Brexit Negotiations: As the First Phase Draws to a Close, the Next Phase Awaits

by Pillsbury Winthrop Shaw Pittman LLP
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The UK and the EU have published a joint report at the conclusion of the first phase of the UK’s Article 50 withdrawal negotiations.

Takeaways

  • Agreement has been reached in principle on three key issues: the rights of EU citizens in the UK, and of citizens in the EU; the financial settlement; and Northern Ireland. Progress has been made on “aspects of other separation issues.”
  • The negotiations can now move to the next phase which will cover the framework of the future UK/EU relationship including any agreement on transitional arrangements.

The negotiators of the UK and the EU have published their joint report at the conclusion of the first phase of the UK’s Article 50 withdrawal negotiations. The joint report, which was signed off on by UK Prime Minister Theresa May and European Commission president Jean-Claude Juncker, describes the “in principle” agreement reached on the whole package, rather than individual elements, but is subject to the caveat that “nothing is agreed until everything is agreed”, i.e., until the Withdrawal Agreement is signed and approved.

The “in principle” agreement on the key issues of the rights of citizens; the financial settlement; and Northern Ireland, is summarized below. The joint report also describes other components of the settlement, including:

  • the UK’s capital commitments and withdrawal of capital from the European Investment Bank;
  • the UK’s commitments for participating in the Facility for Refugees in Turkey;
  • continued participation by the UK, for the time-being, in the European Development Fund;
  • continuity in the availability of goods placed on the market under EU law before Brexit Day, i.e., continued free circulation on EU and UK markets with no need for product modifications or re-labelling;
  • Euratom-related (nuclear specific) issues; and
  • the UK Government’s offer to discuss facilitating the relocation, in particular as regards reducing the withdrawal costs, of EU agencies located in London (i.e., the European Banking Agency and the European Medicines Agency).

Citizens’ Rights

The joint report states that the Withdrawal Agreement will have, as its core objective, the notion that, having exercised free movement rights prior to Brexit Day, EU citizens living in the UK, and UK citizens living in the EU, should after Brexit Day receive reciprocal protection “to enable the effective exercise of rights derived from Union law and based on past life choices” which includes continuation of the current right to be joined by partners/family members for citizens resident in the EU/UK on Brexit Day.

The Withdrawal Agreement will provide for the legal effects of the citizens’ rights both in the UK and in the EU (including the ability to directly rely on those rights); further UK domestic legislation is to be enacted to this effect—the UK will bring forward the Withdrawal Agreement & Implementation Bill to specifically to implement the Withdrawal Agreement so as to give effect to the citizens’ rights in primary legislation. No such enactments will be needed in the EU27—the Withdrawal Agreement will be binding upon the EU institutions and the Member States from the time it comes into force under to Article 216(2) of the Treaty on the Functioning of the European Union of 2007.

Union law concepts relating to citizens’ rights are to be interpreted in line with EU case law up to Brexit Day; after Brexit the UK courts are to pay “due regard” to relevant decisions of the Court of Justice of the European Union (CJEU) and can also refer issues to the CJEU to help with their decision making for an eight-year period. Further details on citizens’ rights are set out in the joint report (some 36 paragraphs), and further details are to be thrashed out in the next round of negotiations for inclusion in the Withdrawal Agreement.

Financial Settlement

The UK will continue to pay into the EU budget for 2019 and 2020 on the exact same basis “as if it had remained” in the EU. In addition, the UK will “contribute its share of the financing” for EU liabilities incurred before the end of 2020 — these will fall due in decades to come. The joint report does not contain estimates or agreed numbers.

Northern Ireland

The joint report reaffirms the UK and the EU’s commitment to the Good Friday Agreement which “extends to the practical application of the … Agreement on the island of Ireland and to the totality of the relationships set out” there.

The UK’s guarantee that a hard border between Ireland and Northern Ireland is reaffirmed, including the establishment of physical infrastructure, and related checks and controls, as is recognition of Ireland’s ongoing membership of the EU, and of Northern Ireland’s place within the internal market of the UK, as the UK exits the EU Internal Market and Customs Union. Continuation of the Common Travel Area is also confirmed.

On the crucial border question, the joint report is breathtakingly light on detail. If it cannot be resolved through agreement on the future UK/EU relationship, the UK is to propose specific solutions. If specific solutions cannot be agreed, the UK is to “maintain full alignment with [the] rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the” Good Friday Agreement. In this scenario, the UK is to ensure there are “no new regulatory barriers” between Northern Ireland and the rest of the UK arise, providing Northern Irish economy with the same “unfettered access” to the UK’s internal market as it has currently. How this is to be achieved, whilst also “safeguard the integrity of the EU Internal Market and the Customs Union” is left for another day.

Euratom

The parties agreed to principles for the key separation issues around the UK’s withdrawal from Euratom. The agreement includes the UK being responsible for international nuclear safeguards in the UK and a commitment to a future regime that provides coverage and effectiveness equivalent to existing Euratom arrangements. There is also agreement on principles concerning the ownership of fissile material and responsibility for spent fuel and radioactive waste.

What happens next?

Commenting on the “in-principle” agreements reached, Donald Tusk, European Council president, noted there was now “less than a year” to negotiate transition arrangements and the future UK-EU relationship, suggesting that talks start “immediately” on negotiating a “2-year transition period” during which “the UK will respect the whole of EU law including new law”. EU27 leaders will now meet at the end-of-year summit being held in Brussels on 14-15 December to consider whether the progress made represents “sufficient progress” to start the second phase of negotiations. While the leaders will carefully consider the joint report, it would be highly unusual for them to do anything other than tinker around the edges, even if the joint report contains the caveat that “nothing is agreed until everything is agreed”.

Takeaways for Business

Business leaders can, perhaps, breathe a sigh of relief, as—at least for the time being—the signs seem quite positive that the dreaded “cliff edge” will be avoided and a withdrawal agreement agreed in the limited time available so as to enable an orderly transition. However, unless the Article 50 notice period is extended beyond the current Brexit Date (30 March 2019), UK and EU negotiators still have their work cut out to reach formal agreement and for that agreement to be ratified in the permitted time.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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