In December, after six rounds of negotiation, the UK Government and European Commission agreed terms on the first phase of Brexit negotiations. The Joint Report of the negotiators bears the title "the orderly withdrawal of the UK from the EU".
The content of the Report reflects the procedure set by the EU, which demanded that the key conditions of UK withdrawal be broadly agreed before talks on the future relationship could begin. Now that `sufficient progress' has been made on those points the negotiations can progress to the second phase, including discussions on the future trading relationship and the proposed transition / implementation period.
While the Report gives some indication of the shape of the future UK-EU relationship, there is an important caveat at the start of the Report to the effect that nothing is agreed until a full withdrawal agreement is concluded. There may therefore be room for changes on these `phase one' issues as negotiations progress, though it seems unlikely there could be significant departures without derailing the whole process. The phase one commitments are therefore an important step forward, providing a degree of clarity in the short term.
The Report chiefly covers citizens' rights, the Ireland / Northern Ireland border, and the financial settlement.
EU citizens living and working lawfully in the UK will be able to remain in the UK after the UK withdraws from the EU (expected to be on 29 March 2019).
Those who arrive in the UK at any point up to the date of withdrawal, and who live continuously and lawfully in the UK for five years after entering, will be able to stay in the UK indefinitely by successfully applying for settled status (see below).
If an EU citizen arrives in the UK before Brexit, but has not been in the UK for five years at the point the UK leaves the EU, they will be allowed to remain until they have reached the five year threshold that will let them apply for settled status. In the interim period, they will continue to have the same access as they currently do to healthcare, pensions and other benefits.
Family members living with or joining EU citizens by the withdrawal date will also be able to apply for settled status after 5 years. This extends to existing spouses, unmarried partners, children, dependent parents and grandparents, as well as to children born or adopted outside of the UK after 29 March 2019. After the UK's exit, close family members will be able to join EU citizens where the relationship existed on 29 March 2019 and continues to exist when they want to come to the UK.
There is an important caveat at the start of the Report to the effect that nothing is agreed until a full withdrawal agreement is concluded.
EU Citizens in the UK
This is the area in which most progress has been made, and in which the Report provides the most clarity on the expected post-Brexit arrangements. The key principles are:
Those EU nationals who have already obtained a permanent residence document in the UK will still need to apply for settled status. However, these applications will be subject to a distinct process, which will be administrative in nature and free of charge.
Settled status will confer the right to continue living and working in the UK, as well as access to public funds and services. It is also a gateway for a future application for British citizenship.
The Report recorded each side's commitment to ensuring that their procedures for applying for settled status are transparent, smooth and streamlined. UK Visas and Immigration (UKVI) will work with applicants to help them avoid errors or omissions that may impact on decisions being made. Instead of rejecting applications for technical errors, UKVI will request supplementary information to fix any such errors and discretion will be exercised in favour of applicants.
The UK Government has released some initial details about the application system. The vast majority of applications will be processed online, with the requirement for documentary evidence being kept to a minimum: the Government plans to develop a system which draws on data from other agencies to verify worker status, such as information from HMRC. The cost of making an application will be the same as the cost of a British passport (currently 72.50) and will be a distinct process from other (considerably more expensive) Home Office immigration applications.
Further announcements about the mechanics of the process are expected in the coming weeks, and the online application process should be in place by the second half of 2018. In recognition of the expected volume of applications, the UK Government's proposed two year implementation period following Brexit will give EU citizens sufficient time to apply for settled status. Anticipatory applications will be accepted prior to Brexit so applicants can obtain the new status at their earliest convenience, which will help ease the burden on UKVI.
Once an individual has been granted settled status, the right to remain in the UK would only be lost in the event of five years' absence from the UK. This is a significant expansion on current indefinite leave to remain rights, which are lost after two years' absence.
EU citizens moving to the UK after Brexit
EU citizens would have the same rights to live, work and study in the UK during the proposed implementation period. However, an argument has already opened up between the EU and UK on whether citizens arriving during that period would have the same rights to remain as those who arrive pre-Brexit.
Those who are eligible will be able to apply for settled status in the short to medium term, possibly as early as later this year.
We do not yet know what the UK's arrangements will be for EU migrants seeking to come to the UK after the expiry of the implementation period, and there may yet be discussions in phase two of the negotiations on whether EU citizens should receive some preferential status in UK immigration law. However, given that the ability to control immigration is widely regarded as a key driver of the Leave vote, there may be limited appetite to commit the UK to any particular outcome as part of the current process. This will be an area to watch in the next round of negotiations.
UK nationals in the EU
The rights to be conferred on EU citizens residing in the UK will be mirrored for UK nationals residing in one of the EU27 countries.
The rights outlined in the Report will be incorporated into the UK Government's planned Withdrawal Agreement and Implementation Bill, announced by David Davis on 13 November 2017. This is to be brought forward after the negotiations on the withdrawal agreement have been concluded, and will give Parliament the opportunity to vote on the terms of the agreement. The rights will be enforceable in the UK Courts but with due regard to the existing case law of the Court of Justice of the European Union (CJEU). In addition, UK courts will be able to refer questions on interpretation to the CJEU for 8 years after withdrawal.
Clarifying and protecting the rights of EU citizens in the UK (and vice versa) after Brexit is a key pillar of the agreement. Those who are eligible will be able to apply for settled status in the short to medium term, possibly as early as later this year. Those who are not yet eligible will have the opportunity to qualify for settled status for up to five years following Brexit. Those affected will no doubt hope the aspirations for a streamlined and inexpensive application process are borne out.
The Republic of Ireland is of course the EU nation likely to be most affected by UK withdrawal. The UK is the second biggest customer for Irish goods, while Ireland is the only EU Member State having a land border with the UK. The movement of people between the UK and the Republic of Ireland is largely governed by the Common Travel Area, which both countries are agreed should continue post-Brexit.
At present, however, it is their common EU membership that allows goods to pass freely between the two countries. In the absence of agreement to the contrary, that position would end on Brexit. However, the freedom to move unhindered across the border between the Republic and Northern Ireland, and the existence of a common legal and policy framework underpinned by EU membership, were key aspects of the Good Friday Agreement. There is therefore a real concern that the return of physical border infrastructure, including customs check points, could upset the carefully calibrated conditions of the peace process.
In those circumstances, it is no surprise that the Irish border is the issue which appears to have been the most challenging part of the phase one negotiations to resolve.
The Report, which records each side's commitment to protecting all aspects of the Good Friday Agreement, provides some clarity but there remain significant areas of uncertainty.
The principal challenge lies in reconciling parties' expressed commitment to avoid a `hard border' between Northern Ireland and the Republic of Ireland and the UK government's decision to leave the EU single market and customs union. Leaving the customs union, in particular, would seem to make some form of customs checks on goods moving between the UK and Ireland inevitable, regardless of the terms of any free trade agreement between the UK and Ireland. (For more on the reasons underlying that point, see our separate paper on Brexit and Trade here.)
The Report records the agreed framework for addressing the `Irish question'. It has three pillars:
The Good Friday Agreement must be protected in all its parts.
The right of the people of Northern Ireland to choose UK or Irish citizenship, or both, will be preserved. The rights, opportunities and identity that flow from the EU citizenship of those who choose to be Irish citizens should be respected in the withdrawal agreement.
The UK and Ireland may continue to make arrangements between themselves relating to the Common Travel Area, while respecting the rights of natural persons under EU law.
If it is not possible to achieve the Report's objectives through the future relationship, the UK will propose specific solutions that would achieve an open border. However, it is very difficult to anticipate what these would look like, and so far there appear to have been no suggestions consistent with the UK Government's stated desire to leave the single market and customs union, while also avoiding any barriers to trade between Northern Ireland and the rest of the UK.
If no solutions can be agreed, the second fallback position is that the UK will "maintain full alignment with those rules of the single market and the customs union which, now or in the future, support north-south cooperation, the all-island economy and the protection of the [Good Friday] Agreement". It also commits the UK to ensuring that "no new regulatory barriers develop between Northern Ireland and the rest of the UK, unless, consistent with the [Good Friday] Agreement", Northern Ireland's devolved institutions agree that distinct arrangements are appropriate. However, there is again a real tension between these statements and the UK's intention to leave the single market and customs union, which is also recorded in the Report. This tension will have to be resolved one way or another in phase two, and the Report indicates that the burden will be very much on the UK to come up with a solution.
The phase one agreement will in principle set the framework for much of the phase two talks, but it is expressed at a relatively high level. Turning them into detailed arrangements will be the subject of a "distinct strand" of the phase two negotiations, and there are a number of issues that could yet cause significant challenges.
At the highest level, the Report records the UK-EU commitment to achieving the identified objectives through their future relationship. There were reports that Ireland vetoed a suggestion that customs controls might operate through technological means. The only way to retain a completely open border in its entirety would appear to be for the post-Brexit UK to remain part of the single market and customs union, unless the EU were prepared to agree to include unprecedented trade and customs arrangements in the future EU/UK relationship.
The Report records that the UK has agreed to contribute to, and participate in, the EU budgets for 2019 and 2020. The UK will also contribute to a share of budgetary commitments outstanding at the end of 2020, and to EU liabilities outstanding at the date of withdrawal. The UK's financial commitment has been estimated at approximately 35-39 billion.
As Commission President Jean-Claude Juncker said following the approval of the Report:
"The second phase will be significantly harder than the first and the first was very difficult".
It may only be when the phase two negotiations begin that the workability of the objectives identified in the Report come into sharp focus.
The Report confirms that the EU is to leave the European Investment Bank. That is not unexpected since current EU law limits membership to EU Member States. The UK will be reimbursed the amount equal to its paid up share capital (in the order of 3.5 billion) which will be paid in twelve annual instalments from the end of 2019. UK projects will not be eligible for new funding operations after the date of withdrawal, and it is understood that EIB funding has already fallen sharply in the wake of the EU referendum. However, the possibility of some special, standalone relationship is preserved in the Report, which records the UK's desire to discuss this in phase two. That would of course require unanimity by the EU27 so this will certainly be an area to watch as the negotiations continue.
Conclusions on Phase 1
It may only be when the phase two negotiations begin that the workability of the objectives identified in the Report come into sharp focus. Significant progress has undoubtedly been made in respect of citizens' rights, which will provide welcome relief for a considerable number of people. At this stage, however, it is difficult to see how the commitments made in relation to the Irish border could be fulfilled through the future UK-EU relationship without significant concessions and/or unprecedented suggestions being made by one or both sides.
Next steps: the transition / implementation period
Shortly after the phase one report had been agreed, the Commission published a draft negotiating mandate for a transition period, indicating an in-principle acceptance of the concept. The European Council approved the Commission's mandate on 29 January 2018. However, the mandate assumed that EU laws would continue to apply in the UK as if it were a Member State, but without the UK having the right to participate in the decision-making or the governance of the Union. This would include preserving the full competencies of the EU institutions and the full jurisdiction of the Court of Justice of the European Union.
The framework for this period would be the existing structure of EU rules and regulations, which would appear to accept that the status quo would be preserved during the period.
While such an arrangement might be controversial from the UK's perspective, the UK desire for an `implementation period' has been evident for some time. It was mentioned in the letter triggering Article 50, with some further detail added during the Prime Minister's speech in Florence in the autumn. The details of the UK position appear to be that the implementation period should run for two years from the date of Brexit, during which time the UK and EU would continue to access each other's markets on current terms. The framework for this period would be the existing structure of EU rules and regulations, which would appear to accept that the status quo would be preserved during the period. This would include the continuing jurisdiction of the Court of Justice of the European Union and the supremacy of EU law, as envisaged in the EU mandate.
It is common ground that the transitional arrangements should be included in the Withdrawal Agreement and that the period should be strictly time-limited. However, the principal point of difference is on how long that limitation should be: the EU wants the end of the period to coincide with the end of its current budget period (31 December 2020), rather than the two years sought by the UK.
This and any other differences will have to be ironed out quickly if the transition / implementation period is to achieve its dual purpose: giving greater certainty to businesses worried about a `cliff-edge' Brexit, and allowing the parties to move on to the crucial phase two negotiations.