On 30 March 2017, the President of the European Council published draft guidelines for the negotiation that follows from the UK’s Article 50 notification. It is important to remember that this is just a first draft, and there are many steps still to take before the EU27’s position is formalised, and that the EU27’s position will evolve over time. However, it was an important moment. This note should help businesses understand the key issues of economic interest in the draft guidelines.
From the principles for negotiation in this draft and those of the UK government, it seems there is alignment on both sides of the table on a number of issues include the rights of UK citizens in the EU and EU citizens in the UK, the need for a smooth and orderly exit, and the importance of the UK-Irish relationship. And while there is much to welcome, there are some challenges around the process of the negotiation which business will want to see rapid progress on. This is now the moment for businesses in the UK and Europe to make the case for a comprehensive new economic partnership.
There are early signs that we’re on the path towards a good deal
There are many signals businesses will find reassuring throughout this draft – particularly in terms of the desire to minimise disruption for businesses, and the importance of avoiding a “legal vacuum” for businesses both in the UK and the EU. Representatives from a number of European institutions have supported the principle of a smooth and orderly exit, which UK businesses will find heartening, as clarity and continuity on rules will be vital for business planning and investment. This intention is one which must last the length of the negotiating process.
One of the clearest indications of shared interest between the UK and EU’s separate initial positioning is that of rights to remain for citizens. This draft makes clear that certainty for UK citizens in the EU and EU citizens in the UK are a priority for negotiation, as part of the withdrawal agreement. Business will be pleased that the issue is highlighted. However, the draft states “nothing is agreed until everything is agreed”. This is an urgent matter, affecting employees, colleagues and friends. The CBI will continue to make the case that certainty should be offered to these people in a matter of weeks, not months
It is also encouraging that the draft dedicates a section to the importance of the UK-Irish relationship, suggesting that “flexible and imaginative solutions” will be required to avoid a hard border, but that Europe is committed to finding those solutions. The scale of integration between the Republic of Ireland, Northern Ireland and Britain cannot be underestimated, and barriers to that integration must be avoided.
Business will not be surprised that there are still some challenges to work through
It will be important that talks on this free trade agreement begin without delay. UK businesses believe that discussions on new trading arrangements should go hand-in-hand with negotiating the UK’s exit from the EU. This draft suggests that talks on trade will not happen until “sufficient progress has been made” towards the withdrawal agreement, particularly on citizens’ rights and the “Brexit bill”. The Council President indicated verbally that negotiations on trade may begin in the Autumn and – while business has been resilient thus far – the next six months will be vital. Businesses will want to see good signs of momentum, and be reassured that trade negotiations will begin as soon as possible.
One of the most challenging aspects of this draft for business is the statement that a free trade agreement will only be concluded once UK is no longer member state. Companies understand that a deep and comprehensive trade agreement may take some time to negotiate. The priority for business is that there are appropriate arrangements in place to avoid a “cliff-edge” where the UK trades with the EU under WTO rules alone. This would open a “Pandora’s Box” of complications for companies on both sides of the Channel. That makes early agreement of transitional arrangements an absolute necessity.
This draft does state that the European Council would be open to discussion of transitional arrangements “to provide bridges towards the foreseeable framework for the future relationship”. Early agreement to the principle of transitional arrangements will be most welcome. It will be important that an “implementation phase” is provided for businesses and regulators to make any changes required. But agreement on transitional arrangements should also include provisions for a temporary interim arrangement should no deal be finalised by the time the UK leaves the EU to provide businesses with stability. The CBI will continue to explain the need for temporary interim arrangements to both UK and EU policymakers.
It is in all our interests for European businesses and policy makers to come together
This is a first draft of the European Union’s opening negotiating position, and it is important to remember that as the context for today’s publication. The next month will see the evolution of this position, and the EU Parliament will also set out its own position, National Government Sherpas meet, EU ambassadors meet and finally the EU27 will meet at a summit in Brussels on April 29th. This is the formal start of these conversations, and there is much work to be done at European and national government level to increase understanding of the economic aspects arising from the UK’s exit from the EU.
To make progress and increase understanding, it will be important for European policy makers to hear from European businesses. Individual British businesses can also play their part, as European policy makers enter a new phase of consultation before the negotiations begin in earnest. By talking to customers, suppliers, investors and partners in Europe, British businesses can emphasise the shared interest we all have in maintaining economic relations with Europe that are as close as possible. From the CBI’s work with its sister federations through BusinessEurope, it is clear that businesses are united in their desire to see a comprehensive new economic partnership between the UK and the EU. That unified voice should make European policy makers sit up and listen.