'Brexit means Brexit' Towards a new relationship with the UK

April 6, 2017 - nr.103
Summary

Conclusions and recommendations

Conclusions

The questions that the government put to the AIV on 6 October 2016 concerned the key elements of both the new relationship between the EU and the UK and the new bilateral relationship between the Netherlands and the UK. The AIV believes that the key elements of the new bilateral relationship will depend to a significant extent on what form the new EU-UK relationship takes. Accordingly, the latter relationship forms the starting point for this advisory report and is discussed in more depth and detail.

In the new relationship between the EU and the UK, future trade relations will be crucial to both parties. The AIV is of the opinion that the Comprehensive Economic and Trade Agreement between the EU and Canada (CETA) offers the best point of departure in this respect. The AIV believes it would be politically feasible to raise future cooperation in accordance with this model to a higher level by adding elements of the association agreements that the EU has concluded with neighbouring countries. A CETA-plus model along these lines would not only make free trade in goods possible, but would also open the way to agreements on the liberalisation of service sectors. In order to permit an orderly transition to the period following a definitive agreement, the most obvious course of action, in the AIV’s view, would be to continue the existing customs union for, say, three years. As regards dispute settlement, an option would be an arbitration system based on the WTO Dispute Settlement System or similar systems in existing free trade agreements.  

With regard to financial services, the AIV believes that the prime concern is to minimise disruption to the financial system within the EU and to mitigate as far as possible the negative effects of Brexit on the financial services system. Decisions on third-country regime (TCR) equivalence could be a fall-back position here, although such decisions are not applicable to all financial services and may be withdrawn by the Commission. The advantage is that this approach can in principle be applied to all third countries and hence does not infringe the most favoured nation principle. The scope of equivalence could also be extended, thus rendering this option still more attractive.

In terms of external security, the EU should continue to involve the UK wherever possible in the preparation and implementation of the CFSP and the CSDP. This would undoubtedly be in the interests not only of the UK but also of the EU. Given the intergovernmental nature of cooperation in this field, the AIV believes that exploring avenues for future cooperation should be easier than shaping future trade relations, where the EU institutions will also be involved. The nature of future cooperation on external security will of course partly depend on whether the UK aims to remain involved in the CFSP/CSDP. The advisory report outlines four possible models in this regard. In the AIV’s view, it is essential to keep the UK involved in some way in the decisions of the EU Foreign Affairs Council.

In the field of internal security (Justice and Home Affairs cooperation), continued cooperation would likewise be in the interests of the UK, the EU and the Netherlands. Indeed, it is the UK’s express aim to continue this relationship. However, it is not yet clear what form cooperation in this field could take in the future. In this connection, it will be crucial to reach agreement on a form of judicial review, but the British intention to end the jurisdiction of the Court of Justice of the EU (CJEU) in the UK after Brexit is expected to present a serious obstacle to agreement on this point.  

Even if the relationship between the EU27 and the UK takes the form of a free trade agreement, the free movement of workers will still be an important matter. In exchange for the best possible access to the single market – which the British hope to achieve – the EU27 will want EU workers to be afforded preferential access to the UK labour market. In view of the substantial economic interests at stake for the UK and various EU member states in ensuring free movement as far as possible, the AIV believes that both the UK and the EU27 should aim to afford each other’s citizens preferential access over citizens of third countries.

As regards Brexit’s budgetary impact on the EU and specifically on the Netherlands, it is useful to distinguish between the ‘divorce bill’, the current multiannual financial framework (MFF) period (2014-2020) and the following MFF. Clearly, the Netherlands faces the possibility of a substantial negative financial impact at all three levels. The obvious course is therefore for the Netherlands to adopt a firm stance from the beginning of the negotiations, preferably with other countries (such as Germany, Sweden and Austria) which, as net contributors, are liable to face the most serious negative impact.

When it comes to the CJEU, the hard line taken by the UK, namely that it will not accept the Court’s jurisdiction after Brexit, will create serious problems. The Court’s position in the probable transitional period is of special concern here. It is uncertain whether the British idea of a special joint court will also be acceptable to the EU. The exact form of the tailor-made solution advocated by the UK is not yet clear. It might be difficult for Prime Minister Theresa May to sell the option of a special chamber of the CJEU which would be the sole body competent to rule on the interpretation and application of the transitional arrangements in accordance with rules and procedures agreed for this purpose.  

What is clear is that the Netherlands will lose an important partner when the UK leaves the EU. Aiming to strengthen existing coalitions, such as the Benelux and the partnership in North-West Europe, is desirable but not sufficient. The position of Germany, which should as far as possible form part of the bloc to which the Netherlands belongs, is particularly crucial here. The AIV is aware that Germany has many interests and potential partners, both to the east and in the Franco-German axis. Close cooperation with Germany will thus not always be possible. This is one reason why the AIV argues that the Netherlands should also actively seek partners for ad hoc coalitions on specific dossiers in big EU countries such as France and Spain, but also in smaller countries such as the Baltic states, preferably as part of a bloc of North-West European countries.

Recommendations

  1. The AIV believes that the process of shaping the new relationship between the EU and the UK should centre on the long-term importance of continuing close European cooperation against the background of the economic and geopolitical shifts that are currently under way and the enormous external challenges now facing the EU countries. Cooperation between the EU27 and the UK will remain vital in order to guarantee security, freedom and welfare in Europe, and to help to provide stability and prospects for people in Europe’s neighbouring countries.
     
  2. The AIV considers it vital for the EU27 to maintain a united front during the article 50 negotiations. This means that the Netherlands should not appear receptive to any British proposals evidently intended to play EU member states off against one another.
     
  3. As regards the withdrawal agreement, the AIV thinks it is essential for the government of the Netherlands to concentrate its efforts on the position of EU citizens in the UK and UK citizens in the EU, and on the size of the exit bill.
     
  4. On the subject of future relations, the AIV is of the opinion that the EU should aim for a comprehensive free trade agreement with the UK, similar to the agreement with Canada (CETA), if possible supplemented by elements of more far-reaching economic integration like those enshrined in the association agreement with Ukraine.
     
  5. Since it is unlikely that agreement can be reached on a comprehensive free trade agreement within two years, notwithstanding the position taken by the UK, the AIV believes that a short transition period would be both probable and desirable, to allow an orderly transition between the UK’s actual exit from the EU and the conclusion of a free trade agreement of this kind. The AIV therefore argues that the customs union should remain in place for three years, if possible with continued mutual recognition of norms and standards.
     
  6. As regards financial services, the AIV believes that an equivalence system would be the most probable and realistic solution to the loss of passporting rights. The Netherlands should also strive for solid arrangements during the transition period, to minimise the damage to business.
     
  7. The UK’s withdrawal also represents a significant loss to the EU’s external security, especially for the Common Foreign and Security Policy (CFSP) and the Common Security and Defence Policy (CSDP). The AIV therefore believes it essential for the government to push for EU-UK cooperation to continue, albeit in another way, and to work actively towards this goal, for example by involving the UK in some way in the decisions of the EU’s Foreign Affairs Council.
     
  8. Given the great importance that should be attached to keeping the UK closely involved in certain forms of European military cooperation, whether multilateral or bilateral, the AIV would argue that the government should continue the existing bilateral ties with the UK. Military cooperation with the UK should be assessed on its own merits and should not suffer from possible friction between the EU and the UK concerning trade policy.
     
  9. When it comes to internal security, in other words Justice and Home Affairs cooperation, the AIV also believes that continuing the existing cooperation is essential to the internal security of both the UK and the EU, particularly the Netherlands. However, the position of the CJEU is a complicating factor here, for which a practical solution has yet to present itself.
     
  10. In the AIV’s view, the EU member states would do well not to link initiatives aimed at improving the functioning and the fairness of the free movement of workers within the EU to the Brexit negotiations. Arguments by the Netherlands and other mainly Western European member states in the context of the revision of the Posting of Workers Directive, to ensure the same pay for the same work in the same place, would then possibly still stand a chance of being accepted by the member states in Central and Eastern Europe. This cause is unlikely to be helped by combining it with the divergent British wish to limit the number of migrants from the EU.
     
  11. If the UK is to participate in the single market for goods during a transitional period, it will be necessary to ensure the continued adoption and equivalent practical application of the single market acquis. If the UK does not recognise the jurisdiction of the CJEU during this period, the AIV believes it will be necessary to set up an appropriate system for oversight and dispute settlement.
     
  12. Brexit may have a major impact on the Netherlands in financial terms, too. During the forthcoming negotiations on the new MFF, the AIV takes the view that the Netherlands, together with other net contributors, should seek ways of reducing the EU budget over the coming years, so as to ensure that the Dutch contribution remains the same and in any event does not increase.
     
  13. The UK has been a natural coalition partner for the Netherlands on several dossiers (the single market, trade and defence cooperation, for example). After Brexit, the Netherlands will have to focus more closely than before on other possible coalition partners. The AIV thinks the Netherlands should aim for close cooperation and coordination with Germany, the most influential member state in the EU, but that will not be enough. Other possible coalition partners include the countries of North-West Europe, particularly Sweden, Denmark and Ireland, but also (in the framework of enhanced Benelux cooperation) Belgium and Luxembourg. Ad hoc coalitions would also be advisable, for example with bigger EU countries like France and Spain, but also with the Central and Eastern European countries, for instance in the field of security.
Advice request

Mr Jaap de Hoop Scheffer
Chairman of the Advisory Council
on International Affairs
P.O. Box 20061
2500 EB The Hague

Date   6 October 2016
Re      Request for advice on Brexit

Dear Professor de Hoop Scheffer,

On 23 June a referendum was held in the United Kingdom on the country’s EU membership in which 51.9% of British voters voted to leave the EU and 48.1% voted to remain. The government respects this outcome, though it is disappointed that a majority of those voting preferred to leave the EU. Since 1973 the UK has been a valued member of the EU and an important European partner for the Netherlands. The Netherlands and the UK have a close relationship and work together in a variety of areas: political, military, economic, cultural and social. With this in mind the government has consistently sought to keep the United Kingdom within the EU fold.

It is now up to the British government to indicate how it intends to deal with the referendum result. The UK can only withdraw from the EU once it has followed the applicable procedure set out in article 50 of the Treaty on European Union. This process will start as soon as the UK formally states its intention to invoke the article (the ‘notification procedure’). Pursuant to article 50 there will then be negotiations on a withdrawal agreement. As soon as the withdrawal agreement takes effect, the EU treaties will no longer apply to the UK. If no such agreement has been reached within two years of notification, the EU treaties will automatically cease to apply to the UK, unless this time span is extended by the EU and the UK. At this point it would be prudent to consider what the shape of our future relationship with the UK should be.

In the light of the above, the government would ask the Advisory Council on International Affairs (AIV) to provide an advisory report by next spring at the latest that addresses the following questions:

From the Netherlands’ perspective, what should be the key elements of the new bilateral relationship with the United Kingdom?
From a Community perspective, what key elements should be part of the EU’s new relationship with the United Kingdom?
What implications do the elements referred to in the previous two questions have for Dutch interests and the formation of coalitions within Europe?
What should the Dutch government’s aims be in its bilateral relationship with the UK in the next several years?

I look forward to receiving your report.

Yours sincerely,

Bert Koenders
Minister of Foreign Affairs  

       

Government reactions

Government’s response to AIV advisory report no. 103, ‘Brexit Means Brexit’: Towards a New Relationship with the UK

General remarks

On 6 October 2016 the government requested the Advisory Council on International Affairs (AIV) to produce an advisory report on what the shape of the future relationship with the United Kingdom (UK) should be following the referendum in the UK on 23 June 2016. More specifically, the government asked the following questions:

  1. From the Netherlands’ perspective, what should be the key elements of the new bilateral relationship with the United Kingdom?
  2. From a Community perspective, what key elements should be part of the EU’s new relationship with the United Kingdom?
  3. What implications do the elements referred to in the previous two questions have for Dutch interests and the formation of coalitions within Europe?
  4. What should the Dutch government's aims be in its bilateral relationship with the UK in the next several years?

The AIV’s advisory report ‘Brexit Means Brexit’ was published last March. The government has read it with great interest. The government notes that the AIV’s recommendations largely match the government’s own position. The AIV sets out its views on the consequences of Brexit in a broad array of conclusions and recommendations, in which its replies to the government’s questions are not always the main theme.

In this response, the government addresses the recommendations made in the report.

Response to the recommendations

The recommendations can be divided into three categories:

  • recommendations concerning the article 50 agreement (nos. 2, 3 and 5);
  • recommendations concerning the new future relationship between the EU27 and the UK (nos. 1, 4, 7, 8, 9 and 10);
  • recommendations concerning the transition to the new future relationship (nos. 6 and 11).

There are also recommendations concerning the future multiannual financial framework (MFF) (no. 12) and bilateral cooperation after Brexit (no. 13).

The response below looks at each category in turn.

Recommendations concerning the article 50 agreement

The AIV highlights the importance of the EU27 maintaining a united front during the article 50 negotiations. The government agrees. It is necessary to avoid member states being played off against one another during the negotiations. Where the member states’ interests differ, they must be weighed against one another by the EU27.

As far as the withdrawal agreement is concerned, the AIV, like the government, underlines the importance of concentrating on the position of EU citizens in the UK and UK citizens in the EU, and on the size of the exit bill. The government is therefore pleased that the guidelines for the negotiations that the European Council adopted on 29 April state that these are issues on which sufficient progress must be made before talks on the future relationship with the UK can begin.

Recommendations concerning the new future relationship

The AIV recommends that the long-term importance of the EU27’s continuing, close cooperation with the UK should be a central focus in shaping the future relationship. Cooperation is necessary in the fields of internal and external security, defence and trade. The government shares the AIV’s opinion that these subjects must not be linked. There should be no trade-off between security and trade.

The AIV highlights the importance of our trade with the UK and recommends that a comprehensive trade agreement should be concluded, similar to the agreement with Canada (CETA). The government agrees that trade is very important to the Netherlands; it values a good future relationship with the UK. The Netherlands will actively raise this issue in Brussels and with the other EU member states. The government would, however, refer to the phased approach set out in the European Council’s guidelines. Talks on a future relationship cannot begin until the Council feels that sufficient progress has been made in the negotiations on the article 50 agreement.

The UK’s departure from the EU will mean the loss of an important player in the fields of internal and external security and defence. The UK is a major military player, including in NATO, and a permanent member of the UN Security Council. The government attaches great importance to continuing cooperation in these areas, as the AIV recommends. The UK has indicated that it wants to be an active and reliable security partner. That is also in the Union’s interest.

In the AIV’s view, the EU27 would do well not to link initiatives aimed at improving the functioning and the fairness of the free movement of workers within the EU to the Brexit negotiations. The government agrees in principle with this view. Nevertheless, in the context of the discussion on the future of the EU, momentum may build towards the realisation of the aims pursued by Netherlands in this policy area without adversely affecting the Brexit process.

Recommendations concerning a transitional period

Like the AIV, the government does not expect an agreement on the future relationship with the UK to be concluded within two years, not least because such an agreement cannot be finalised and signed until the UK has become a third country. The AIV calls for a transitional period of three years, during which the customs union, among other things, will be continued, to prevent trade between the EU27 and the UK falling under the WTO regime as soon as the UK leaves the EU. The government, too, attaches great importance to an orderly transition. In this connection, the government would refer to the European Council’s guidelines, which likewise leave open the option of a transitional period. Any transitional period must be clearly defined and limited in time. In addition, an effective enforcement mechanism must apply. As the AIV itself remarks, this is a complex matter. A related question is whether the UK is prepared to temporarily continue its membership of the customs union.

If the UK continues to participate in the single market for goods during a transitional period, it will be necessary to ensure the continued adoption and equivalent practical application of the single market acquis. The government agrees with the AIV that it will be necessary to set up an appropriate system for oversight and dispute settlement. Here, too, the government would refer to the European Council’s guidelines, which state that a transitional arrangement would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply.

Other recommendations

The AIV notes that the UK’s withdrawal from the EU may have major financial consequences for the Netherlands. The government agrees with the recommendation that coalitions must be sought to prevent the Netherlands having to make a larger contribution to the EU budget as a result of the UK’s withdrawal. It also agrees with the recommendation that the article 50 negotiations with the UK on the obligations arising from the current MFF should be separate from the negotiations without the UK on the next MFF.

After the UK’s departure from the EU, the Netherlands will have to focus more closely than before on other possible coalition partners. The AIV thinks the Netherlands should aim for close cooperation and coordination with Germany, the most influential member state in the EU, but does not think that will be enough. After the UK’s departure, the Netherlands will indeed lose an EU partner that holds similar views on numerous subjects. The government is aware that, in the future, the Netherlands will have to join various coalitions to launch new proposals in the EU or to form blocking minorities in areas where it considers certain EU initiatives undesirable. In addition, new coalitions will have to be forged, depending on the subject, which will require the Netherlands to adopt a proactive approach. It will have to ensure that divisions in the EU are not increased because these partners are found only in North-West Europe. The Netherlands is able to act in concert with different EU partners, whether it be with the other five founding countries, its Benelux partners, the Nordic countries or on a bilateral basis. In an EU without the UK, it is important for the Netherlands to focus on a variety of coalitions, including new ones, with a view to espousing a common position. This means that the Netherlands will have to invest even more effort in its relations with and knowledge of other member states, to lay the basis for cooperation aimed at furthering Dutch interests in the EU in a future-proof manner. Close relations with the larger countries, especially Germany and France, can further enhance the Netherlands’ effectiveness.

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