Unpicking the EU negotiations

Author

David Roberts, Invest NI Economist
Mar 15, 2018

There have been a number of significant developments in recent weeks in the complex process of the UK leaving the EU.

Phase 1 (‘the divorce’)

The European Commission recently published a draft Withdrawal Agreement.

Since the document was published, much of the focus has been on the three options for dealing with the Irish border.

  • Option A – a deep trade agreement allowing frictionless trade so a hard border will not be needed. (Preferred solution of the UK Government.)
  • Option B – use of new technologies and exemptions if Option A does not work.
  • Option C – Northern Ireland remains aligned with the rules of the customs union and the single market in order to avoid a hard border. (This is the fallback option if Options A and B aren’t agreed/don’t work.)

The draft Withdrawal Agreement focuses on Option C. The Prime Minister’s initial response was to reject this option. The onus is now on the UK Government to submit detailed proposals for the other two options for the EU27 to consider. This issue will continue to be a key feature of the negotiations over the remainder of 2018.

Phase 2 (Transition)

The EU’s proposals on a transition phase envisage standstill arrangements in most areas after the UK formally exits the EU in March 2019. This means that the UK will remain in the customs union/single market and will continue to be subject to EU rules and regulations e.g. state aid. This approach has been largely accepted by the UK Government in its draft response.

The transition phase is proposed by the EU27 to end in December 2020. The UK Government would like to discuss a more flexible end date for the transition phase, depending on how well developed the future relationship is.

Phase 3 (Future Relationship)

The new relationship between the UK and the EU is not expected to begin until January 2021 at the earliest. So far, there has been only preliminary discussions on what this future relationship will look like.

To date, the UK Government’s position has been set out in series of high level position papers and speeches. The latest thinking envisages that economic activity between the UK and the EU would be divided into three baskets:

EU would be divided into three baskets

Further insight was provided by the Prime Minister in her Mansion House speech on 02 March. The speech recognised that some trade-offs were inevitable.

The UK Government’s ‘red lines’ have not changed and the intention to leave the Single Market and the Customs Union was re-affirmed. In response the EU27 expressed concern over the lack of detail in the UK’s proposals and a commitment to prevent the UK ‘cherry picking’ benefits of EU membership for specific sectors without the obligations of being an EU member.

The European Council (EC) draft guidelines provided further insight into the EU27’s perspective on the future relationship. Tariff free access to the EU market would be good news for Northern Ireland goods exporters, although if Northern Ireland is outside of a Customs Union, Rules of Origin and other requirements will still come into play.

The EC reiterated that the UK, as a non-member of the EU, cannot have the same rights and benefits as a member of the EU. However, the guidelines did leave the door open to the EU allowing better market access if the UK changed some its ‘red lines’. It is worth noting that the negotiations are only really commencing in earnest and there is a lot of scope for positions to change.

Looking ahead, it seems clear that only an initial framework on the future relationship will be able to be agreed prior to the formal UK exit from the EU in March 2019.

A comprehensive free trade agreement will take much longer to negotiate and finalise. All eyes will now be on the EU Council meeting on 22/23 March to see where the process goes next.

Further information

Think Ahead - Helping your business mitigate the risks and maximise the opportunities of Brexit

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