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09 March 2018 EU27 release draft Brexit negotiating guidelines On 7 March 2018, the Council of the European Union (EU), representing the EU27 Member States (EU27), published draft guidelines relating to the EU's negotiating position on the framework for the future relationship between the United Kingdom (UK) and the EU following Brexit. This follows on from the speech on 2 March 2018 by the UK Prime Minister, Theresa May.1 The guidelines are still draft and could change in the run-up to the European Council summit on 22 and 23 March. On first reading, while they propose what would be an ambitious trade deal, they appear to give little support for the ideas and proposals raised by Prime Minister May in her speech. Nor do the guidelines make any specific reference to the question of financial services – a subject covered by the UK Chancellor of the Exchequer, Philip Hammond, in a separate speech also on 7 March. In that speech, he sought to show why financial services could and should be part of a free trade agreement (FTA). Perhaps most starkly, he suggested that "given the shape of the British economy, and our trade balance with the EU27, it is hard to see how any deal that did not include services could look like a fair and balanced settlement." However, the language used in the EU guidelines is loose in places and that may allow for positive negotiation to strike the "new balance" sought by the UK. Indeed, the absence of specific references in the guidelines to areas such as financial services may be a positive step, if it allows room for discussion. The UK sees the EU guidelines as the start of negotiations; the unknown element is what sort of deal, if any, might be achieved. With respect to the core of the economic relationship, the European guidelines put forward the outline of an FTA, to be finalized and concluded once the UK is no longer a Member State. Items that the guidelines suggest the agreement would address, include: i) Trade in goods, with the aim of covering all sectors, which should be subject to zero tariffs and no quantitative restrictions with appropriate accompanying rules of origin. In this context, existing reciprocal access to fishing waters and resources should be maintained. ii) Appropriate customs cooperation, preserving the regulatory and jurisdictional autonomy of the parties and the integrity of the EU Customs Union. iii) Disciplines on technical barriers to trade and sanitary and phytosanitary standards (SPS), as well as a framework for voluntary regulatory cooperation. iv) Trade in services, with the aim of allowing market access to provide services under host state rules, including as regards right of establishment for providers, to an extent consistent with the fact that the UK will become a third country and the Union and the UK will no longer share a common regulatory, supervisory, enforcement and judiciary framework. The FTA should include ambitious provisions on movement of natural persons as well as a framework for the recognition of professional qualifications. v) Other areas of interest to the EU, for example access to public procurement markets, investments and protection of intellectual property rights, including geographical indications. The guidelines envisage an air transport agreement, combined with an aviation safety agreement, as well as participation by the UK in certain EU programs, e.g., research and innovation, education and culture, subject to relevant (financial) conditions. The guidelines do not however cover all areas and there are no references to areas such as broadcasting or financial services. The guidelines restate the EU27's position that such an agreement cannot offer the same benefits as Membership of the EU and cannot amount to participation in the Single Market or parts thereof. They also reiterate that the EU will preserve its autonomy on its decision-making, which excludes participation of the UK as a third-country in EU institutions, agencies or bodies and say that the role of the Court of Justice of the European Union will also be fully respected. More specifically, the guidelines say the FTA must include robust guarantees which ensure a level playing field. The aim for the EU is to prevent an unfair competitive advantage that the UK could enjoy through the undercutting of current levels of protection with respect to competition and State aid, tax, social, environment and regulatory measures and practices. The guidelines suggest that this will require a combination of substantive rules aligned with EU and international standards, along with adequate enforcement and dispute settlement mechanisms. This is along the lines proposed by the European Commission in its presentation of 25 January 2018.2 The guidelines noted that the EU may have its own autonomous remedies (an example of which might be the EU "tax blacklist" for uncooperative tax jurisdictions). The inclusion of items in the guidelines that the EU27 want from a "deal" (such as fishing access) has given commentators some hope that there is a deal to be done on the long-term FTA. In the more immediate future, following the output of the European Council summit of 22-23 March on any transitional deal running up to December 2020 or March 2021, businesses will face a critical choice:
This is a significant decision. Businesses will need to interpret whatever comes out of the Council meeting, apply that to their existing plans, and reach a decision in their Brexit steering committee as to the strategy going forward. The lead times needed for a number of key actions mean that, with only one year to go to March 2019, doing nothing may itself be making a choice. 1 See EY Global Tax Alert, UK and EU put forward proposals prior to critical March European Council meeting, dated 5 March 2018. 2 See EY Global Tax Alert, EU27 develops its approach to post-Brexit arrangements, dated 5 February 2018.
Document ID: 2018-5389 |
