Today Donald Tusk, the President of the European Council, published the draft EU guidelines for negotiating Brexit with the UK. This sets out the broad process and priorities for the negotiations. This is now being discussed with the 27 member states and will be finalised at a meeting of heads of state at the end of April – so what follows is an assessment of the proposed EU negotiating position (not the final, agreed position).

This sets out some common ground with the UK government but also some areas of conflict. The common ground is on:

  • Need for early agreement on citizens’ rights (the rights of EU citizens in the UK and UK citizens in the EU)

  • Need to agree on an approach that supports Northern Ireland peace process

  • Importance of certainty and clarity for businesses and citizens

  • Desire for an ambitious free trade agreement

  • Possibility of transitional arrangements after UK leaves the EU

Where they differ is on:

  • Timing of negotiating the future trade relationship – the EU sees this as ‘phase 2’ after the ‘divorce agreement’ issues have been resolved

  • The nature of a free trade agreement: the EU rules out individual sectors retaining the benefits of single market membership. (NB for financial services that would seem to suggest full passporting may be unlikely)

And where they may be some difficulty for the UK is the EU’s proposal that any transitional arrangements will require existing Union regulatory, budgetary, supervisory and enforcement instruments and structures to apply (eg the UK would still pay a contribution to the EU Budget during such a period).

What this suggests is that the next 6 months at least will be taken up with negotiating the ‘divorce settlement’. Little progress will be made on trade and customs until after that. And if the UK haggles over the divorce bill then there will be less time to negotiate the trade relationship. That leaves a year (at most) to negotiate the trade agreement. That would be the fastest trade negotiations ever – and is unlikely to be enough time to finalise a deal.

Transitional arrangements seem inevitable – provided euro-sceptics in the UK media and Parliament allow the government to agree continued payments to the EU budget and a role for EU institutions in the UK for a time after we have left the EU. If they are serious about giving business certainty and an orderly Brexit then this is a pill they will have to swallow.