February 28, 2018
On February 28, the European Union (EU) published the draft Brexit Withdrawal Agreement which provides concrete terms for the United Kingdom (UK)’s separation. The draft marks the beginning of the second phase of Brexit negotiation, focused on the nature of the future relationship between the EU and UK.

With the publication of the draft at this time, the EU takes the initiative and sets the agenda, outmaneuvering the UK, in a pattern similar to what we saw in the first phase of the negotiations. While the priority until this point had been the negotiations for the “exit” part of Brexit, the newly released draft implements key elements of the “divorce deal” agreed in December 2017 and lays the base for negotiating future relations.

Though based on the provisions decided by both UK Prime Minister Theresa May and European Commission President Jean-Claude Juncker, the EU alone composed the draft withdrawal agreement. May has responded to its release, saying she rejects the document.

The complexity of reaching an agreement in the upcoming negotiations, the relatively strong negotiating position of the EU, and internal divisions in the May cabinet and the UK’s Conservative Party will all continue to threaten the cabinet’s stability in the upcoming months.

Two dates in particular will prove pivotal for the process:

March 2: May will deliver a speech outlining the UK’s stance on the trade relationship between the EU and UK during the transition period, and into the future.
March 22-23: Guidelines for the future relationship will be adopted at the European Council meeting. By this point, the UK and the EU should have agreed on the transition period, both its duration and its degree of regulatory alignment. The guidelines will have to be unanimously adopted by the European Council, thus providing the EU Commission with a mandate to negotiate a UK-EU trade agreement.

If all runs smoothly, phase two negotiations should be finalized by October, allowing for sufficient time for ratification before the March 2019 deadline. Ratification is necessary both by the UK and EU. The process includes votes in the UK House of Commons, the EU Parliament, and the European Council. National, or even regional parliaments from different member states will additionally need to ratify any agreement, due to internal regulations, as seen with the ratification of EU-Canada Comprehensive Economic and Trade Agreement (CETA).

There are significant challenges to the (timely) completion of the second phase of the Brexit negotiations. These include:

1. Northern Ireland border: Although negotiators reached an agreement on Northern Ireland’s border in phase one of the negotiations, it is by no means a closed chapter. The agreement implied the UK would propose a solution that avoids a “hard border,” but has yet to deliver one. Thus, the draft agreement released by the EU is not acceptable to the UK because it suggests a common regulatory area between Ireland and Northern Ireland if no other solution is found. This means that for all practical purposes, Northern Ireland would remain part of the EU, while creating a border on the Irish Sea. May rejected the draft language within hours of the document’s release, calling it inconsistent with the UK’s constitutional integrity. In light of the negotiation dynamics, the burden of providing a feasible alternative to the draft language will fall on the UK. 

2. Substantial disagreements between the EU and the UK on many other topics: The issue of where the UK will and will not uphold EU regulation standards has proved a persistent issue throughout the negotiations. The UK wants to maintain EU regulations in some sectors, such as the financial passport,  while diverging from others, namely immigration. The EU rejects such cherry picking, maintaining an all-or-nothing approach to regulations. Regarding the transition period, the UK wants a transition period without a pre-determined end-date, whereas the EU wants to end the transition by December 2020, as the new EU Budget cycle will kick in 2021. The role of the European Court of Justice and the EU body of laws from which the UK wants exemption during any transition period (and in some cases, beyond) also remains an important source of disagreement.

3. Pressure on and fissures within the May cabinet: Internal divisions fragmenting May’s cabinet weaken the UK’s position for phase two of Brexit negotiations. Notably, the disagreements have thus far resulted in a lack of detailed proposals that may allow the EU to take the initiative, ensuring outcomes more favorable for Brussels. May’s cabinet is divided between hard-line “Brexit musketeers” such as UK Secretary of State for Foreign Affairs Boris Johnson and UK Secretary of State for International Trade Liam Fox, and more moderate members. Moreover, the Euro-sceptic wing of the Tories, led by Jacob Rees Mogg, recently demanded a clean and complete Brexit, severing all ties with the EU, in a letter signed by sixty-two lawmakers. These divisions within the conservative party will complicate the parliamentary ratification vote.

On February 19 the leader of the Labour Party, Jeremy Corbyn, outlined that party’s position, which proposes staying in the EU Customs Union. His words were relatively well-received by the business community and by the more moderate wing of the Tories. Internally, Labour calculates that it needs the backing of just ten pro-EU Tory rebels to force further parliamentary control of the Brexit process.

The latest polls in the UK indicate a growing support among the population for a second referendum on EU membership. However, on the actual question of remaining or staying, the polls have barely moved. Although a second referendum has gathered increased attention, it would be practically extremely complicated and remains unlikely.

4. Differences of opinion within the EU: While in phase one of the negotiations the EU member states maintained a unified stance, cracks may appear in phase two. Different member states have different priorities regarding future relations, which could give London a degree of leverage over the proceedings. Unity was easier to maintain in phase one since negotiations evolved around financial settlements already incurred by the UK and owed to the EU.

The March 29, 2019 deadline looms large, and important progress must be made in the coming months of the negotiations. Over the next few weeks, observers will carefully monitor the UK government’s response to the EU’s draft. As internal pressures complicate London’s development of a detailed and comprehensive negotiation strategy, the EU will maintain very significant leverage in the negotiations.
Bart J. Oosterveld is C. Boyden Gray fellow and director of the Atlantic Council’s Global Business and Economics Program. You can follow the program on Twitter @AC_GBE

Álvaro Morales Salto-Weis is a program assistant in the Atlantic Council’s Global Business and Economics Program. You can follow him on Twitter @alvarosaltoweis