Monday

9th Dec 2019

Analysis

The next hurdles in Brexit talks

  • London's financial services sector is one of the key issues remaining ahead of EU and UK negotiators (Photo: George Rex)

EU ministers signed off their starting position in the negotiating directives for Brexit negotiator Michel Barnier on Monday (29 January) to discuss the transition period with London.

Brexit talks will now move out from their winter slumber into the limelight once again, as negotiations on the transition period will kick off next week.

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The separate negotiating mandate for the second phase, focusing on trade, could be agreed in March, after EU leaders adopt new guidelines. Here are the key hurdles that could upset the next two stages in negotiations.

No say

During the transition period the UK will have to respect the existing EU laws, even the ones that are adopted during the transition period without the UK having a say. In special cases, the UK might be invited without voting rights, when it is in the interest of the bloc. Barnier argued on Monday (29 January) that the EU set out these conditions because the UK had asked for a transition period which maintained the status quo.

A key issue for the UK is to make sure they have some say in EU rules that are legislated during the transition period. Brexit minister David Davis said on Friday (26 January) that "we will have to agree a way of resolving concerns if laws are deemed to run contrary to our interests and we have not had our say. […] So that we have the means to remedy any issues, through dialogue, as soon as possible. It's very, very important."

EU officials said the bloc would be open to agree on some sort of consultation. The possibilities vary from UK parliament approval (a no-go for the EU), to notifying the UK (an option that would be unlikely to fly with London). Davis also pointed out in his speech that most legislation takes two years to make its way through the EU maze.

Transition end date

British prime minister Theresa May proposed last May what she called a "implementation period" of about two years after the UK leaves the EU bloc on 30 March 2019. EU countries agreed that the transition period should be shorter, and end on 31 December 2020, to coincide with when the bloc's current budget cycle ends. EU countries are keen to avoid adding Brexit fallout to the traditionally toxic budget negotiations.

However, member states attached a text to to the directives that opens the door to the possibility of prolonging the transition period, without mentioning it specifically. "Council will continue to follow all aspects of the negotiations closely and to keep these negotiating directives under review in the light of progress in the negotiations and update them as necessary," the council has agreed.

Citizens' rights

The EU argues that because during transition all four freedoms would apply, EU citizens' rights and residency rights in the UK should be maintained until the end of the transition period, the end of 2020.

They should also be guaranteed by the European Court of Justice. This has annoyed some hardcore supporters of Brexit, who see controlling immigration a big reason for leaving the EU. The UK sees this move as an extension of the already agreed date for an end to the free movement, and the start of the new registration for EU citizens in the UK.

The joint EU-UK report agreed in December said the cut-off date – known as "the specified date" – for EU citizens' eligibility to secure UK residence should be March 29, 2019. It however left room for "appropriate adaptation".

The EU now also argues that it will not restrict the rights and movement of UK citizens in the EU during the transition period, therefore reciprocity needs to be kept, and the UK needs to continue respecting EU citizens' rights during the one year nine months of transition.

Trade

The UK needs to decide how to deal with the over 750 international agreements, including trade deals the EU already has.

During the transition, the UK will be bound by them, meaning it will have to collect tariffs, and make sure EU standards are upheld at its borders. However, the third partners will have a say in how much the UK can benefit from those existing deals. London would have to decide whether to ask the EU to help in rolling over those existing agreements. The UK will be able to negotiate its own trade deals during the transition period, but those agreements cannot come into force unless the EU-27 agrees.

Level playing field

This will only come up after March in the second phase of talks, once transition is settled, However, it is expected to be one of the key points, as the EU would want to make sure the UK does not turn its earlier threats on low-taxes, and low-regulation into reality. Making sure there is not a large divergence on labour, environment, taxation, competition and especially state aid rules. Some EU countries are worried that London for instance could lure car assembly plants to the UK and then trade those cars and car parts at a low or non-existent tariff into the EU. The issue is politically very sensitive, making any kind of compromise especially difficult.

Financial services

EU officials will have their first discussion on services this week – the issue will be on the menu for the future relations discussions. The EU has so far argued that financial services are not part of free trade deals. The UK would be losing 'passporting rights' that enables financial firms to sell their services to EU citizens across the continent. Losing the passporting rights mean firms would no longer be able to operate these services from London. The UK's financial centre hopes for some sort of access to remain after Brexit. What makes talks even more sensitive is that Paris, Frankfurt, Dublin and Luxembourg are looking to attract financial services from London.

EU to open way for Brexit transition talks

The UK will become a "rule-taker" during the transition period that ends on 31 December 2020 – that is the mandate EU ministers will give to EU Brexit negotiator Michel Barnier next week.

'No backsliding' on Brexit promise, Irish PM warns

Leo Varadkar, the first leader to address MEPs in a series of speeches on the EU's future, pledged to close tax loopholes, pay more into the EU budget, and keep London to its word on Northern Ireland.

EU draws red line on UK customs deal

Britain cannot keep its EU trade perks if it quits the customs union, the European Commission has warned as Brexit talks resume.

UK slams EU's 'bad faith' on Brexit transition

Brexit secretary David Davis complained that releasing a document proposing sanctions if the UK did not respect the deal with the EU was "discourteous", in the most bad-tempered exchange of words so far between London and Brussels.

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