Takeaways

European Council’s newly issued guidelines offer a window on EU’s negotiating priorities.

Key issues: Safeguarding of EU citizens, settlement of UK financial obligations, sorting out Irish border situation.

Ongoing uncertainty for businesses, but EU appears committed to an orderly and transparent divorce process.

The European Commission has published its Brexit mandate with a clear focus on “citizens’ rights, the financial settlement and new external borders,” with the Commission’s chief Brexit negotiator, Michel Barnier, planning to “pay great attention to Ireland during the first phase of negotiations.”

"The EU has assembled a formidable negotiation team and has mustered key stakeholders across the EU27 so as present itself as a unified block, shutting out the UK’s ability to pick off individual countries through back channels in order to kick start discussions about a future trade agreement. Whether it can maintain this approach as the clock starts to wind down towards the end of the two-year process remains to be seen—much will also depend on the outcome of local political events such as the French, German and of course UK elections." –Tim Wright

Key EU Players

The European Commission is the executive arm of the EU and the body which will lead the withdrawal negotiations with the UK. It is the only institution with the authority to initiate legislation in most areas, though it draws on input from a variety of other bodies.

Other EU institutions with an important role in the withdrawal negotiations are the European Council, consisting of the heads of state or government of the Member States, together with its President and the President of the European Commission, and the Council of the EU, which represents the Member States’ governments. In theory, the European Parliament has a more limited role in the negotiations although still exercises considerable influence as it must pass the final agreement by a simple majority vote. The Council of the EU must also vote on the final withdrawal agreement, this time the agreement needs a qualified majority to pass (i.e. 72 percent of the 27 members states, representing at least 65 percent of the total population of the 27 member states).

The Commission’s lead negotiator is Michel Barnier, a former Vice-President of the European Commission and French Europe Minister. The Parliament elected Guy Verhofstadt, a former Belgian Prime Minister and Member of the European Parliament (MEP), to act as its representative during the negotiations, whilst the European Council appointed Didier Seeuws, a Belgian diplomat, to lead its Brexit taskforce.

The Mandate

Following the UK’s service of the Article 50 withdrawal notice on 29 March, the European Council produced draft guidelines outlining its core negotiation principles. These were discussed and unanimously approved at a European Council meeting on 29 April. The UK was not present. The European Council then handed over to the European Commission, and the Council of the EU, to agree, based on the guidelines, a more detailed mandate and to run the negotiations themselves on behalf of the EU.

Objectives

The mandate published by the EC on 3 May takes the form of an Annex to its Recommendation for a Council Decision “authorising the opening of the negotiations for an agreement with the United Kingdom of Great Britain and Northern Ireland setting out the arrangements for its withdrawal from the European Union” and “taking account of the framework for [the UK’s] future relationship with the Union”.

The annex describes the EU’s proposed objectives and the purpose and scope of certain “negotiating directives” for the conclusion of the withdrawal agreement in accordance with Article 50 of the Treaty on European Union, the primary objective being to “ensure an orderly withdrawal of the United Kingdom from the European Union and from the European Atomic Energy Community.” Whilst still relatively short and necessarily high-level, the EU’s positioning allows interested observers a good degree of insight in terms of the EU’s strategic thinking and approach. Certainly, the UK can expect to meet with a robust and well-coordinated EU team when the real negotiations start after the UK’s snap June 9 election. And at only nine pages long, these guidelines are more tightly focussed than the earlier UK government White Paper which simply expanded on Prime Minister May’s 12 Lancaster House speech principles.

Withdrawal Date

The guidelines state that from 30 March 2019, at 00:00 Brussels time, the United Kingdom will become a “third country” unless the European Council, in agreement with the UK, unanimously decides to extend the withdrawal period as permitted by Article 50(3). From the withdrawal date, Union law will cease to apply to the UK as well as its overseas territories. The term Union law includes all primary EU law, in particular the Treaty on European Union, the Treaty on the Functioning of the European Union, the Accession Treaties and the Treaty establishing the European Atomic Energy Community, as well as secondary law and international agreements made by the EU.

EU law which has already been incorporated into UK law will be unaffected by this (for example, where a Directive required all Member States including the UK to legislate in order to bring their own national laws into compliance, those local laws will simply continue on the statute book for the time being), whereas EU Regulations, which have the characteristic of direct effect and as such do not require local implementation, will cease to apply on the withdrawal date. The General Data Protection Regulation (GDPR) is an example of pending  EU legislation, which will apply automatically in the UK under the direct effect principle on 25 May 2018, and then will cease to apply (at least in that form) on the withdrawal date. Of course, the UK government has recently outlined its proposal for a Great Reform Bill which will remove the UK from the purview of the European Court of Justice, restore the supremacy of domestic law and transfer EU laws and regulations onto the UK statute book (including, we expect, UK legislation equivalent to the GDPR), enabling the government to then unpick transposed EU laws which it dislikes at its leisure.

Flexible, Phased Approach

The EC envisages a two-phased approach to negotiations, given the limited time for talks permitted under Article 50, with the first phase aiming to provide clarity and legal certainty to citizens, businesses, stakeholders and international partners on the immediate effects of the UK’s withdrawal as well disentangling the UK from the Union. The second phase is less well-defined but may include transitional arrangements which will act as a bridge towards agreement of the future relationship between the EU and the UK rather than the “cliff edge” approach of a hard Brexit.

The negotiating directives set out the EU’s stall and provide a framework for the forthcoming talks. Whilst the EU has permitted itself a degree of flexibility, recognising that the directives “may be amended and supplemented as necessary throughout the negotiations” particularly to reflect evolving European Council guidelines, Mr. Barnier and his team’s hands are somewhat tied by the boundaries set by negotiating directives as well as the requirement that the EU’s negotiation team conduct negotiations in “continuous coordination and permanent dialogue” with the European Council and related bodies, such as the Working Party on Article 50, who will provide guidance in line with the negotiating directives.

The Negotiating Directives

The directives, developed in accordance with the European Council guidelines, are intended for the first phase of negotiations. Assuming that sufficient progress is achieved in this phase, allowing progress to the next, new sets of negotiating directives will be published in accordance with European Council guidelines. The phase 1 negotiating directives prioritise matters which are “strictly necessary” for the UK’s orderly withdrawal from the EU.

Safeguarding of Citizens

The first priority is the safeguarding of the status and rights of EU27 citizens and their families in the United Kingdom and, vice versa, in respect of the UK’s citizens and their families in the EU27. In this regard, the EC says that the withdrawal agreement should provide all “necessary effective, enforceable, non-discriminatory and comprehensive guarantees for those citizens' rights, including the right to acquire permanent residence after a continuous period of five years of legal residence.

Financial Settlement

The second priority is the settling of the UK’s financial obligations resulting from its membership of the EU. The EC proposes a methodology for a single financial settlement based on the principle of the UK honouring its share of financial commitments and obligations undertaken whilst it was a member of the EU in relation to the EU’s budget, membership of EU bodies and institutions such as the European Investment Bank and the European Central Bank, and participation in specific funds and facilities such as the European Development Fund and the Facility for Refugees in Turkey. In addition, the EU wants the UK to pay specific costs related to its withdrawal, such as relocation of EU agencies. This would include, for example, the European Medicines Agency, currently located in the Canary Wharf district of London.

The Irish situation

Speaking in Brussels after the EU published its mandate, Mr. Barnier stressed the need to focus on Ireland in the first phase of talks. The guidelines stress the need to avoid creating a hard border between the Republic and Northern Ireland while at the same time respecting the integrity of the Union’s legal order, and provide that full account should be taken of the rights of Irish citizens residing in Northern Ireland. They also require the withdrawal agreement to address issues including transit of goods to and from Ireland via the United Kingdom.

What else to expect?

Other directives cover:

  • providing certainty in respect of goods lawfully placed on the market under EU law before the withdrawal date;
  • ongoing judicial cooperation, such that judicial procedures relating to the UK remain governed by EU law until their completion and, as between the UK and the EU27, national judicial decisions made prior to the withdrawal date continue to be recognised and subject to applicable EU law;
  • arrangements relating to administrative and law enforcement cooperation procedures, as well as use of information and data in law enforcement investigations and criminal proceedings, which are ongoing at the withdrawal date;
  • protection of the EU’s interests (property, funds, assets and operation) in the UK;
  • transfer of nuclear material and related property located in the UK from the European Atomic Energy Community to the UK; and
  • arrangements for the UK’s Sovereign Base Areas in Cyprus.

Governance

The EC mandate calls for overall governance of the withdrawal agreement, with “an institutional structure to ensure an effective enforcement of the commitments under the Agreement, bearing in mind the Union's interest in effectively protecting its autonomy and its legal order, including the role of the Court of Justice of the European Union” as well as provisions for the settlement of disputes including, in particular:

  • the continued application of EU law;
  • citizens’ rights; and
  • key provisions of the Agreement such as the financial settlement.

In what will be clearly be an issue for Prime Minister Theresa May, who has repeatedly emphasised her requirement to restore parliamentary sovereignty of the UK courts, the mandate provides that jurisdiction of the Court of Justice of the European Union (and the supervisory role of the Commission) should be maintained.

Contingency planning

The “phoney war” being waged in the media between the UK and various EU leaders will soon come to an end although the commencement of the formal negotiations is being delayed by Mrs. May’s surprise decision to call a General Election on the 9th June. Unlike the UK government’s White Paper, the EU mandate does not hold out any particular sector as deserving of particular treatment. With regular media reports of banks and insurers eying up European destinations for new operations or shifting roles to ramp up existing European locations, a quick deal to preserve market access via passporting or equivalency is looking less and less likely. Generally speaking, the sense of uncertainty underpinning much of European business operations is set to continue for the foreseeable future. Businesses will need to adapt to the changing political landscape and flex their plans. They will, however, take some comfort that the EU appears open to a phased and orderly approach to withdrawal, seeking to avoid abrupt disruption and change, as well as the knowledge that the EU’s transparent process means that although the discussions will take place behind closed doors, there will be regular updates on progress to the EU’s institutions and the wider public.