Has the Prime Minister done enough to break the Brexit deadlock?


26 September 2017

On 22 September 2017, the Rt Hon Theresa May PM delivered her anticipated speech in the hope of breaking the deadlock in Brexit negotiations. The EU will not start discussing a post-Brexit trade deal, or even a transitional period to soften a cliff-edge Brexit unless the UK Government can break the Brexit deadlock.

On the subject of the withdrawal arrangements, the Prime Minister stressed that EU citizens currently living in the UK are welcome to stay and that their rights would be protected. There will be no physical infrastructure at the border between Northern Ireland and the Republic of Ireland, and she gave a commitment to protect the Good Friday Agreement and the Common Travel Area with the Republic of Ireland. Furthermore, Mrs May stated that the UK would honour all of its financial commitments whilst being a member of the EU.

Mrs May reiterated that the UK Government is seeking an economic and security partnership with the EU following Brexit and offered it an unconditional security partnership. Finally, she confirmed that the UK Government would be pursuing an implementation period of around two years to ensure a smooth transition for businesses, individuals as well as the public sector. With the fourth round of the Brexit negotiations commencing on 25 September, will the Prime Minister’s offering be sufficient to break the deadlock?

 

Why is there a Brexit deadlock?

Since the UK Government formally notified the European Council of its intention to leave the EU last March, there have been three rounds of Brexit negotiations which have focused solely on the withdrawal arrangements. The UK Government is keen to move the negotiations towards discussing the future partnership between the UK and the EU. The European Commission (“Commission”), the EU institution empowered to conduct the negotiations, however, currently has a mandate to discuss only the withdrawal arrangements with the UK. That mandate was based on the negotiating guidelines adopted unanimously by the Heads of State or Government of the remaining 27 Member States (“EU27”) at the European Council.

The EU’s position is that sufficient progress needs to be made on the withdrawal arrangements before negotiations on the UK/EU’s future relationship can commence. At the end of the third round, Michel Barnier, the Commission’s Chief Negotiator, stated that: “At the current speed, [the Commission is] far from being able to recommend to the European Council that there has been sufficient progress in order to start discussions on the future relationship, while we are finalising the withdrawal agreement throughout 2018.” Furthermore, on 21 September 2017 Mr Barnier expressed that “there is still major uncertainty on each of the key issues of the first phase” and that the Commission is “waiting for clear commitments from the UK on these precise issues”. Following Mrs May’s speech, Mr Barnier issued a statement commenting that “the speech shows a willingness to move forward, as time is of the essence.”

With less than four weeks until the next European Council meeting, which is scheduled to take place on 19-20 October 2017, the UK Government is hoping that the Prime Minister’s speech will be enough to accelerate the negotiations on the withdrawal arrangements.

 

What progress has been made on the withdrawal arrangements?

The EU’s three main priorities for the withdrawal arrangements are: citizens’ rights, the Northern Ireland/Ireland border and, the main sticking point, the financial settlement.

Citizens’ rights

The protection of citizens’ rights, for both EU nationals living in the UK and UK nationals living elsewhere in the EU, is a priority for both the EU and the UK Government. This is the area where the most progress has been made to date in the negotiations. After the third round of the negotiations, the EU and the UK issued a “Joint Technical Note” setting out the points that have been agreed (as well as those that have not yet been agreed).

On 21 September 2017, Mr Barnier stated that the “issue of guaranteeing the rights of EU citizens in the UK has not been solved”. One of his main concerns was the ability for citizens to be able to enforce their rights derived directly from the withdrawal agreement in national courts. The Commission also wants those courts to be able to “refer questions related to the interpretation of rights deriving from European law to the Court of Justice of the EU”. Furthermore, the Court of Justice of the EU (“CJEU”) should be the “ultimate guarantor” of the withdrawal agreement.

The Prime Minister sought to alleviate Mr Barnier’s concerns by stressing that she wants all EU citizens that are currently living in the UK to stay and that she wants to ensure that they can carry on living their lives in the UK as before. Furthermore, Mrs May attempted to address Mr Barnier’s concern regarding the enforcement of EU citizens’ rights in the UK by stating that the withdrawal agreement will be fully implemented into UK law and that UK courts will be able to refer directly to it. Where there is uncertainty around underlying EU law, UK courts will be able to take account of CJEU judgments to ensure “consistent interpretation”. In his statement, published on 22 September 2017, Mr Barnier stated that he considered the Prime Minister’s statements on citizens’ rights to be “a step forward but they must now be translated into a precise negotiating position of the UK Government.”

Northern Ireland/Ireland border

The EU and the UK Government have both committed to protecting the Good Friday Agreement and the Common Travel Area. Furthermore, they have both stated that they will not accept any physical infrastructure at the border. The EU is, however, keen to ensure that the integrity of the Single Market is respected. Although the UK has published a position paper regarding the Irish border, in his response to the Prime Minister’s speech, Mr Barnier called for more clarity on “how the UK intends to honour its special responsibility for the consequences of its withdrawal for Ireland.”

 

Financial settlement

At the end of the third round of the negotiations, the UK Government stated that it would limit the UK’s payment obligations to the EU to the UK’s last payment into the EU budget before Brexit. The EU, however, has called on the UK to honour all of its commitments including those that extend beyond 29 March 2019.

On 21 September 2017, Mr Barnier stated that: “all that is necessary in this negotiation is that everyone honours the commitments that they have made to each other. To settle the accounts. No more, no less.” He went on to say that “beyond money, this is a question of trust between the 27 and the UK, based on the respect of one’s signature. And everyone knows that we will need this trust to create a solid relationship in the future.”

The Prime Minister sought to reassure the EU27 that they would not “need to pay more or receive less over the remainder of the current budget plan” as a result of Brexit. She confirmed that the “UK will honour commitments [it has] made during the period of [its] membership.” This would mean the UK paying for its expected share of the EU budget had there been no vote to leave up to 2020. Most commentators believe that this would be about €20 billion. It is not clear what payment might be needed to secure a transitional period and the Prime Minister did not refer to it. She did say that where, after exit, there are programmes of joint advantage, for science, education, culture and mutual security “we would want to make an ongoing contribution to cover our fair share of the costs involved.” In response, Mr Barnier stated that the Commission stands ready “to discuss the concrete implications of this pledge.”

 

What is the UK Government’s proposal for a transitional arrangement?

Both the UK and the EU are keen to have a close relationship post-Brexit. Although the terms of that relationship could be agreed by the time the UK leaves the EU, under EU law, they will not be able to formally enter into any future agreement until the UK is no longer a member of the EU. Furthermore, any such agreement will need to be ratified by all 27 Member States, which could take years.

The Prime Minister has, therefore, proposed a transitional arrangement of “around two years” to bridge the gap between the time the UK leaves the EU and the date on which a future UK/EU agreement enters into force. This will enable individuals, businesses as well as public services a period of time to “adjust to the new arrangements in a smooth and orderly way”.

Mrs May stated that after 29 March 2019, when the UK will leave the EU, the UK will no longer be represented in the EU institutions. During the transitional period:

– the UK would be free to enter into its own trade negotiations, but would not benefit from the EU’s future trade negotiations;

– access to one another’s markets would continue on current terms;

– the UK would continue to participate in existing security measures;

– the UK would continue to abide by the existing structure of EU rules and regulations, which presumably would include the jurisdiction of the CJEU. The Prime Minister, however, added that the UK and the EU could “agree to bring forward aspects of that future framework such as new dispute resolution mechanisms more quickly if this can be done smoothly”; and

– nationals from the EU27 would continue to be able to live and work in the UK. However, they would be required to register upon entering into the UK.

The exact details on the way in which this arrangement would work in practice would be subject to the negotiations such as whether the UK would adopt any new EU laws approved during the transitional period.

The EU is open to having a short transitional period with the UK. Again, the EU’s position is that the withdrawal arrangements would need to be agreed before a transitional arrangement can be agreed. As Mr Barnier stated, “without a withdrawal agreement, there is no transition”. Both Mrs May and Mr Barnier recognise that a transitional arrangement could be wrapped up through the Article 50 negotiations. The European Council guidelines of 29 April 2017 state that “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.” Mrs May’s proposal appears to meet this requirement.

 

Future partnership

On the UK’s future relationship with the EU, the Prime Minister reiterated that the UK is seeking to secure a deep and special partnership with the EU, which should cover both a new economic relationship and a new relationship on security.

On the economic relationship, Mrs May repeated what she said in her speech at Lancaster House earlier this year; the UK will be leaving the Single Market and the Customs Union. She again rejected that the UK would remain in the European Economic Area (“EEA”) on the basis that the British people would not accept having to automatically adopt new EU rules in the UK on which the UK would have little influence and no vote. Mrs May also excluded having an arrangement with the EU which mirrors its relationship with Canada, as this would represent a restriction on market access. Instead the Prime Minister is seeking “an ambitious economic partnership which respects the freedoms and principles of the EU, and the wishes of the British people”.

As the UK’s laws and regulations are already aligned with EU law, on 21 September 2017 Mr Barnier recognised that the “future trade deal with the UK will be particular, as it will be less about building convergence, and more about controlling future divergence”. He said that “this is key to establishing fair competition”. He, however, stated that “it is not – and will not – be possible for a third country to have the same benefits as the Norwegian [EEA] model but the limited obligations of the Canadian model”. Finally, he said that any agreement “must respect the regulatory autonomy of the EU, as well as the integrity of its legal order”.

In response, the Prime Minister highlighted that the UK shares the same fundamental beliefs as the EU, including rigorous and fair competition, strong consumer rights and is against unfairly subsidising its own companies. As a result, she said that there is no need to impose tariffs on goods between the UK and the EU where none currently exist. Furthermore, Mrs May stated that the UK will do “everything [it] can to avoid friction at the border.” One potential sticking point, however, could concern the body which will have jurisdiction to resolve disputes in respect of the terms of the future relationship; the UK Government will not accept the jurisdiction of the CJEU.

On security, the Prime Minister stated that the UK is “unconditionally committed to maintaining Europe’s security”. She is proposing a bold new strategic agreement, which provides a “comprehensive framework for future security, law enforcement and criminal justice cooperation” built on shared principles including high standards of data protection and human rights.

 

Comment

The tone of the Prime Minister’s speech was one of partnership, friendship and trust. With eighteen months left before the UK leaves the EU and one year left to finalise a withdrawal agreement, determine the conditions of the transition period, and scope the UK’s and the EU’s future partnership (thereby allowing six months for the deal to be ratified before 29 March 2019), both the UK and the EU recognise that time is of the essence.

The UK has now made it clear that it is willing to make financial concessions, and to offer unconditional support and co-operation on security, criminal justice and defence issues which were previously not on the table, in order to prevent a cliff-edge Brexit with no trade deal or transitional period. A further important concession appears to be recognising the continuing jurisdiction of the CJEU during the transitional period.

When one considers the outstanding issues concerning the withdrawal arrangements, as outlined in Mr Barnier’s speech on 21 September 2017, together with Mrs May’s latest speech, there seems to be a sufficient amount of convergence to hopefully make enough progress to enable the negotiations to move onto the future relationship. Both sides of the Channel want a withdrawal agreement and are keen to enter into a future partnership covering both an economic relationship and a relationship on security. As Mr Barnier quoted, “where the willingness is great, the difficulties cannot be great”.

 

For more information please contact Ros Kellaway or Annabel Borg.

Ros Kellaway , Partner
e: roskellaway@eversheds-sutherland.com
t: +44 207 919 4882
Annabel Borg, Senior Associate Professional Support Lawyer
e: annabelborg@eversheds-sutherland.com
t: + 44 20 7919 4707