The UK is creeping closer to post-Brexit trade talks with the EU after significantly bumping up its financial bill offer – one of the main sticking points in the first round of settlement talks between the two sides.
UK Prime Minister Theresa May has reportedly proposed a methodology for settlement of the UK’s liabilities with the bloc that, according to market commentators, could tally up to anything between €55bn and €100bn.
The new proposal, which is yet to be confirmed by the government, has been received negatively in the UK, after May in September said the country was willing to pay only around €20bn. This initial offer, however, was not welcomed by the EU, who pushed the prime minister to come back with a better offer ahead of its members summit next month.
But there is good reason to be cautious when interpreting the newly reported figures, explains Ross Denton, trade partner at Baker McKenzie.
“We should be hesitant about figures, because what appears to have been agreed is methodology, which has then been backed into figures by the press,” he tells GTR. “The Conservative Party will find it hard to swallow €50bn as a stark number, but it may be persuaded that such a settlement is worth paying as part of the overall “price” for a good deal. Our guess is that the EU will play hard on the eventual number, and it may end up around or even slightly north of €50bn.”
Negotiations between the two sides are ongoing, with both sides saying that no final figure will be agreed, but that a system for regularly calculating specific liability payments as they become due will be applied. Such a model is seen as a win-win for both sides by guaranteeing EU member states that there will be no Brexit gap in the EU budget, while at the same time allowing the UK to point to much lower estimates of net payments.
“[With this model] neither side can be in a position to claim victory, and so a ground out compromise suits everyone, and each side can claim a degree of ‘satisfaction’,” says Denton.
The UK’s financial bill is one of three main areas – money, citizens’ rights and the Irish border – that must be settled to warrant “sufficient progress” in order for talks to move on to the UK’s future relationship with the EU, in particular the trade agreement the two sides will operate under. While progress seems to have been made on the bill and citizens’ rights issues, the Irish border question remains a major obstacle.
The next step in the process will be for both sides to formalise what has been agreed so far, and to draft and sign off the conclusions of phase one in black and white, so it is ready for review during the EU members’ meeting on December 14-15.
“It must not be forgotten that the Irish border issue is equally intractable, and there does seem to be a high degree of heat in the issue that is unlikely to dissipate by the summit,” says Denton. “My guess is that trade talks will start first half of next year, possibly in the first quarter. However, this does not augur well for getting a comprehensive free trade agreement in place by March 2019, and so we will start to see discussion around transitional arrangements and possibly even extension of the Article 50 period.”