Brexit is Finally Happening

By Kavaljit Singh | Commentary | December 12, 2017

After months of dilly-dallying on negotiating the Brexit deal, Britain is finally leaving the European Union. Last week, the UK and the European Union reached a deal on several contentious issues, thereby paving the way for Brexit negotiations to move on to a second phase. On December 8, 2017, British Prime Minister Theresa May and European Commission President Jean-Claude Juncker announced the “breakthrough” at an early morning press conference in Brussels.

In many important ways, the “breakthrough” has laid to rest all speculation that Brexit might never actually happen. The stalled Brexit talks had led to widespread speculation that Britain may never leave the EU. Many had feared a complete breakdown of relations between the UK and the European Union as talks faltered.

Even though this deal is not legally-binding on both parties, it has raised hopes of an orderly Brexit as discussions are now expected to move on to tougher issues such as on a transition period after Brexit or a future free trade agreement between the UK and the EU. The UK had triggered Article 50 of the Lisbon Treaty in March 2017 which means that it would leave the EU by March 2019 at the latest.

In the past eight months, very little progress was made in Brexit negotiations. Since the decision to leave the EU was made by the UK citizens, it was expected that the UK government will initiate negotiations to ensure a smooth and orderly Brexit. On its part, the EU refused to negotiate further on future trade relations with the UK unless three key issues – the rights of Union citizens in the UK, the Northern Irish border and the financial settlement – are first sorted out. “Before discussing our future, we must first sort out our past,” said Donald Tusk, the President of the European Council in April 2017.

It is now clear that the EU got its way in the first phase of Brexit negotiations despite initial tough talking from Prime Minister Theresa May and her cabinet colleagues.

Released on December 8, the 15-page Joint Report from the negotiators of the EU and the UK lists all the commitments made during the first phase of negotiations. This report will be put forward at meeting of the European Council taking place during December 14-15 at Brussels with the caveat that “nothing is agreed until everything is agreed.”

Citizens’ rights

Currently, there are 3.2 million EU citizens living in Britain and 1.2 million British citizens living in the 27 EU member-states. Hence, this is an important issue affecting a large number of citizens across the continent.

Under the agreement, both parties have agreed to a reciprocal deal under which EU citizens in the UK and UK citizens in the European bloc will have the rights to stay. Further, if an EU citizen is living legally in Britain before March 2019, the rights of his/her children and a wide range of other relatives will be guaranteed.

The UK courts will preside over enforcing rights over EU citizens in Britain but the European Court of Justice can rule on citizenship disputes involving EU citizens for eight years after Brexit.

The joint report says that administrative procedures for applications for status will be transparent, smooth and streamlined.

Both the UK and EU have agreed to offer equal treatment in social security, health care and other benefits. However, the issue of right to work and the recognition of qualifications in other EU countries is a complicated one and is likely to be addressed in the second phase of Brexit negotiations next year.

Irish border

Currently, there is no hard border between Northern Ireland and the Republic of Ireland. Such an arrangement is enshrined in the Good Friday or Belfast Agreement (10 April 1998) signed by the UK government, the Irish government and the other participants in the multi-party negotiations.

By upholding the Belfast Agreement, the deal between the UK and the EU ensures that there will be no hard border between Northern Ireland and the Republic of Ireland. In other words, the UK has committed to a soft Brexit. However, it is not yet clear how an open border will be actually achieved. Again, very little clarity is forthcoming on this important issue.

The deal says that the “United Kingdom will ensure that no new regulatory barriers develop between Northern Ireland and the rest of the United Kingdom, unless, consistent with the 1998 Agreement, the Northern Ireland Executive and Assembly agree that distinct arrangements are appropriate for Northern Ireland. In all circumstances, the United Kingdom will continue to ensure the same unfettered access for Northern Ireland’s businesses to the whole of the United Kingdom internal market.”

Divorce Bill

In the joint report, there is no mention of exact amount to be paid by the UK for leaving the European bloc. However, the report says that both parties have agreed a methodology for the financial settlement. This methodology consists of:

  • a list of components;
  • a set of principles for calculating the value of the financial settlement and payment modalities;
  • arrangements for continued participation of the UK in the programmes of the current Multiannual Financial Framework (MFF) until their closure; and
  • financial and related arrangements for the European Investment Bank, the European Central Bank, European Union trust funds, the Facility for Refugees in Turkey, Council agencies and also the European Development Fund.

The financial settlement will be prepared and paid in Euro. It is estimated that the total financial settlement amount would be in the range of €40 to 45 billion. In the words of Theresa May, “We have now agreed a settlement that is fair to the British taxpayer…We will be able to invest more in our priorities at home, such as housing, schools and the NHS.” This is a major breakthrough as Prime Minister May and her cabinet colleagues were not willing to such a higher amount a few weeks ago.

So what comes next?

All eyes are now on the forthcoming European Council meeting to be held in Brussels on December 14-15, 2017. If the EU Leaders endorse the broad outlines of the first phase deal at this meeting, then both parties can begin negotiations on a free trade and investment agreement in the second phase of talks. That would be a challenging task for both parties and may require flexibility given the Brexit deadline of March 2019 is fast approaching. There has been little clarity on the part of the UK government on what kind of future trade and investment deals it wants with the EU and other trading partners.

A wide range of regulatory and legal issues will need to be addressed in the second phase of Brexit talks. Given the UK’s relative lack of experienced trade negotiators and specialists in negotiating complex trade and investment agreements, it remains to be seen how the UK will engage with the EU (and other trading partners) on such agreements. Depending on mutual trust and understanding, a transition deal along with a framework agreement could be worked out in 2018.

What if the next phase of talks hit the rocks? Then a crash-out could not be ruled out.

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