Whilst we are in the midst of a UK election, it is worth remembering that the Brexit negotiations will be very significantly determined by the 27 member states of the EU.

The EU Council (all member states minus the UK) has recently agreed and published its negotiating principles for Brexit. So what does this tell us about how Brexit could pan out?

The good news is that there is some common ground with the UK position in Theresa May’s article 50 letter. Here is a comparison of the UK and EU opening positions for the negotiations.

Early agreement on citizens rights
Support NI peace process
Possibility of transitional arrangements
Ambitious free trade agreement
Negotiate trade agreement & ‘divorce’ in parallel
Continued single market benefits in specific sectors

Key general principles from the EU Council are:

  • No cherry picking of the four freedoms (for example, you can not have all the benefits of membership of the single market without free movement of people).
  • Nothing is agreed until everything is agreed.

Crucially the EU Council will pursue a two-phase approach to negotiations:

Phase 1: on citizens’ rights, disentangling the UK from the EU institutions and programmes, and settling the bill. This would include addressing contractual issues for businesses and those organisations participating in EU funded programmes; ensuring a border agreement that supports the Northern Ireland peace process; and areas of EU cooperation such as security and law enforcement. The EU Council will decide when enough progress has been made to move onto 2nd phase. A potential sticking point could be the EU requirement that the UK should pay all the costs of moving EU agencies currently located in the UK.

Phase 2: negotiating the future UK- EU relationship (including trade). The Council would seek a free trade agreement that is “balanced, ambitious and wide-ranging”. The Council is also clear that the future relationship (our trade deal with the EU) can only be finalised and concluded once the UK “has become a third country” – i.e. has left the EU (so after March 2019). However, the Council emphasises that “an overall understanding on the framework for the future relationship should be identified” during a second phase of the negotiations. This suggests that agreement on principles for a future relationship can be agreed before the UK leaves, but the detail will need to be finalised after the UK leaves. This does suggest that a ‘transitional’ period (when the UK would remain part of some aspects of the EU for 2 to 3 years to smooth the Brexit process) looks increasingly likely provided an agreement can be reached. Indeed, the Council explicitly states, “To the extent necessary and legally possible, the negotiations may also seek to determine transitional arrangements which are in the interest of the Union and, as appropriate, to provide for bridges towards the foreseeable framework for the future relationship in the light of the progress made.”

This is positive in that makes a transitional approach more likely, which should provide greater certainty and s a smoother planning for bsunesses and other organisations. This will depend upon the UK government agreeing the EU requirement that such a transitional period would “require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply” (i.e. we pay into the EU Budget and the ECJ may continue to have some jurisdiction in the UK during this period).

The Council has published a detailed negotiating directive on trade in goods; a further one will follow on services (which the financial services sector will want to study carefully…). On goods, the Council has helpfully stated that one of its initial aims is to “focus on ensuing products already placed in single market cam remain in single market after”.

One legal point worth bearing in mind, as it is relevant to VAT and other legal cases which may be underway already: the EU Council expressly states that “the ECJ should remain competent to adjudicate on any cases pending when UK leaves EU”.

Finally, it should be remembered that Brexit is not the top priority for the European Council. The Council expressly states, “The European Council remains committed to drive forward with ambition the priorities the Union has set itself. Negotiations with the United Kingdom will be kept separate from ongoing Union business, and shall not interfere with its progress.”