The second phase of Brexit negotiations – what can be expected

Posted in WTO and international trade

The EU Summit in Brussels concluded with an important decision for the future of Brexit. Following the EU Commission’s recommendation that ‘sufficient progress’ has been achieved in the first phase of Brexit negotiations, the EU Council issued a decision to adopt the guidelines to move negotiations to a second phase, ‘related to the transition and the framework for the future relationship’.

So much is expected of this second phase, in particular the conclusion of the new, comprehensive and ambitious partnership between the UK and the EU. Nevertheless, important questions since the beginning of Brexit negotiations remain: will it be feasible for the UK and EU to achieve such a comprehensive trade agreement that comes anywhere close to the existing arrangements and if so, how long will that take? 

The second phase of the Brexit negotiations will have two main components: concluding and formalising the withdrawal agreement – finalising the divorce – and agreeing a framework setting out the expected basis for the future relationship.

The two agreements are interrelated. The withdrawal agreement must incorporate the commitments agreed by UK and EU negotiators on 8 December and – as stated by the EU Council’s guidelines – negotiations concerning the future relationship can only progress if all of the commitments made by the UK in the first phase are respected in full and translated into legal terms. The detail of an agreement on the future relationship can only be concluded once the UK has left the EU.

Whilst both sides stated their desire to forge a close partnership and avoid a no-deal situation, it is still unclear what kind of partnership the parties wish to have.

Echoing the UK’s proposal, the decision also refers to the possibility of agreeing a two year transition period. The European Council’s decision defines the conditions to be fulfilled by such transition period. In contrast to the Prime Minister’s Florence speech in September 2017, this will not be a transitional period to implement a new partnership, but is more likely to provide for a modified continuation of the current rights and obligations the UK has as an EU Member State, without the benefits of participation in and decision making of the EU institutions. In the EU’s view at least, the UK will remain a member of the Single Market and the Customs Union during this period. The existing body of EU law (the ‘acquis’) and any changes made during that period should apply to the UK. This also means that existing EU regulatory, budgetary and supervisory structures will continue to apply to the UK, including the supervision of the EU courts. Whether these conditions are negotiable remains to be seen, but it might be unlikely.

What the second phase guidelines do not agree is the possibility of an additional transitional period, which would provide for an easing in or implementation of the new partnership arrangements. This would apply from the first day after the end of the two year transition period. Such ‘implementation periods’ are a common feature of free trade deals. How and for long such an arrangement would apply will be subject to negotiation down the track and inevitably depend on the nature of the post-Brexit arrangements themselves.

So what are the next steps from here?

The EU guidelines adopted today state that the EU ‘will be ready to engage in preliminary and preparatory discussions with the aim of identifying an overall understanding of the framework for the future relationship, once the additional guidelines have been adopted to this effect’. These specific additional guidelines will provide detailed instructions to the EU negotiators, and will not be adopted until March 2018. This means that, despite the progress made in the last few weeks, the parties will still be up against the clock to conclude anything before October 2018 – the date the EU President and President of the Commission have stated, on more than one occasion, is the latest that an agreement can be concluded in order for the EU institutions to have sufficient time to approve the withdrawal agreement before the end of the Article 50 notice period, in March 2019. That means there will be less than 10 months to negotiate it. Such a short period is unlikely to be sufficient to negotiate anything other than the skeleton of what a future trade deal can encompass.

The importance of this transition and framework agreement cannot be underestimated, not least because they might avoid the UK tumbling out of the EU and over the cliff-edge where it will only being able to rely on WTO rules for future trade with the EU. Nevertheless, the only certainty the EU Council’s decision brings is that the focus now will be on dealing with the detail of the divorce arrangements – all of the minor points that lie below the three key issues of money, treatment of EU nationals and Northern Ireland – and focusing on transition arrangements and some sort of framework for a future EU-UK relationships after Brexit. 

Whilst business will welcome the apparent acceptance that a transitional period – in which as little as possible changes from the current status quo – is sensible, the lack of certainty on how long the transition will apply will be of concern. Of even more concern is the uncertainty about whether there will be a comprehensive trade deal at the end of the transition, and what it will cover (or not cover). Although the risk of a no deal outcome remains, the likelihood of this applying on 30 March 2019 now looks diminished. 

Brexit: planning for the future as negotiations continue

We have created this Brexit blog to provide up to date analysis and legal commentary as the new Brexit landscape evolves, addressing key questions and topics of interest to our clients across the different industry sectors in which they operate.

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