The European Commission has published draft objectives for the first phase of the Brexit negotiations, focused on citizens' rights, the financial settlement and a continuing role for the European Court of Justice (ECJ). This sets the stage for a challenging opening to the exit negotiations, which will begin as soon as the UK is ready after the General Election on 8 June.

As the Commission's lead negotiator Michel Barnier put it, “the clock is ticking”. Businesses should use the time before the negotiations start to define their priorities, communicate these to decision-makers and plan ahead for the main potential outcomes.

The European Commission has published its recommendations1 for negotiation directives on the matters it considers strictly necessary to ensure an orderly withdrawal of the UK from the EU. These are expected to be formally adopted by the EU27 Member States on 22 May. They will then form the basis of the EU27's position, subject to amendments as the process evolves.

Principles

The Commission proposes: key principles for the EU27's approach. In particular, cherry-picking of the Single Market will not be permitted, nothing will be agreed until everything is agreed and separate negotiations between individual Member States and the UK will not be allowed.

Comment: this confirms previous statements by the EU27 that any UK efforts to negotiate favourable access to the Single Market for particular sectors will be resisted.

Phased Process

The Commission proposes: the EU27's objectives for only the first of what is envisaged as a two-stage process. Discussions on the future relationship with the UK, including − explicitly − on possible transitional arrangements, would only begin once sufficient progress has been made in the first phase.

Comment: this also confirms previous EU27 statements. Given UK determination to begin negotiations on the future relationship as soon as possible and in parallel with talks on the withdrawal agreement, it remains to be seen how “sufficient progress” will be defined.

Citizens' Rights

The Commission proposes: a wide agreement on EU27 citizens living in the UK and UK citizens living in the EU27, as well as their families (regardless of nationality), covering not only the right of residence but also of access to the labour market, welfare, education and healthcare, and recognition of their qualifications. These would be directly enforceable vested rights for the lifetime of those concerned.

Comment: the UK has not made clear its view on how far such rights should extend or be enforced. But what had earlier been seen as a straightforward issue for early agreement now looks more complex.

Financial Settlement

The Commission proposes: the UK must honour its share of the financing of all the obligations undertaken while it was a member of the EU. These include: the EU budget; ending UK membership of EU bodies; the UK's participation in facilities such as the European Development Fund; liabilities such as pensions; contingent liabilities, such as loans by the European Investment Bank; and costs related to the withdrawal process such as the relocation of EU agencies based in the UK. The Commission does not publish figures for the sums involved.

Comment: this has long been predicted to be one of the most challenging issues in the negotiations. The full extent of the challenge is still becoming apparent.

Ongoing Procedures

The Commission proposes: to avoid uncertainties, the withdrawal agreement should clarify the status of goods placed on the EU market before the UK leaves but still in the distribution chain after the UK has left. It proposes that these should remain on the market (both in the UK and EU27) under the conditions set out in EU law until they reach their end user. Similarly, provisions should be made for co-operation programmes still underway when the UK leaves until their completion, for example on law enforcement, market surveillance of goods, judicial proceedings pending before the European Court of Justice, and on nuclear materials.

Comment: provisions on these issues will be necessary to avoid a legal vacuum on 30 March 2019 when the UK will no longer be a member of the EU. While these should in principle be less contentious, it will be important for all involved to watch the detail of these provisions.

Borders

The Commission proposes: innovative and creative solutions should be found to avoid a hard border in Ireland.

Comment: both sides share the same objective. But neither has yet offered any indications of how it might be achieved.

Governance

The Commission proposes: setting up an institutional structure to ensure the effective enforcement of the withdrawal agreement. For disputes on the continued application of Union law, on citizens’ rights and on the application of the other provisions of the Agreement, such as the financial settlement, the jurisdiction of the ECJ should be maintained. For provisions in the agreement not relating to Union law, an alternative dispute settlement mechanism should only be envisaged if it offers equivalent guarantees of independence and impartiality to the ECJ and it must take into account future case law of the ECJ.

Comment: continuing to accept even a narrowly-defined continuation of the jurisdiction of the ECJ would run counter to previous statements from the UK Prime Minister.

What This Means for Businesses and How Dechert Can Help

The start of the negotiations, potentially immediately after the General Election on 8 June, is imminent. Businesses and industry sectors need to identify how the negotiations are likely to impact on their interests and to define their priorities. The acrimonious exchanges between the parties over the last few days confirm that the negotiations will be difficult. In the absence of a positive climate between the negotiators, any contribution from industry looking for synergies between industries in the UK and the EU becomes particularly important to obtain a positive result. Such synergies can only be found if sufficient work and analysis is done by industries to present ambitious and workable solutions that can be put on the table of the negotiators on both sides.

Dechert has a team ideally placed to help, with offices in London, Brussels, Dublin, Frankfurt, Luxembourg and Paris. In addition to deep UK and EU legal expertise, our team has practical and policy experience – including of trade negotiations – developed at the European Commission, the Council and a range of UK bodies including the Prime Minister's Office, the Cabinet Office, the Bank of England, HM Treasury, the Foreign Office, and the Attorney-General's Office. Through this, we have an understanding of how the UK and EU institutions operate in practice and the main personalities involved.