Brexit Bulletins | May 8, 2017

Brexit negotiations: cart before horse?

There has been much attention over the bank holiday weekend about what allegedly happened on the evening of 26 April when the British PM, Theresa May met with Jean Claude-Juncker over dinner at No.10 Downing Street.

But even before that, if what is reported in the press is to be believed (link), the battle lines for the EU Brexit negotiations had clearly been drawn. The EU, we are told, wants the UK to resolve terms for its “divorce” first, to include agreeing a supposed “Brexit bill” for leaving, and only then then will it talk about a future trading relationship. The UK government believes that negotiations should embrace both aspects from the outset. So who is right?

In pure legal terms, ultimately, it probably doesn’t matter. The Brexit negotiations are, at their heart, a political, not a legal process, albeit one with significant economic and legal implications.

Article 50(2) of the Treaty on European Union (TFEU) stipulates that in the light of the guidelines published by the European Council, the EU is required to negotiate and conclude an agreement with the departing state, “setting out the arrangements for withdrawal, taking account of the framework for its future relationship with the Union.”

The UK government would therefore argue that the UK approach accords squarely with the letter and the spirit of Article 50. For the EU to be demanding “divorce” money before agreeing to discuss a future trading relationship, is to put the proverbial cart before the horse.

In fact, the EU’s negotiating guidelines are not as starkly defined as have been reported (link). They leave open the possibility of negotiating on matters such as future trade terms if “sufficient progress” has been made on preliminary matters. That phraseology leaves plenty of wriggle room. The guidelines also say that “nothing is agreed until everything is agreed”. The aggressive rhetoric from EU leaders is tough now for understandable political reasons. They evidently want to create as much fear and foreboding about what Brexit will mean for Britain as they can. Hence the deliberate leaking and spinning of what supposedly happened at the Downing Street dinner. The real question is what will happen once the dust settles on these preliminary skirmishes and the hard talking begins.

Budget hole

The EU is obviously concerned at the sizeable gap that will open up in its finances once the UK has left. Precise figures are contentious and difficult to calculate, but a recent House of Lords report concluded that the UK’s gross annual contributions to the EU budget are currently around £19 billion. The net contribution, after receipts from the EU, are in the region of £9 billion.

Whatever the true figure, there is no doubt that the loss of the UK’s contribution will be a major headache for the EU at a time when it has rarely been so unpopular. Asking other Member States for more money or cutting its own budget are equally unpalatable options for Brussels.

It is hardly surprising, therefore that the EU leadership and its stakeholders, evidently view extracting further substantial sums of money from the UK as an important part of their negotiating strategy for Brexit.

Cart before horse?

The problem with the EU’s approach (if the media briefings and headlines are to be taken at face value), however, is that it makes absolutely no sense for the UK to play ball and agree anything on the so-called “Brexit bill” without first ensuring that the UK will be getting something tangible – and substantial – in return.

From this side of the English Channel, the EU’s reported “cart before the horse” approach has zero attraction. A lawyer would not advise their client to sit down and negotiate on that basis. Nor, I suspect would a competent mediator try to resolve a dispute in that fashion.

Moreover, it remains to be seen how the EU will justify its demands for yet more money after the UK’s notice period under Article 50 has expired. Certainly, there are powerful legal arguments for concluding that, absent an agreement, there is no legal obligation on the UK to pay a cent more to the EU after March 2019.

There are a number of grounds on which the EU is likely to rely when arguing that the UK must pay more upon its exit. For example, the current Multiannual Financial Framework (MFF) under which the EU sets anticipated expenditure ceilings for several years ahead, expires at the end of 2020 – some 18 months after the UK’s exit date. The EU may argue that having agreed to the MFF back in 2013, the UK should honour what was agreed back then. But the Regulation governing the current MFF can be revised in “exceptional circumstances” and is only a framework, not the definitive annual budget.

Other arguments may be based upon such matters as Reste à liquider (RAL) liabilities. These are sums previously agreed and budgeted for by the EU but not yet spent. There are pension liabilities for EU officials provided by the EU. The EU’s assets, which the UK has partially contributed to over the years could be in the mix too. Further complications arise from the monies that are due to filter back into the UK from the EU.

All in all, there are any number of ways that claims for a so-called “Brexit bill” could be constructed and calculated. No doubt EU officials will present a demand for an enormous sum.

But at the end of the day, Article 50 itself could not be clearer: if no withdrawal agreement is reached between the parties and time is not extended, the EU treaties will “cease to apply” to the UK at the end of March 2019. That being the case, there is simply no legal basis for the EU to claim anything from the UK after we have left, nor any legal mechanism to enforce such demands. (The relevant provisions of the Vienna Convention on treaties, in particular article 70 of that Convention, which deal with ongoing treaty obligations after a state withdraws from a treaty are of no help to the EU for two reasons. First, the EU is not a party to the Convention. Secondly, the wording of Article 50 of the TFEU takes priority over the Convention anyway).


Looking ahead, and assuming that the current political posturing and leaking of dinner conversations are eventually set aside in favour of a more sensible and pragmatic approach to negotiation, it is highly likely that the UK will end up agreeing to pay something beyond March 2019 – provided the parties are still speaking and a withdrawal agreement is eventually reached with the EU.  But this will not be because of any compelling legal (or moral) arguments that money is owed by the UK. More likely it will be agreed to as the necessary price for arrangements that are viewed as benefiting the UK economically, going forward.

Provided the sums agreed are not too high, there should be plenty of scope to dress up such an arrangement in politically acceptable clothes so as to satisfy the UK electorate. The EU and its Member States will also need to feel that they have extracted something from the UK. A classic negotiating compromise in other words.

But what if the current rhetoric against the UK continues and it turns out that the EU really does intend to remain rigid in its approach? If the EU negotiators really do insist upon putting the cart before the horse, then the voices in support of the notion that “no deal is better than a bad deal” are likely to become ever louder on this side of the Channel over the next two years. Meanwhile, as for Mrs May, if she is still occupying No.10 after 8 June, she may want to be more choosy in who she invites for dinner….

Click here to access the article in full. First published on 2 May 2017.