which limit the depth of such a future partnership. Being outside the Customs Union and the Single Market will inevitably lead to frictions. Divergence in external tariffs and internal rules as well as absence of common institutions and a shared legal system, necessitates checks and controls to uphold the integrity of the EU Single Market as well as of the UK market. This unfortunately will have negative economic consequences

  1. The above approach reflects the level of rights and obligations compatible with the positions stated by the UK. If these positions were to evolve, the Union will be prepared to reconsider its offer in accordance with the principles stated in the guidelines of 29 April and of 15 December 2017 as well as in the present guidelines.

These two paragraphs are primarily targeted at the UK domestic political audience, with the EU throwing red meat to the Remainers who are continuing to push for the UK to remain in the Customs Union and Single Market. Following suspicions last week of a coordinated Corbyn and Barnier double-act over the Customs Union and the Irish border, the EU again appears to be handing ammunition to anti-Brexit factions in the UK in the event that domestic political developments lead to a scenario where the Government is forced to reverse its policy on the Single Market and the Customs Union, or is even replaced by an alternative Government which will do so in its place.

The EU has clear incentives to promote this outcome. Keeping the UK in both would remove much of the need for it to be flexible in devising the bespoke new arrangements which it will need to satisfy its own objectives for the future partnership, as well as the UK’s. It would give the EU a far greater degree of control over the UK in the future after it has left, as well as simply reducing the EU’s overall workload in the negotiations.

  1. In this context, the European Council reiterates in particular that any agreement with the United Kingdom will have to be based on a balance of rights and obligations, and ensure a level playing field. A non-member of the Union, that does not live up to the same obligations as a member, cannot have the same rights and enjoy the same benefits as a member. The European Council recalls that the four freedoms of the Single Market are indivisible and that there can be no “cherry picking” through participation based on a sector-by-sector approach, that would undermine the integrity and proper functioning of the Single Market. The European Council further reiterates that the Union will preserve its autonomy as regards its decision-making, which excludes participation of the United Kingdom as a third-country to EU Institutions, agencies or bodies. The role of the Court of Justice of the European Union will also be fully respected.
  1. As regards the core of the economic relationship, the European Council confirms its readiness to initiate work towards a free trade agreement (FTA), to be finalised and concluded once the UK is no longer a Member State. Such an agreement cannot offer the same benefits as Membership and cannot amount to participation in the Single Market or parts thereof.

This confirms the EU’s position that the deal should be a ‘Canada plus’ arrangement rather than ‘Norway minus’. However, they reject May’s offer to continue participating in certain individual EU regulatory agencies, such as the European Medicines Agency (EMA) and the European Chemicals Agencies, to smooth trade in these specific industries to a greater extent than a standard free trade deal would.

(7.) This agreement would address:

i) trade in goods, with the aim of covering all sectors, which should be subject to zero tariffs and no quantitative restrictions with appropriate accompanying rules of origin. In this context, existing reciprocal access to fishing waters and resources should be maintained.

Here is the EU’s central offer: zero tariffs and quotas on goods but the UK must effectively remain a member of the Common Fisheries Policy. It is a highly contentious proposal; the decimation of the UK’s coastal fishing communities by the Common Fisheries Policy was a totemic issue in the referendum, and there would be significant domestic pushback if May were to agree to this. There is a hint of the EU’s Northern Ireland proposal about this – do they have ulterior motives in deliberately throwing down a proposal which they know May will struggle to accept?

(7.) ii) appropriate customs cooperation, preserving the regulatory and jurisdictional autonomy of the parties and the integrity of the EU Customs Union.

EU dogma reinforced: any flexibility on customs arrangements will be subordinate to the “integrity” of the Customs Union.

(7.) iv) trade in services, with the aim of allowing market access to provide services under host state rules, including as regards right of establishment for providers, to an extent consistent with the fact that the UK will become a third country and the Union and the UK will no longer share a common regulatory, supervisory, enforcement and judiciary framework. The FTA should include ambitious provisions on movement of natural persons as well as a framework for the recognition of professional qualifications.

v) other areas of interest to the Union, for example access to public procurement markets, investments and protection of intellectual property rights, including geographical indications.

  1. In the light of the importance of data flows in several components of the future relationship, personal data protection should be governed by Union rules on adequacy with a view to ensuring a level of protection essentially equivalent to that of the Union.

A meagre opening offer on trade in services. The EU is saying that post-Brexit services trade should be essentially limited to the EU’s existing provisions with third countries, rather than looking at novel arrangements to facilitate greater services trade. There is no specific mention of financial services, which Chancellor Philip Hammond called for a bespoke deal on yesterday.

The EU is taking the same approach towards data flows, with the EU only prepared to put third country “adequacy” on the table at this moment in time – something which is a unilateral decision of the Commission to grant and could in theory be withdrawn at any time.

Of course, in areas that are “of interest to the Union”, cherry-picking is firmly back on the menu.

  1. In terms of socio-economic cooperation, the following could be envisaged:

i) regarding aviation, the aim should be to ensure connectivity between the UK and the EU after the UK withdrawal. This would require an air transport agreement, combined with an aviation safety agreement, while ensuring a strong level playing field in a highly competitive sector.

ii) regarding certain Union programmes, e.g. in the fields of research and innovation and of education and culture, any participation of the UK should be subject to the relevant conditions for the participation of third countries to be established in the corresponding programmes in the next Multiannual Financial Framework.

After onetime-Europhobe-turned-EU-fanboy Michael O’Leary’s amusing outburst this week where he claimed he would ground Ryanair flights for several days in order to persuade British voters to change their minds about Brexit (which was immediately welcomed by his Easyjet competitor), Donald Tusk took a more mature approach towards aviation, saying in his statement today that he was “determined to avoid that particularly absurd consequence of Brexit that is the disruption of flights between the UK and the EU”, as confirmed by the published text here.

The document also puts the eminently sensible option on the table that the UK can continue to participate in common research and education programmes, such as research funding schemes and the Erasmus+ programme – both of which already include numerous non-EU states as full members, as long as it pays in to those specific schemes as before. With the UK boasting six of the top ten European universities to the EU’s two (the other two are in Switzerland), this is undoubtedly a good deal for the EU, although there is clear mutual interest on both sides.

  1. Given the UK’s geographic proximity and economic interdependence with the EU27, the future relationship will only deliver in a mutually satisfactory way if it includes robust guarantees which ensure a level playing field. The aim should be to prevent unfair competitive advantage that the UK could enjoy through undercutting of current levels of protection with respect to competition and state aid, tax, social, environment a regulatory measures and practices. This will require a combination of substantive rules aligned with EU and international standards, adequate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement mechanisms in the agreement as well as Union autonomous remedies, that are all commensurate with the depth and breadth of the EU-UK economic connectedness.

  1. The governance of our future relationship with the UK will have to address management and supervision, dispute settlement and enforcement, including sanctions and cross-retaliation mechanisms. Designing the overall governance of the future relationship will require to take into account:

i) the content and depth of the future relationship

ii) the necessity to ensure effectiveness and legal certainty;

iii) the requirements of the autonomy of the EU legal order, including the role of the Court of Justice of the European Union, notably as developed in the jurisprudence.

Here come the punishment clauses. What precise form they take will be a matter for negotiation, although of course it is worth remembering that May also said that appropriate mechanisms would would be needed to moderate the UK-EU relationship and perhaps reduce the level of UK market access if it took the sovereign decision to diverge significantly from EU laws in future. Any EU demands for the ECJ to play a direct role in such mechanisms are likely to be fiercely resisted by the UK.

  1. In other areas than trade and economic cooperation, where the Union has already signalled its readiness to establish specific partnerships, the European Council considers that:

i) police and judicial cooperation in criminal matters should constitute an important element of the future EU-UK relationship in the light of the geographic proximity and shared threats faced by the Union and the UK, taking into account that the UK will be a third country outside Schengen. The future partnership should cover effective exchanges of information, support for operational cooperation between law enforcement authorities and judicial cooperation in criminal matters. Strong safeguards will need to be established that ensure full respect of fundamental rights and effective enforcement and dispute settlement mechanisms.

ii) in the fields of security, defence and foreign policy there should be no gap in the EU-UK cooperation as a consequence of the UK withdrawal from the Union. A future partnership should respect the autonomy of the Union’s decision-making and foresee appropriate dialogue, consultation, exchange of information, and cooperation mechanisms. As a pre-requisite for such cooperation a Security of Information Agreement would have to be put in place.

The EU wants defence, security and foreign policy cooperation to continue with “no gap”. This is of course an area of great mutual benefit to both sides, but it is worth noting once again that this is something where Britain brings a disproportionate amount to the table. As NATO Secretary General Jens Stoltenberg pointed out last month, after Brexit, 80% of NATO military spending will come from non-EU countries. The UK and France are the only Western European countries with serious global military and diplomatic reach, while UK intelligence capabilities are amongst the best in the world, let alone in Europe.

The UK surrendered any prospect of using defence as leverage almost as soon as the negotiations started last year, after the EU successfully boarded the faux outrage bus, leading to an almost immediate capitulation from the UK over the issue. The UK’s decision to approach the negotiations in good faith rather than digging in on issues where it clearly held the upper hand increasingly looks to have been a gross strategic error given the cynicism with which the EU has conducted the negotiations throughout. The EU has banked concessions from the UK at every turn while offering little in return. Contentious issues, such as ECJ jurisdiction, are routinely put back on the table despite the EU previously giving the impression that they had been resolved.

Nonetheless, on this as in many other areas, the UK is well within its rights to ask why the EU is prepared to go out of its way to design ambitious and unprecedented models of enhanced cooperation for areas where it suits it, but not in areas where it doesn’t. Until the EU starts displaying some consistency on the type of relationship it wants with the UK, it remains just as guilty of “cherry picking” as the UK which it is so fond of accusing of doing so.