Monsieur Barnier was is Hanover last Monday and he gave a speech at the 8th EU Policy Reception: How hard will Brexit be for industry?. A transcript appears on the Commission's website (see Speech by Michel Barnier at Hannover Messe23 April 2018). In it, he sketched out the sort of trade relationship that he hopes to negotiate with the British government but he also warned of the difficulties that could destroy the progress that has already been made and that "companies must waste no time, and prepare for all scenarios now" including a disorderly Brexit.
The vision that he sketched out would suit most people in the United Kingdom very well:
"Even with the UK's current red lines, our intention is to reach an ambitious and wide-ranging free trade agreement with:
Zero tariffs and no quantitative restrictions on goods;
Customs cooperation to facilitate goods crossing the border;
Rules to limit technical barriers to trade and protect food safety [sanitary and phytosanitary measures];
A framework for voluntary regulatory cooperation to encourage convergence of rules;
An open market for services, where companies from the other party have the right of establishment and market access to provide services under host state rules – I repeat, under host state rules;
Access to public procurement markets, investments and protection of intellectual property rights."
The future relationship could even extend to such fields as coordination of social security and the recognition of professional qualifications, air transport, and participation by the UK in programmes in the field of research and innovation, where participation of third countries is allowed.
However, such a relationship will be possible only if there is an agreement on the terms of the UK's withdrawal from the EU. Monsieur Barnier noted that there had been a lot of progress in the negotiations of those terms but nothing is agreed until everything is agreed. There are plenty of potential stumbling blocks such as the border between the Irish Republic and Northern Ireland and the governance of the withdrawal agreement.
During the referendum campaign and at various times since, proponents of British withdrawal have argued that our market is so important to German car makers, Italian white goods manufacturers and French farmers that they will force their governments to make concessions. Monsieur Barnier gave two reasons why that is unlikely in his speech. First, the trade of the remaining member states with UK may be big but but not all that big:
"Let me remind you that, for the EU27 today, 6% of trade in goods is with the UK, while 60 % of this trade is inside the EU27 Single Market. Ten times as much!"
Secondly, the single market and the principles on which it is founded matter more to the remaining member states than trade with the UK. Professor Grey suggested a possible third in Business gets vocal about Brexit12 April 2018 The Brexit Blog. If the supposedly pro-business government of the UK refuses to pay heed to business interests in its own country, why should the Commission that represents the whole EU be any more inclined to listen to the voices of business leaders of individual member states?
We may get a 20 month implementation period to allow the UK to adjust to its new status in accordance with the draft withdrawal agreement (see The Draft Withdrawal Agreement: Getting Down to Business at Last3 March 2018) but then again we may not. My advice to British business is the same as Monsieur Barnier's in Hanover. Hope for the best but prepare for the worst.
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Although nothing is agreed until everything is agreed and there are still a number of issues such as the border between Northern Ireland and the Republic of Ireland where the parties are as far apart as ever, March has been a quiet month in the Brexit negotiations. Contrary to initial indications, British negotiators were able to reach agreement with the Commission on many of the provisions of the draft withdrawal treaty. The other important development is that both the European Council and the Parliament have published guidelines for negotiations on the UK's future relationship with the EU.
In order to understand the significance of the draft treaty and the Council and Parliament's guidelines, it should be remembered that art 50 (2) of the Treaty of European Union requires the European Union to negotiate and conclude an agreement with a withdrawing state, setting out the arrangements for its withdrawal and taking account of the framework for its future relationship with the EU. The document published on 19 March 2018 is a draft of the agreement contemplated by art 50 (2). It covers the matters that were negotiated before Christmas, namely citizens' rights, the Irish border and the UK's financial contribution. It provides for a transitional or implementation period between 29 March 2019 and 31 Dec 2020 when the UK will cease to be a member of the EU but will continue to be bound by EU law. It makes arrangements for all kinds of matters from the protection of personal data to Community designs and EU trade marks. But it does not (and is not intended to) provide for the UK's relationship with the EU from 1 Jan 2021 though, of course. it is supposed to take account of it.
The draft agreement has attracted some criticism in the UK, especially for its Protocol on Ireland and Northern Ireland and the continuation of the common fisheries policy in British waters after 29 March 2019. Consequently, it is not a foregone conclusion that it will be signed. If the agreement is not signed, art 50 (3) makes clear that the EU treaties simply cease to apply to the UK on 29 March 2019 without anything taking their place. Despite the assurances that the government has given to businesses about a period of stability after the UK leaves the EU, my advice is to keep planning for the worst - that is to say, no agreement on anything after Brexit day - while, of course, hoping for the best - namely a withdrawal agreement substantially on the terms of the 19 March draft.
In the hope that we will conclude a withdrawal agreement in accordance with art 50 (2) the European Council which represents the 27 remaining member states published Guidelines for the negotiation of the future relationship between the UK and the EU on 23 March 2018. Paragraph 8 of those Guidelines states:
"As regards the core of the economic relationship, the European Council confirms its readiness to initiate work towards a balanced, ambitious and wide-ranging free trade agreement (FTA) insofar as there are sufficient guarantees for a level playing field. This agreement will be finalised and concluded once the UK is no longer a Member State. Such an agreement cannot however offer the same benefits as Membership and cannot amount to participation in the Single Market or parts thereof. This agreement would address:
i) trade in goods, with the aim of covering all sectors and seeking to maintain zero tariffs and no quantitative restrictions with appropriate accompanying rules of origin. In the overall context of the FTA, 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 (TBT) and sanitary and phytosanitary (SPS) measures;
iv) a framework for voluntary regulatory cooperation;
v) 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;
vi) access to public procurement markets, investments and protection of intellectual property rights, including geographical indications, and other areas of interest to the Union."
Other paragraphs cover continued cooperation in other areas such as law enforcement and security.
Over the last few months I have been focusing on the negotiations between the British government and the Commission and overlooked the European Parliament's role in the negotiations. I was reminded that the European Parliament's view matters by the Bar Council's representative in Brussels in the 141st Brussels News newsletter which was published yesterday. Under the heading "Why does the EP’s view matter?" the newsletter explains:
"The EP has a central role to play in the negotiations and how they turn out. Not only is its 6-member Brexit Steering Group in constant contact and influential with the Commission’s Task Force 50 (TF50), led by Mr Barnier, but the EP’s consent will be required for the final package: the Withdrawal Agreement (WA), including the transition period and the framework for the Future Relationship (FR). Indeed, leaving enough time for the EP to consider and vote on that package is one of the reasons the deal needs to be finalised by October of this year. Moreover, the EP’s formal consent is almost certainly going to be required, in accordance with the relevant Treaty articles (cited above), (cited above), to the detailed terms of the Future Relationship, whatever form it takes, (cited above), to the detailed terms of the Future Relationship, whatever form it takes, if and when we get that far."
Incidentally, the author adds:
"One should also not forget its potential influence on content: the EP sees itself as guardian of citizen’s rights, SMEs, consumers – basically any group that needs defending. Its presence in the negotiations therefore serves as a balance to big business interests that might otherwise dominate."
That short passage contains the answer to those who argue that the British market is so important to German car and Italian white goods manufacturers and French farmers that our negotiators can afford to play hard ball in order to pick some cherries or eat some cake. We may still be the 6th largest economy running a massive trade deficit with the 27 remaining member states but compared to those 27 the world's 6th largest economy is not all that big. In any case, there are interests to be considered other than those of big business.
foreign policy, security cooperation and development cooperation,
internal security, and
thematic cooperation.
On the first of those pillars, the European Parliament reiterates that continued membership of the single market and customs union would be the best option for both sides but, if that is not possible, it suggests at paragraph 14 an agreement based on the following principles:
"the level of access to the EU market must correspond to the degree of continued convergence with and alignment to EU technical standards and rules, with no provision for any sector-by-sector approach and preserving the integrity of the internal market,
the EU’s autonomy in setting EU law and standards must be guaranteed, as well as the role of the CJEU as the sole interpreter of EU law,
a level playing field is ensured and EU standards are safeguarded to avoid a race to the bottom and prevent regulatory arbitrage by market operators,
rules of origin are to be based on EU standard preferential rules and the interests of EU producers,
reciprocal market access must be negotiated in full compliance with World Trade Organisation (WTO) rules, including for goods, services, public procurement and – where relevant – foreign direct investment, and all modes of supply of services, including commitments on the movement of natural persons across borders (mode 4), and be regulated in full compliance with EU rules in relation to equal treatment principles, especially for workers,
regulatory cooperation should be negotiated, with a specific focus on SMEs, mindful of the voluntary nature of regulatory cooperation and the right to regulate in the public interest, while recalling that provisions on regulatory cooperation in a trade agreement cannot fully replicate the same frictionless trade as provided for by membership of the internal market."
As for services paragraph 16 underlines that under a free trade agreement ("FTA"). market access for services is limited and always subject to exclusions, reservations and exceptions. Paragraph 17 add that:
"..... leaving the internal market would lead to the UK losing both passporting rights for financial services and the possibility of opening branches in the EU subject to UK supervision; recalls that EU legislation provides for the possibility, in some areas, to consider third-country rules as equivalent based on a proportional and risk-based approach, and notes the ongoing legislative work and upcoming Commission proposals in this area; stresses that decisions on equivalence are always of a unilateral nature; stresses also that in order to safeguard financial stability and ensure full compliance with the EU regulatory regime and standards and their application, prudential carve-out and limitations in the cross-border provisions of financial services are a customary feature of FTAs."
Changing the subject dramatically, very little has been said about the Unified Patent Court Agreement o unitary patent up to now and I take that as a good sign. In One Year to Brexit - Are Rumours of the Death of the Unified Patent Court Agreement Greatly Exaggerated?29 March 2018 NIPC Law I noted that all the legislative hurdles to British ratification have been cleared. Also, there is only the challenge to the constitutionality and a motion in the federal parliament to rescind the ratification bills that have previously been passed that is delaying German ratification. It is still just possible that the UPC and unitary patent before 31 Dec 2020 if not 29 March 2019.
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