23 March 2018

The EU’s negotiating guidelines show the challenge the Prime Minister faces in achieving her Mansion House vision for post-Brexit trade, says Jill Rutter.

On Monday, David Davis and Michel Barnier unveiled a sea of green agreement on the legal text on withdrawal: the fruits of nine months of negotiation. But as Angela Merkel said last year, that was the easy part. The new guidelines agreed in a few minutes at today’s European Council reveals how far apart the EU and the UK remain on future trade – though suggest agreement should be easier on foreign and security policy.

Transition is not in the bag yet

Although the EU leaders welcomed the agreement on withdrawal, they added caveats, noting “negotiations can only progress as long as all commitments undertaken so far are respected in full”, referring to an acceptable way forward on the Irish border and Gibraltar. The text of that paragraph reiterates the warning about “nothing agreed until everything is agreed" – and the guidelines end by reminding everyone (including the EU’s High Representative on Foreign Affairs and Security Policy) they still need to “continue work on preparedness at all levels of the consequences of the UK withdrawal, taking into account all possible outcomes”.

The EU is in the market for a wide-ranging partnership

The EU and the UK are on the same page on the coverage of the new partnership, so here the Prime Minister’s Munich speech seems to have got some traction. Perhaps with minds concentrated on Russia and the US – two of the key external concerns we note in our recent paper  –  there is a lot of emphasis on strong cooperation on “terrorism, international crime, as well as security, defence and foreign policy”. But that looks a bit weaker than the 7 March draft, which spoke of ensuring no gap in EU-UK cooperation.

And there are more caveats. A Security of Information Agreement as a prerequisite of continued information exchange, and “strong safeguards to allow continued cooperation judicial cooperation between law enforcement agencies”. Foreign and security cooperation is one area where Michel Barnier signalled on Monday that he hoped for more rapid progress.

The guidelines also recognise the need for an agreement to allow transport links to continue and open the way for the UK to participate as a third country in research, education and cultural programmes. EU students like coming to the UK under the Erasmus exchange scheme, and many UK research establishments will be relieved if they can continue to access EU funding.

On trade, the EU takes a Canada-style deal as its starting point

The guidelines make clear that, in the view of the EU, the UK’s decision to leave the Single Market and the Customs Union means there will inevitably be frictions in trade. The only option on offer is a “balanced, ambitious and wide-ranging free trade agreement”, shutting the door on the Prime Minister’s call for creativity.

That said, the guidelines offer a deal with better access than any other EU FTA – but with more onerous conditions attached. The EU seems open to the UK being in the room in some EU agencies, even if it can’t vote. They are also prepared to seek to maintain zero tariffs on all goods – including agriculture with no quotas (though the language has rowed back from the initial draft). But that comes at the price of maintaining access to UK fisheries as now. This week’s reaction to a one-year extension of membership of the Common Fisheries Policy shows how politically difficult it will be for a Prime Minister dependent on the DUP and Scottish Conservatives for her majority.

For the rest, it’s free trade on EU terms. Customs cooperation, yes, but no interest in the UK’s new customs partnership put forward in August (taking one of the possible options for helping with the Irish border off the table). Disciplines on technical barriers to trade and sanitary and phytosanitary measures. A TTIP-like offer of voluntary regulatory cooperation.

There is no hint of the sort of deal the Chancellor was seeking on mutual recognition for either regulation or financial services. Likewise, nothing about an equivalence regime on data – therefore leaving all power in the EU’s hands. And a timely reminder that a free trade agreement will cover both access to public procurement markets (more French British passports) and aim to preserve geographical indications such as champagne (potential problems for a future trade deal with the US).

Migration is on the table for the negotiations

One interesting new flexibility is on future migration – perhaps reflecting pressure from member states whose nationals are still keen to move to the UK (or those still keen to attract British migrants). The Prime Minister put this on the table at Mansion House – and the EU has responded by saying it is interested in “ambitious provisions on movement of natural persons”. It will be interesting to see if the UK is prepared to offer a preferential scheme to EU migrants.

The EU is laying down a marker on a level playing field

The UK has focussed on what it can add to a Canada-style deal. But as became clear from the early EU negotiating team’s slides in January, the EU wants to add its own massive caveat: a set of level-playing-field provisions going well beyond anything in CETA because of the UK’s “geographic proximity and economic interdependence with the EU27”.

The EU 27 are looking for robust guarantees on “inter alia, competition and state aid, social, environmental and regulatory practices”. That requires a “combination of substantive” alignment with EU rules and international standards and a battery of implementation, enforcement and dispute settlement mechanisms – as well as the right of the EU to take “autonomous remedies” – which probably means unilateral action to reduce UK access to the Single Market. David Davis’ assurances that he has no interest in a “Mad Max dystopia” need to be translated into enforceable commitments.

This sounds like bad news for the UK. But it does offer a potential point of leverage. It suggests a clear recognition that the UK deal must break new ground. The question is whether the UK wants to – and can – extract any concessions in return.

Both sides will have to move to make any agreement possible

The UK needs to make the next move. The EU has been putting out legal texts, while ministers have been making speeches. The UK needs to start to table clear propositions to turn the rhetoric into concrete proposals. That is a precondition of progress.  But it will not be enough to bridge the gap.

The EU has signalled it can move if the UK position evolves – what might be regarded as a Corbyn clause. But the more immediate question is whether the Prime Minister, having taken months to construct the agreed position set out at Mansion House, can move her Cabinet beyond what Philip Hammond and David Lidington have called  the UK’s “opening bid”.

Further information

See our explainer on how the UK and EU negotiating positions compare.