Brexit now seems inevitable on 31 January 2020 but that is only the beginning of the process of defining a new relationship between the UK and the EU. Serious negotiations on that relationship will only start thereafter, hopefully as soon as February. In this View from Brussels, we look at how this process will unfold.
- The need for standstill transition
- Can a future relationship be negotiated in 11 months?
- How to reconcile haste with ambition
The EU took the position at the beginning of the Article 50 negotiations that it could not negotiate a future relationship while the UK was a Member State. A withdrawal agreement under Article 50 TEU was, it maintained, all about regulating the separation, and could not cover the future relationship, which would require legal basis that are only applicable to negotiations with third countries – not with Member States. The UK accepted this position. Ironically and incoherently with this position, as we have noted previously, the parties eventually ended up negotiating one possible future relationship in the Irish backstop.
As a result of this position, the future relationship was not negotiated in parallel with the Withdrawal Agreement and it became necessary to include a “standstill” transition period in the Withdrawal Agreement during which EU law would remain applicable to and in the UK but the UK would cease to have membership rights. One can doubt whether a “standstill” is really a transition, but the concept was accepted as necessary to avoid a “cliff-edge” Brexit and to provide time for the negotiation of a future relationship. Originally, this transition period was a year and nine months but then it was made extendable so as to provide time for the negotiation of the future relationship. The delay to Brexit has, however, cut into the transition period. In addition, impatience with Brexit has led the UK Government to commit, and now to propose enshrining in law, that the transition period cannot be extended.
In the 11 months of the transition period, the parties will have to set their objectives (that is, define what they each want), reconcile their positions to the satisfaction of all their stakeholders and, finally, undertake the legal process of concluding the agreement.
Agreements have been concluded by the EU in less than 11 months but whether this can be achieved in 11 months in the case of the agreement on the future relationship between the EU and the UK depends on what that agreement will contain. For this reason, the outcome is quite likely to be modest or unambitious. In particular, the final phase is often very long in the EU, especially where the agreement needs to be ratified by Member States, as they often insist is necessary. It can be considerably shortened where the scope of the agreement is limited to matters that are agreed to be exclusively of EU competence (such as trade in goods) since in such a case the agreement can be concluded by the EU alone with only a qualified majority in the Council and an absolute majority in the European Parliament.
The risk is therefore that the need to conclude the negotiation of the future relationship in 11 months will prevent it from being as comprehensive and ambitious as the parties have repeatedly stated is their objective. We suggest below some ways in which this conflict might be mitigated.
1. Separating the content
The Political Declaration on the future relationship envisages “an ambitious, broad, deep and flexible partnership across trade and economic cooperation with a comprehensive and balanced Free Trade Agreement at its core, law enforcement and criminal justice, foreign policy, security and defence and wider areas of cooperation”. It is proposed that the relationship englobe both an economic and a security partnership, foreign policy, security and defence as well as a range of thematic cooperation. These touch on areas where the Member States consider they must maintain their competence to act and so will insist that such an agreement should be mixed, meaning that it must be concluded not only be the EU but also by each Member State.
Concluding such an agreement in 11 months is almost certainly infeasible, not only because of the delays in ratification but also because negotiations will be more difficult due to the need to satisfy the needs of many diverse interests.
The Political Declaration already notes (at para 120) that “the overarching institutional framework could take the form of an Association Agreement” (as provided for in Article 217 TFEU). This is the legal basis used for conclusion of the European Economic Area Agreement and requires unanimity. The Member States insisted on becoming parties to the European Economic Area Agreement and are likely to require the future relationship with the UK also to be mixed.
One solution may be to conclude separate agreements on specific less difficult subjects first, leaving the conclusion of the more delicate agreements and the creation of an institutional structure to later. This would probably entail a reduction in ambition limiting the scope of the initial agreement on the future relationship to trade and other matters that can be decided by the EU alone and preferably by qualified majority.
Separate agreements of limited scope will also be easier to conclude because the number of issues to be resolved and conflicting intersts to be reconciled will be more limited. Thus agreements could be reached on priority matters such as tariffs on industrial goods, transport and climate change.
However, even the conclusion of a basic agreement on trade within 11 months will be challenging. It is sometimes said that such an agreement will be relatively easy since the outline is already agreed in the Political Declaration and the UK and the EU-27 are already entirely aligned. However, a contrary argument is also possible. The Political Declaration is all about ambition and scope and says little about the precise trade-offs. In negotiating a real agreement, it will be necessary to decide how much access to give, for example in agricultural products, to a partner who will be free to adopt its own regulatory regime and conduct an independent trade policy with third countries. The EU at least will not know how the UK will behave in these regards in the future and so will be reluctant to renounce protection. In this respect, the negotiation of a trade agreement with the UK will be unlike any previous negotiation because the EU (and indeed other third countries) will not know what the alterative to an agreement will look like. That is part of the reason why the EU has stressed so much in the Political Declaration the need for “level playing field” provisions to regulate future behaviour.
2. The Work Programme approach
Since there will only be 11 months to negotiate the initial future relationship, it is likely that a major part of the resulting limited-scope agreement will be a commitment to work together to elaborate forms of cooperation in all the remaining areas. There may be some improvement on the current Political Declaration in the form of more precision as to objectives and means to their achievement and the obligation to work towards them may be made more binding in some way. However, it will remain a work programme.
Most existing free trade agreements contain such provisions. For example, the Comprehensive Economic and Trade Agreement with Canada (“CETA”), which is so often considered a model to be followed, establishes at least 12 distinct committees to pursue further cooperation. CETA took seven years to conclude and the EU-UK agreement that needs to be negotiated in less than one year is even more likely to push the elaboration of further disciplines into the future.
3. Autonomous measures subject to reciprocity
It might also be possible to tacitly agree to continue liberal treatment through a form of conscious parallelism where both the EU and UK autonomously allow continued market access conditioned on “reciprocity” thereby avoiding the need to conclude agreements, at least temporarily. Such techniques were used in the contingency measures that the EU prepared for the eventuality of a no-deal Brexit, for example in the road and air transport sectors.
One area where this might be used is that of financial services where some market access is accorded through the use of autonomous equivalence decisions. There is strong suggestion in such measures that reciprocity is expected.
4. Extending the transition (or the standstill)
Partly because of the need to reconcile the political need for haste with the reality of negotiations, the Withdrawal Agreement provides for the extension of the transition period for up to two years. Such an extension needs to be decided by July 2020.
It has been suggested that the Withdrawal Agreement could be amended in November or December next year to modify this restriction or to extend the transition period if a case is made that a little more time is needed. Leaving to one side the political difficulty of such a move, it is considered that this could not be done on the basis of Article 50 TEU. The EU only has the competences that are attributed to it and the competence to adopt and amend a withdrawal agreement is granted only for the purpose of facilitating the withdrawal of a Member State, not for the purpose of agreeing cooperation with a third country.
Any new agreement on the future relationship will inevitably contain its own phased implementation and transition provisions since it seems unrealistic to suppose that all the new regulations and arrangements needed to implement the future relationship, for example on the collection of taxes and duties, will be operational in 1 January 2021.
One conceivable consequence of a realisation that negotiations on the full range of Political Declaration topics cannot be completed in the time available could be to provide for a new standstill in those areas where agreement cannot be reached (using an EU legal basis other than Article 50 TEU). In other words, the UK would continue to be treated as if it were a Member State but without membership rights for a defined range of purposes. This should be an entirely unattractive proposition for the UK but it may prove necessary. The experience of the Irish backstop should ensure that any such extension of the standstill should be time limited or easily terminable.
Given the time constraints, economic operators should not expect that complex areas such as services, data transfer or technology will be included in an initial agreement on the future relationship between the EU and the UK but should concentrate on ensuing that the objectives and methods of work towards future agreements are appropriately defined over the next year so as to allow ambitious agreements on cooperation between the EU and the UK to be agreed in calmer times.
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