The European Council has decided that the UK-EU negotiations can move to the second phase following a Joint Report of the EU negotiators and UK government on phase 1 of the negotiations under Article 50 TEU and a Commission Communication to the Council (both dated 8 December). This was decided at the subsequent Council meeting and was set out in Council Guidelines of 15 December 2017. The parties can now be expected in early 2018 to commence negotiations of transitional arrangements and the framework of a future relationship agreement. However, the Council has stated that the second phase negotiations can only progress as long as all commitments undertaken during the first phase are respected in full (and translated into legal terms as quickly as possible).

This note sets out the key transitional agreement provisions of the Council's Guidelines and then reviews the position reached on the key issues in the first phase negotiations, as set out in the Joint Report of 8 December on progress during phase 1. The most important areas in the Joint Report are citizens' rights, the Ireland/Northern Ireland border and the financial settlement. These will be considered in turn.

Transitional arrangements: the Council Guidelines

The Council Guidelines of 15 December 2017 mandate the negotiation of transitional arrangements during the second phase as well as the framework for the future relationship, noting the UK's proposals for a two-year transition. This will cover all of EU law (the EU acquis). During the transitional period the UK will be a third country and will therefore no longer participate in the EU institutions or in the EU's decision-making bodies or agencies. All existing EU regulatory, budgetary and enforcement processes, and the jurisdiction of the European Court of Justice ("ECJ"), will continue to apply to the UK in this transitional period. The Council calls on the Commission to make appropriate recommendations, and on the Council to adopt additional negotiating directives on transitional arrangements in January 2018.

Citizens' rights

The Joint Report provides for ongoing residence rights of EU27 citizens in the UK and UK citizens in the EU27, respectively, as at the date of the UK's withdrawal, together with the same rights for such residents' family members, children born after the specified date and partners in a "durable relationship", who are not resident as at the date of withdrawal.

The UK and EU27 member states can require relevant persons to apply for and obtain residence status as provided for by the Withdrawal Agreement and a resident's document accordingly. Administrative procedures for such applications must be transparent, smooth and streamlined. Residents' rights can be lost following a period of absence exceeding five consecutive years. The Withdrawal Agreement will specify that the host state cannot require anything more than is strictly necessary or proportionate to determine whether the residence criteria have been met and must avoid any unnecessary administrative burdens. Application forms must be short, simple and user friendly. Systematic criminality and security checks can be carried out on all applicants for status under the Withdrawal Agreement.

The conclusions reached on citizens' rights represent various concessions by the UK government. First, the "specified date" by reference to which status will be assessed will be the date of withdrawal, rather than, as the UK previously proposed, a date (to be fixed) between the Article 50 trigger date and the withdrawal date. The application of the residence rights to family members is based on the original EU proposal, whereas the UK's position was that family members joining the EU citizen after the date of withdrawal would be treated in accordance with the post-exit immigration arrangements for EU citizens. The UK had also proposed that its citizens would be able to exercise residence rights not only in the relevant host state but in the rest of the EU27, but this is not being included in the present agreement.

The rights agreed concerning the recognition of professional qualifications are relatively limited. Expressly recognised professional qualifications will be grandfathered as regards qualifications granted in the host State and, for frontier workers, the State of work. Recognition procedures that are ongoing on the specified date (the Withdrawal Date) will be completed under EU law and will be grandfathered. These provisions represent further concessions by the UK government, in that it had previously proposed that the Withdrawal Agreement should safeguard professional qualifications not yet recognised, where there is a right to have the qualification recognised. The UK also proposed that UK citizens would have the right for their professional qualification to be recognised across the EU27, but the present agreement allows for this only in relation to the specific host state where recognition has been granted.

The effectiveness of the citizens' rights provisions is to be ensured in the UK by a Withdrawal Agreement and Implementation Bill. The Joint Report states that this will fully incorporate the citizens' rights provisions into UK law so that they will prevail over inconsistent or incompatible legislation.

In order to achieve consistent interpretation, the Withdrawal Agreement will establish a mechanism enabling UK courts or tribunals to refer questions of interpretation to the ECJ for a ruling on a question which is necessary to enable judgment to be given. This mechanism should be available for proceedings commenced within eight years from the entry into force of the citizens' rights provisions. The UK has previously been opposed to any ECJ jurisdiction in relation to the UK post-Brexit, but has accepted this provision, presumably on the basis that it will be for the relevant UK court or tribunal to decide when such an ECJ ruling is necessary.

Ireland and Northern Ireland

The Irish border is perhaps the issue which is most difficult to resolve. Both the UK and the EU have expressed commitment to the objectives of maintaining the operation and institutions of the Belfast Agreement of 1998, the Common Travel Area and the avoidance of a hard border. The difficulty is that the border is an EU single market frontier, and it is a key part of UK government policy that the UK (including Northern Ireland) constitutes a distinct UK internal market.

The Joint Report states that North-South cooperation relies to a significant extent on a common EU legal and policy framework, and that, therefore, the UK's departure from the EU gives rise to substantial challenges to the maintenance and development of North-South cooperation. The Joint Report states that the UK intends to achieve the objectives of protecting North-South cooperation and the avoidance of a hard border through the overall EU-UK relationship, but if this should not be possible, the UK will propose "specific solutions to address the unique circumstances of the island of Ireland". The Joint Report then states that "in the absence of agreed solutions", the UK will maintain "full alignment" with the rules of the EU 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 1998 Agreement".

In addition, the Joint Report states that, in the absence of agreed solutions, the UK will ensure that no new regulatory barriers develop between Northern Ireland and the rest of the UK. This means that the UK will continue to ensure the same unfettered access for Northern Ireland's businesses to the whole of the UK internal market. It is stated that given the specific nature of issues related to Ireland and Northern Ireland, in the second phase the work will continue as a distinct strand of negotiations on the necessary detailed arrangements.

The reference to "full alignment" between the EU internal market and the UK has been the subject of much discussion. The UK government has ruled out continued participation in the single market and the Customs Union beyond any agreed transitional period. The Irish border situation is seen by many to represent an intractable problem; if this proves to be the case (and if no other solution is found to maintain a soft border), then the fall-back position of "full alignment" as set out in the Joint Report could become a reality for an indefinite period. Whilst the concept is uncertain in scope and undefined, the commitments appear to require the UK to keep its laws harmonised with the laws of the EU single market, not only as regards the directly applicable EU legislation applying at the withdrawal date, which is to be enshrined in domestic law under the EU (Withdrawal) Bill, but also going forward, including in respect of EU directives and possibly also, at least in relation to UK/Ireland trade, the general principles of EU law (including free movement), which under the EU (Withdrawal) Bill are disapplied as from the withdrawal date. The commitment to "full alignment" with the single market rules is limited to the areas which support North-South cooperation, protection of the Belfast Agreement, and also the all-island economy, but the "all-island economy" has a fairly wide scope.

There is also the question of what is meant by "full alignment" with the rules of the Customs Union. This presumably means an avoidance of tariffs on trade in goods between the UK and Ireland. However, if these "rules" are to be read as limiting the UK's ability to conclude trade agreements with third countries, then the effects will be far-reaching.

The very challenging issues concerning the Irish border have in effect been deferred to the second phase negotiations by means of the form of wording used in the Joint Report, but the European Council clearly regards the contents of the Joint Report as being binding commitments for purposes of the second phase. In the latest negotiation round, the UK has avoided any different treatment of Northern Ireland (separately from the rest of the UK), but the fall-back provision concerning "full alignment" appears to provide greater safety to the EU than to the UK.

Financial settlement

The UK will contribute to, and participate in, the implementation of the EU annual budgets for the years 2019 and 2020 as if it had remained in the EU. The end of 2020 marks the end of the current seven-year budgeting period. The UK will also contribute to a share in the financing of budgetary commitments which are outstanding as at the end of 2020, and will remain liable for its share of the EU's contingent liabilities as at the date of withdrawal. Payments arising from the financial settlement will become due when they would have done if the UK had remained a Member State of the EU.

The UK is reported to have reached an agreed financial settlement with the EU of approximately £35 -39 billion.

Other separation issues

On Euratom-related (nuclear specific) issues, the parties have agreed principles for the separation issues relating to the UK's withdrawal from Euratom. This includes agreement that the UK will be responsible for international nuclear safeguards in the UK and will support a future regime providing coverage and effectiveness equivalent to existing Euratom arrangements.

With regard to future proceedings in the ECJ, the parties have agreed that the ECJ will remain competent for UK-related proceedings which are registered at the ECJ on the date of withdrawal, and that those proceedings will continue through to a binding judgment. The position regarding ongoing EU administrative proceedings, for example in relation to competition and State aid, appears to have been left open at this stage.


The commencement of phase 2 negotiations and the prospect of an agreed transitional period are together a landmark. The phase 1 commitments are embodied in the Joint Report of 8 December, and the EU's approach is clearly that progress into phase 2 negotiations will be on the basis that these commitments are (or will be made) binding.

Two of the most notable features of the Joint Report are the following. First, the UK has had to make several concessions in relation to citizens' rights in order to be able to proceed to relationship and trade discussions. Second, the parties have not yet come close to achieving a meaningful solution on the conflict between the Irish border as an EU single market frontier and the UK's objective of maintaining the UK internal market. Moreover, in this area, the agreed formulation appears to favour the EU's single market and Customs Union objectives rather than the UK's own internal market objectives. This said, given the UK government's firmness in not participating in the single market and Customs Union and its resistance to any compromise of the UK internal market with regard to Northern Ireland, one may expect further substantive negotiations and developments in this area in phase 2. So the currently stated fall-back position might not become the final one.