Brexit Briefing No.23 – The Shape of the Future

The Michel Barnier-David Davis double act that dominated the end of last year has been missing so far in 2018.

In the second half of last year, the EU & UK negotiators met in Brussels at least once a month and followed those up with press conferences which drove the Brexit news agenda for much of the time.

In January there have been no set piece meetings between the two principals, but the Brexit talks have been continuing at a lower key level. Officials met last week to discuss technical issues from the phase one agreement, such as how to turn the language on the Irish border into legal reality. These are far from simple or unimportant issues.

Barnier Davis

There has also been speculation that the big show piece meetings between the two chief negotiators will no longer take place as they could sometimes have a negative impact on the talks and tended to dominate discussion, when in reality a lot of the practical work was going on in behind the scenes discussions.

However, the reality is there has been little point in the two Chiefs meeting because Mr Barnier is awaiting his formal instructions from the EU27. He can not conceivably negotiate without formal guidelines from the Council of Ministers and further guidelines on the transition period will be published on the 29th January.

However, these guidelines are unlikely to differ greatly from the provisional guidelines published in December. Instead, they are expected to spell out in more detail the precise manner in which the UK will have to follow all rules and regulations during that period, some details of which are already in the public domain, as discussed in last week's briefing: https://www.danieldaltonmep.co.uk/news/brexit-briefing-no22-eu-after-brexit.

Essentially for the duration of the transition the UK will have a similar relationship to the one Norway currently has with the EU. That involves adopting and following all EU law, with no say over those laws, but receiving full access to the single market in return. The EU will however demand that free movement continues for that expected period and this is likely to prove the most contentious issue politically in the UK.

Norway

Then, at the end of March, the EU27 are expected to reach agreement on their approach to the future relationship post-transition; that will be the single most important piece of paper the EU side has produced on Brexit and will shape the talks to come.

The EU has been talking tough in recent weeks on what to expect from that paper, that there can be no ‘special deal’ for the UK.

However that has always seemed unrealistic, given the UK is in an unprecedented situation vis-à-vis the EU, as a member leaving the bloc, a major European economy and significant defence partner, and that in recent history the EU has struck different deals with Norway, Switzerland and Ukraine. President Macron signalled in his interview with Andrew Marr on Sunday that a special way could be found, striking a compromise between complete access to the single market which involves following all its rules and the more restrictive and flexible access typical of normal trade agreements.

The UK’s approach to the future relationship has received less analysis. To date the UK government has made it clear that it is looking at a special partnership which involves a Canadian style free trade deal which includes services and possibly mutual recognition of standards.

City

However, financial services have always been the biggest stumbling block, mainly because of the huge size of London as a financial hub and the importance of it to both the UK and EU economies. For the EU, London represents the main source of funding and capital raising for EU businesses. Despite the rhetoric from Paris, the EU has little to gain in cutting itself off from this funding source.

A compromise has already been suggested that may allow UK financial services access to the single market but would involve the UK (or UK based financial institutions) to pay in some form for that access. Neither side has so far rejected these suggestions so this could be on the table.

However trade is only one part of the future relationship and so far neither side has talked much about the other aspects of the future relationship beyond trade.

For example, UK participation in EU research programmes is a pressing issue which hasn’t yet been formally discussed. However, non-EU countries such as Israel and Canada already participate in these research programmes so there is a high likelihood that an agreement can be reached.

In addition, the UK’s vital role in European defence and security necessitates a close relationship in a range of areas that go well beyond trade but also relate to it. The UK Prime Minister Theresa May is expected to re-emphasise the UK’s commitment to European security at the Munich security conference in February.

The UK has played an enormous role as a security guarantor in Europe over the last 70 years.

Typhoon

Coordination of security missions at an EU level has continued to grow over the last two decades despite UK misgivings. The UK has always preferred NATO as the vehicle of European security, but the Prime Minister will likely commit the UK to continued support for EU security missions even after we leave.

This in part is due to concern that the US will phase back its security commitments to Europe, which will increase the UK’s relative importance in guaranteeing security on the continent.

There is a suggestion that the UK could become a ‘permanent observer’ at the body which determines the EU’s common foreign policy, something which would be useful for both sides. The UK may also seek to enhance cooperation with the EU in areas where the US has less strategic interest in acting. The UK-France summit at Sandhurst last week showed the strong mutual interest in defence cooperation.

On the European Court of Justice there has already been pragmatism from both sides, with the phase one deal introducing a time-limited ability for UK courts to consult the ECJ on citizens’ rights issues whilst UK courts remain sovereign.

That compromise on citizens’ rights sets a precedent that could be repeated in other areas, such as aviation, chemicals and medicine, where an agreement for the ECJ and UK courts to continue to work together in dialogue on a limited number of cases could unlock significantly more access for the UK to EU areas of cooperation.

So in a raft of areas there is significantly more potential for accommodation beyond the respective positions which are repeated in the newspaper headlines. Reaching agreement will of course continue to require compromise, flexibility and goodwill from both sides, but despite the headlines, flexibility and goodwill do appear to exist.