Brexit Talks Round Two: What Are the Key Issues?

EghtesadOnline: The U.K. and European Union renew divorce talks on Monday with the clock ticking down to the March 2019 split.

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17 July 2017

It’s the second such meeting -- the first round in June saw Britain concede to the EU’s demand to focus first on discussing citizens’ rights, the Irish border and a financial settlement. Only when “sufficient progress” has been made on these matters will the EU allow discussions to turn to trade.

Brexit Secretary David Davis, who will meet with EU negotiator Michel Barnier in Brussels on Monday, said last week that suggestions the U.K. is softening its approach are a “misconception.” Barnier complained the two sides “need to know which points we agree and on which points we disagree so that we can negotiate in earnest.”

According to Bloomberg, there has nevertheless been movement on key issues from both camps, with the U.K.’s acknowledgment last week that it will need to cover financial obligations, setting the tone for this week.

Here’s the state of play:

Citizens’ Rights

The first big flare up has been over the rights of 3 million EU citizens living in the U.K. and 1 million Britons residing in the EU.

Having ignored an EU proposal and rejected the advice of Davis to make a unilateral guarantee, May announced her plan on June 26.

She pledged EU citizens already in the U.K. would be treated as if they’re British for the purposes of receiving state education, health care, benefits and pensions. EU nationals would also be forced to hold an identity document.

The U.K. plan would still allow EU nationals to send welfare payments to family members elsewhere and wouldn’t require them to prove they have comprehensive sickness insurance and some other documents when seeking residency. It also offered to make unilateral guarantees on the indexation of pensions and to streamline the application process.

Barnier responded by calling for “more ambition, clarity and guarantees.” European Parliament lawmakers threatened to veto the Brexit deal unless the U.K. gives more ground.

Among the sticking points: Nationals of EU countries currently have fewer restrictions on bringing in non-EU family members than British citizens so the U.K.’s offer would see them lose rights.

The role of the European Court of Justice in enforcing the rights remains in question as do the cut-off date for when people must be in the U.K. to qualify and what happens if British law changes later.

European Court of Justice

In a bid to use Brexit to regain sovereignty, May said last year that one of her “red lines” was ending the court’s role in British law. She reemphasized that in a July 13 interview with The Sun and the government repeated it in a position paper the same day.

On whether the court should protect the rights of nationals post-Brexit, Davis has said it won’t although he’s willing to consider the establishment of a new arbitration body. EU officials told Bloomberg News in June that they may be willing to concede on their demand that the ECJ serve as arbiter.

Still, May’s spokesman, James Slack, said last week that “the transition rules could involve the ECJ for a limited time.” That would save Britain from needing a new regulatory regime for industries from drugs to aviation on the day of Brexit.

Transition, Trade

May initially argued that the divorce and new trade relationship could be wrapped up in two years. While she stands by that ambition, she has conceded there might need to be an implementation period.

How long and what form that takes will be matters of keen debate in Britain alone. Davis has suggested a maximum of three years, yet Chancellor of the Exchequer Philip Hammond has signaled a preference for a longer timeframe. Trade Secretary Liam Fox last week spoke of “a few months.”

Hammond has also suggested “current customs border arrangements remaining in place, until new long-term arrangements are up and running.”

That implies some kind of continued customs union with the EU, for which the bloc would likely demand money and legal oversight in return.

The EU also sees the need for what it calls a “phasing-out and phasing-in” period, although it insists it must be for a fixed time and can only happen if there’s agreement on what the final relationship looks like.

Barnier has warned the U.K. that a “frictionless” trade deal isn’t possible if Britain leaves the single market.

Nuclear

May said in March that Britain would leave the European Atomic Energy Community. But that decision drew opposition from the nuclear industry and from May’s own Conservative Party.

The criticism was fanned by reports that the transportation of radioactive materials used to diagnose and treat cancer would be jeopardized.

Davis suggested last week that the U.K. might seek an “associate”membership of Euratom. But that could test his red line over ending the freedom of movement of people.

Ireland

The EU and U.K. will seek to agree on broad principles on the Irish border dilemma to prevent the search for a solution holding up the wider Brexit talks, four people familiar with the matter told Bloomberg last week.

The principles will go a little further than the negotiating directives published by the EU in May, the people said.

Germany questions the need for a totally open border between the Republic of Ireland and Northern Ireland following Brexit.

An accord would avoid closing off options on the border issue, allowing it to be parked until later in the negotiations when the shape of a future trade deal between the two sides is clearer, the people said.

The Bill

The issue laid dormant as officials focused on less controversial issues.

But it blew up again last week when British Foreign Secretary Boris Johnson said the EU could “go whistle” because “the sums that I have seen that they propose to demand from this country seem to me to be extortionate.”

Barnier responded by questioning whether the U.K. accepts there is a reckoning at all and repeating that the EU just wants Britain to cover the financial obligations it made as a member.

“I’m not hearing any whistling, just the clock ticking,” he said.

The U.K. seemed to step back on Thursday when a written statement to Parliament referred explicitly to a “financial settlement,” with the government recognizing “the U.K. has obligations to the EU.”

Even so, calculating a final amount won’t be easy.