European Council, UK Premier Strike Reform Deal, Brexit Possibility Still Unclear

25 February 2016

UK Prime Minister David Cameron and fellow EU leaders have clinched a deal renegotiating Britain’s membership terms in the European Union, following a high-profile 18-19 February meeting of the European Council.

Whether the agreement reached will be enough to avoid a “Brexit” – in other words, a UK exit from the EU – remains unclear, however, with a domestic referendum on the subject now set for 23 June.

“The last European Council was a difficult as any of my term,” said European Council President Donald Tusk on Wednesday 24 February, telling EU parliamentarians that the “real test of time” is yet to come, ultimately lying in the hands of the British people.

The deal reached, he confirmed, is a “legally binding and irreversible settlement,” one that cannot be overturned by the European Court of Justice. It is also in line with the EU’s “fundamental values,” namely those of non-discrimination and freedom of movement.

However, he warned, an “Out” vote by the UK will make the deal null and void. “If they vote to leave, the settlement will cease to exist,” Tusk said.

Terms of deal

In a letter sent to Tusk this past November, Cameron had requested a series of reforms across four main areas: economic governance, competitiveness, sovereignty, and immigration. These issue themes were the primary topics discussed at the high-level meeting on 18-19 February.

While Tusk had put forward a series of proposed reforms earlier this month to address such concerns, both he and Cameron acknowledged at the time that the final version would likely involve some difficult compromises and hard negotiations. (See Bridges Weekly, 11 February 2016)

On the topic of economic governance, Cameron’s main concerns involved the Eurozone, particularly regarding the relationship between euro and non-euro member states.

The UK premier specifically cited that he wanted recognition of the fact that “the EU has more than one currency” and that “there should be no discrimination for any business on the basis of the currency of their country” while still maintaining the Single Market.

Furthermore, he said in November, any Eurozone decisions would need to be voluntary for those EU members that do not use the euro as their currency. (See Bridges Weekly, 3 December 2015)

In the new conclusions adopted by the European Council, it is explicitly stated that the euro is not the only currency in the EU.

Furthermore, the document says, “it is acknowledged that member states not participating in the further deepening of the economic and monetary union will not create obstacles to but facilitate such further deepening while this process will, conversely, respect the rights and competences of the non-participating member states.”

Subsequent language continues along the lines of constructive co-existence, cooperation, and mutual respect between euro and non-euro member states.

Also, non-euro member states “shall not impede the implementation of legal acts directly linked to the functioning of the euro area,” and are also committed not to take steps that could get in the way of establishing the goals of an economic and monetary union.

The new conclusions also state that “emergency and crisis measures designed to safeguard the financial stability of the euro area,” such as bailouts, will not be the fiscal responsibility of member states that are not in the Eurozone.

Furthermore, “appropriate mechanisms to ensure full reimbursement” will be enacted in the case of costs incurred from emergency and crisis measures to EU members that are not on the euro.

In terms of competitiveness, it was agreed that EU member states will work to “fully implement and strengthen the internal market, as well as to adapt it to keep pace with the changing environment.”

In his original letter to Tusk, Cameron also expressed that excessive regulations are onerous and restrictive to business, and that as part of the negotiations, he would seek “a target to cut the total burden on business.” In the new conclusion, steps towards better regulation are mentioned. Specifically, the new conclusion strives to lower administrative burdens and cut compliance costs, while maintaining protection for consumers and employees.

It further states that the EU “will also pursue an active and ambitious trade policy.”

In terms of sovereignty, Cameron had expressed on numerous occasions a desire for the UK to opt out of the commitment to build an “ever-closer union.” What exactly this ever-closer union entails is something that has been debated.

Frans Timmermans, the First Vice President of the European Commission, told BBC Radio 4 that this concept “doesn’t mean that you need to sign up to ever-closer integration at a political level.” Instead, other member states regard the concept as something that represents peace and cooperation amongst the people of the EU. 

Nonetheless, the new conclusion states that the UK is “not committed to further political integration into the European Union.” 

The topic of immigration has been widely seen as the most controversial of the four areas under negotiation.

In his original letter, Cameron proposed that EU immigrants to the UK must “live here and contribute for four years before they qualify for in-work benefits or social housing…and that we should end the practice of sending child benefits overseas.”

The final deal allows for the four-year policy as a “safeguard mechanism,” subject to a Commission proposal and Council authorisation following a notification from the member state involved of an “exceptional situation” meeting certain criteria. These four years would be from the start of employment of these newly arriving EU workers, with the granting of benefits slowly graduated during that time. The authorisation would be time-bound, in place for seven years following Council approval.

Child benefits being sent overseas will continue, but there will be an “option to index such benefits to the Member State where the child resides.”  

Voices of dissent 

The probability of the UK exiting the EU is not yet clear, as public and political support continues to vary. While the results of the negotiations provide some additional clarity on the UK’s future role in a reformed EU, less clear, however, is what could happen to the island nation in the case of a Brexit.

While Cameron’s negotiations were aimed at preventing the UK from leaving the EU, various key political figures have publicly supported the “Vote Leave” movement following the European Council meeting. These figures include Boris Johnson, the mayor of London, and Justice Secretary Michael Gove.

In particular, Johnson is a popular political figure, and analysts warn that his decision to support the UK leaving the EU could potentially sway public opinion. Johnson is also in Cameron’s Conservative political party, and is therefore opposing his party’s leader in backing the Brexit movement.

Cameron, for his part, has been actively working to win support for the settlement since news of a deal first broke, confirming that his government will be recommending that the UK stay in this newly-reformed EU. The UK premier also ruled out this week the possibility of another renegotiation should UK citizens vote to leave.

“This is a straight democratic decision – staying in or leaving – and no government can ignore that,” he said on Monday in the House of Commons. “Having a second renegotiation followed by a second referendum is not on the ballot paper.”

Questions for trade

The potential economic ramifications for a UK exit of the European Union remain unclear, despite attempts by various analysts to quantify and clarify the losses and gains. Among the most widely-cited concerns are what a “Brexit” will mean both for trade with other EU member states and how this will affect existing and pending EU deals with third countries.

US Trade Representative Michael Froman, for example, has lately said that while it will be up to Britain whether to stay or go, Washington “values” a strong United Kingdom within the EU bloc. (For more on Froman’s comments, see related story, this edition)

Furthermore, the US trade chief has said in the past that Washington would not be interested in negotiating a separate trade deal with the UK, given that it prefers negotiating with country groups – in other words, with the EU as a bloc, as it is doing with the Transatlantic Trade and Investment Partnership (TTIP) negotiations. (See Bridges Weekly, 5 November 2015)

The EU is also involved in negotiations with a wide range of countries, from the US to Japan to members of the Association of Southeast Asian Nations, with more trade pacts on the horizon. (See Bridges Weekly, 21 January 2016)

ICTSD reporting; “Brexit Special,” BLOOMBERG INTELLIGENCE: BLOOMBERG BRIEF, 2016; “Cameron to Make EU Case to Commons as Johnson Backs ‘Brexit’,” BLOOMBERG, 22 February 2016; “EU reform deal: What Cameron wanted and what he got,” BBC NEWS, 20 February 2016; “EU renegotiation: Britain can get ‘clarification’ on ‘ever-closer union’,” TELEGRAPH, 28 October 2015; “The UK’s EU referendum: All you need to know,” BBC NEWS, 22 February 2016.

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