EU sets tough transition terms for Brexit

Hopes that Britain might be able to simultaneously negotiate the terms of its exit, and a new trade deal with the European Union were dashed on Friday, as European Council President Donald Tusk set out the initial terms of negotiation set out by the remaining 27-member states.

He signalled that Britain would only be able to commence talks on the future relationship once there was “sufficient progress on the withdrawal.”

Significantly, he also ruled out a sector-by-sector approach that the British government had previously indicated it would be keen to pursue, to ensure that the impact on certain sectors such as the financial services and automobile sectors would be minimised.

“Starting parallel talks on all issues at the same time, as suggested by some in the UK, will not happen,” he said on Friday. Several national leaders had previously signalled that trade talks might not be able to commence until the exit terms were finalized, but that could have been dismissed as tough talk, so the remarks by Tusk are significant, highlighting the challenge facing the UK as it attempts to secure both processes in a two-year period, while also transferring European laws into British law domestically - while at the same times offering businesses a degree of certainty.

“The reaction from Europe is very clear: this is what you may be saying but this is were we stand…Article 50 was the end of the beginning and the journey from now will be so complex and difficult and ridden with uncertainty,” says crossbench member of the House of Lords Lord Bilimoria, and chair of Cobra Beer. “From the business point of view, this is shocking.”

“Following today’s comments by Donald Tusk, it is indicative that the existing period of uncertainty will continue to hover over businesses on the future of UK’s trading relationship with the EU,” says Sarosh Zailwalla, founder of Zaiwalla & Co solicitors in London. “Under this continued period of uncertainty, Indian businesses and organisations operating out of the UK will also have to stall their plans unless and until more clarity emerges.”

Liberal Democrat Tim Farron pointed to the clear exclusion of a sector-by-sector approach by Europe. “This leaves no doubt that [Brexit Secretary David] Davis’ comments about special arrangements for the car industry or financial sector are worthless.”

Tusk said that while the EU shared Britain’s desire to establish a close partnership, the talks would be “difficult, complex, and sometimes even confrontational…There is no way around it.” However, Europe would not adopt a punitive approach as “Brexit in itself is already punitive enough.”

Two days after the triggering of Article 50 — the section of the Lisbon Treaty that deals with exiting the union — Tusk set out the four “firm” principles that would guide their negotiations. First he said was the need to secure the rights of EU citizens in the UK. “We need to settle their status and situations after the withdrawal with reciprocal, enforceable and non-discriminatory guarantees.”

The EU will also work to avoid a legal vacuum, and push to ensure Britain honoured all its “financial commitments” taken as a member state. It would also look for “flexible and creative” solutions aimed at avoiding a hard border between the Republic of Ireland (an EU-member state) and Northern Ireland (part of the UK).

Negotiations got off to a tricky start this week, as a section of May’s official notification letter was interpreted by some European officials as suggesting that Britain would use the threat of a loss of security cooperation to further its trade agenda. Britain has vociferously denied this but the situation has highlighted the highly sensitive nature of the discussions.

Britain has maintained that it is eager to deliver a “smooth and orderly Brexit,” reaching an agreement within the two-year period, followed by a process of phased implementation.

“It is clear both sides wish to approach these talks constructively. And…wish to ensure a deep and special partnership between the UK and the European Union,” May said on Friday.