Cascade Commentary

Brexit divorce agreement reaches important milestone

The UK Prime Minister Theresa May and Jean-Claude Juncker, the European Commission President, announced a breakthrough in the Brexit negotiations on 8 December 2017, jointly presenting terms agreed in principle in the three key areas, explained as follows.

Protecting the rights of European Union citizens in the UK and UK citizens in the European Union

The deal presented outlines the intention to grant the right for European Union (EU) citizens living in the UK under current EU law to claim permanent residency through a "transparent, smooth and streamlined" process. The right includes access to benefits and shall be enshrined in UK law. UK citizens legally residing in an EU27 Member State will also be granted similar protections allowing the right to claim permanent residency with access to benefits post-Brexit. It was outlined that the EU has refused to grant UK nationals the automatic right to move to another EU27 Member state retaining all the same rights but this is likely to be revisited in Phase 2 of the negotiations.

An agreement in principle on citizens rights marks a big breakthrough for both sides with a mutually-agreeable solution being reached. Brussels had previously demanded that the rights of EU nationals living in the UK should be protected by the European Court of Justice (ECJ), something firmly opposed by the UK who insisted that it would be UK courts that would decide UK law after the separation. It has been agreed that the UK's Supreme Court will refer to the ECJ where deemed appropriate but that such referrals will end after eight years however British courts must continue to "pay due regard" to EU case law indefinitely. The UK has also negotiated the right for systematic criminal checks. 

The framework for addressing the unique circumstances in Northern Ireland

While an agreement for the Northern Ireland and Republic of Ireland border has not yet been agreed, May and Juncker presented a framework that will be followed to ensure a hard border between the two countries can be avoided. Essentially, if the EU and UK are unable to reach agreement on either a future free trade deal or the future of the island of Ireland then a fallback provision will be enacted to ensure "full alignment" in regulations between Northern Ireland and the EU's single market and customs union. Democratic Union Party Leader Arlene Foster held a tense call with Theresa May insisting that she was dissatisfied with what has been outlined, requesting further information on what "full alignment" really means. Theresa May has indicated that unless a deal was reached on 8 December 2017, there would not be time for a breakthrough at future meetings of the European Council. 

The financial settlement

After much negotiation, it has been agreed in principle that the UK will continue to pay into the EU budget for 2019 and 2020 (expected to total in net between €40 billion and €45 billion) while also "contributing its share of the financing" for EU liabilities incurred prior to 2020. This could take decades to complete, with EU pension costs expected to form part of the liabilities agreed. The UK has been able to protect its future interests somewhat by guaranteeing that the EU will not adjust its calculations for the UK's share of both the EU budget and liabilities once the UK is no longer at the EU table. 

Phase 2 - Negotiating the UK and EU Trade Relationship Post-Brexit

Agreement on the above provides a conclusion to Phase 1 of the negotiations, opening the way for the beginning of Phase 2. In the aftermath of the announcement on 8 December 2017, Michel Barnier announced that talks would not begin until February or March 2018 detailing that the UK is yet to be clear on its aims. 

Prime Minister May and her cabinet are expected to draft the “end state” of the UK’s trade relationship with the EU before Christmas. This in itself is anticipated to be a difficult process due to divisions within the Conservative party over the best way forward. On the one hand, Chancellor Philip Hammond and others are calling for the UK to follow the EU regulatory framework closely to allow for maximum access to the single market. On the other hand, Foreign Secretary Boris Johnson and fellow Brexiters are seeking a looser relationship. 

The divorce negotiations remain a work in progress. We will be sure to keep you updated as we learn more.

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