2018 will be crunch time for Brexit negotiations

The chessboard is being set for round two of Brexit negotiations. 2018 will be make-or-break time for the United Kingdom’s (UK) post-Brexit relationship with the European Union (EU).

Following European leaders’ decision at December’s European Council Summit that ‘sufficient progress’ had been reached on the three cornerstones of any future relationship with the UK - financial commitments, citizens’ rights and on Northern Ireland - EU diplomats have been working to formalize the Phase 1 withdrawal agreement. For the EU-side, the aim is to legally bind the UK to the commitments it promised to reach for ‘sufficient progress’ and prevent any backsliding by the UK on key issues such as workers’ rights or its commitment to pay its share of the EU’s multiannual budget. UK negotiators, meanwhile, are looking to begin the formal negotiations on a transition period and future trade relations with the bloc.

Negotiating directives to set out Phase 2

EU27 Ministers for European Affairs are expected to adopt a new set of negotiating directives for the Phase 2 of Brexit negotiations at their next meeting, which will in particular set out the bloc’s position on a potential transition period. According to statements made by EU Chief negotiator Michel Barnier, such a transition period could last until 31 December 2020 in order to correspond to the end of the EU’s current budget.

Specifically, in order for Mr. Barnier to agree to any transition period, the directives should require that:

  • the transition period will cover the EU’s acquis
  • the UK will no longer participate in the decision-making procedures of the EU institutions
  • the transitional arrangements must be clearly defined and precisely limited in time
  • all existing EU regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures will also apply, including the competence of the Court of Justice of the European Union

In short, for the EU to agree to any transition period following the Brexit deadline on 29 March 2019, the UK will have to commit to continue accepting all existing legislation, transpose new legislation into UK law and accept the supremacy of the European Court of Justice; all without having a say in the drafting of the rules.

Norway-style agreement or Canada-style Free Trade Agreement

A key factor for the upcoming Phase 2 negotiations will be the eventual trade and partnership relationship the UK will be seeking with the EU. As the UK’s position on its post-Brexit global trade ambitions are somewhat contradictory, it remains one of the key unknowns for 2018. The UK continues to stress its plans to continue a trading relationship as close to the status quo as possible, especially one which ensures full access rights to the EU’s Single Market by London-based financial firms. However, according to an analysis by the European Commission, the UK’s red lines such as restrictions on the EU’s four freedoms and an independent trade policy, are incompatible with existing non-EU Single Market access schemes such as a Norway-style agreement.

Brexit Process

Should the UK stick to its red lines, EU diplomats warn that the only remaining solution lies in a Canada style free trade agreement. The comprehensive and economic trade agreement (CETA) is, so far, the most comprehensive and ambitious agreement the EU has reached with any third country. However, it, in no way, is comparable with full market access.

Potential Brexit lifelines? From Article 49 to a new referendum

While the UK government continues to stress that “Brexit means Brexit” and that the UK was to leave the EU’s Single Market and Customs Union, in recent weeks several political heavyweights offered the potential for Brexit lifelines. While former UKIP leader Nigel Farage, in an interview on UK television, floated the potential for a second referendum on 11 January, European Council President Donald Tusk reiterated that it was not too late for the UK to reverse its decision. At January’s European Parliament Plenary in Strasbourg, European Commission President Jean-Claude Junker even went as far as suggesting that the UK could rejoin the Union under Article 49 of the Treaty of Lisbon.

In any case, should the UK continue on its path to Brexit, EU and UK negotiators have to maximize the limited time at hand. Negotiators expect that, in order to prevent a cliff edge and massive disruption to businesses and citizens, a final, or near-final, deal has to be ready by the autumn of 2018 in order to give sufficient scrutiny time to the European Parliament and Council. 

"European policy affects everything we do. I strive to help our clients understand the complex world of European policymaking and make the well-informed decisions they need to advance their business."
Pascal König
Junior Consultant