On 14th- 15th December, EU27 leaders will formally declare whether or not the UK and European Union have made “sufficient progress” on the three key withdrawal issues—the financial settlement, citizens’ rights, and Northern Ireland. This is set to be a pivotal moment in negotiations. All things going well, talks on the future relationship, including trade and transition, could begin in the New Year. But as we saw from yesterday's intense discussions in Brussels, most of the heavy lifting will need to be done in advance of the summit, with the EU calling for a joint agreement to be finalised this week.
In recent weeks, we have seen significant movement from the UK in order to ensure trade talks are green-lighted this month. In particular, the UK recently increased its financial settlement offer from the £18bn commitment presented in July by prime minister Theresa May. While no figures have been made public, the updated offer is estimated at around £40-50bn and would relate to the UK’s share of the multiannual budget until 2020, outstanding budgetary commitments undertaken during membership (known as reste à liquider); contingent liabilities; and pension payments. The new offer was approved by the British cabinet, on the condition that the EU agrees to progress negotiations in return.
This week also saw some progress on the issue of Northern Ireland, although a political breakthrough on this point has not yet been secured. Reports yesterday suggested that “In the absence of agreed solutions, the UK will ensure that there continues to be no regulatory divergence from those rules of the internal market and the customs union which, now or in the future, support North South cooperation and the protection of the Good Friday Agreement.” There were also suggestions that “no divergence” may have been amended to “continued regulatory alignment” in a subsequent draft of the agreement. This would theoretically provide the means for regulatory equivalence between Ireland and Northern Ireland in areas that relate specifically to the border and the scope of the Good Friday Agreement. However, agreement on this deal stalled yesterday, amid concerns from the Northern Irish Democratic Unionist Party (DUP)—the government’s confidence and supply partners—that it could lead to economic or political divergence between Northern Ireland and Great Britain.
On the third issue of citizens’ rights, there has been a lot of common ground between the UK and the EU. Some obstacles still remain—in particular over what body should supervise the final agreement. But the EU's initial suggestion that its court, the European Court of Justice (ECJ), should have extra-territorial jurisdiction over EU citizens in the UK appears rightly to have given way to suggestions of an “indirect” influence only—this would mean the UK Supreme Court remains the final arbiter of the agreement, but it can make reference to the ECJ on technical points.
The million-euro question is of course when “sufficient progress” will be reached so negotiations on trade and transition can be opened. "Sufficient progress" is an imprecise benchmark—it has few objective indicators, and will instead be a political decision taken by the EU27 leaders. Given the importance attached to EU27 unity, it will be taken by consensus—any individual country with reservations has the power to veto progress. This has emerged as particularly significant in light of tense discussions on the Irish border—will other member states stand steadfast behind Ireland if, as appears the case, issues on the money and citizens’ rights have largely been addressed?
"It is very difficult to see how the UK could return to the table for a third attempt at breakthrough"The European Parliament will play no formal role at this stage—although it will hold a non-binding vote next week on the state of progress. EU member states and the Commission will take note of any concerns the parliament voices, given it must ratify the final agreement at the end of the Article 50 process.
This next week will be crucial in opening the door to the second phase of negotiations. After the meeting between May and European Commission President Jean-Claude Juncker yesterday failed to produce a jointly agreed text, the path to “sufficient progress” at next week's summit is not secure. Importantly, if talks remain stalled next week, this will be perceived in the UK as a breakdown in negotiations. The UK and EU already failed to agree "sufficient progress" at the last Council summit it October. Further delays would erode the limited time left under the Article 50 two-year framework to agree both a transition and the heads of terms for a future bilateral arrangement. Above all, it would signal a lack of sufficient goodwill and trust between the UK and the EU. Under such circumstances, it would be very difficult to see how the UK could return to the table for a third attempt at breakthrough, and May would be under significant domestic pressure to walk away.
On the other hand, if trade talks are green-lighted, this will be an important step forward. According to the EU Commission’s timetable, this would allow preliminary discussions on the future relationship to begin in the New Year. Expect there to be some critical changes between the withdrawal talks and the second phase negotiations: discussions on the future relationship will touch on a much wider range of issues from trade to security, and aviation to energy. It will be interesting to see how the EU manages diverging member state interests in future talks—they have remained unified on issues of the financial settlement and citizens' rights, given interests were strongly aligned, but this is unlikely to be the case later on. The second phase of talks will also see more players involved on the UK side: the Department for Exiting the EU will shift from leading Brexit negotiations for the UK, to coordinating negotiating teams in other key departments, such as international trade and business.
Critical UK-EU discussions yesterday failed to deliver a concrete breakthrough, although Juncker suggested he was still "confident" of an agreement this week. The question of the Irish border has emerged as the central obstacle to progress. Yesterday’s tense discussions have seen this grow from a technical point on ensuring no hard border, to a political and constitutional issue for the UK and Ireland. It remains unclear at this stage what common ground can be found between the Irish government’s position and the DUP. Crucial meetings in London and Brussels in coming days should signal whether or not next week's summit will be the breakthrough moment both sides need it to be.
