Brexit Talks Impasse: A Guide to the Sticking Points

(Bloomberg) -- The fifth round of Brexit talks ended in deadlock as the U.K. refused to show its hand on the most important separation issue: the financial settlement Britain will pay when it leaves the European Union.

Also up for debate are the rights of citizens from EU countries living in Britain and U.K. nationals in the EU, and the new U.K.-EU land border that threatens to divide Northern Ireland and the Republic. Those matters have become secondary, and there’s more goodwill on each side, but they still need to be sorted before talks can move on to trade.

The U.K. is still butting against the timetable it agreed to in June, arguing that negotiations on future trading arrangements are crucial to settling the divorce. A case in point is the border in Ireland: how firm and physical that frontier needs to be depends on the terms of trade between the two sides.

Britain is due to leave in March 2019, and it hasn’t yet started talking about what the relationship with its biggest trading partner will look like after that.

Exit Bill

This is the thorniest issue that needs to be resolved before EU leaders will agree to discuss a trade deal and transitional arrangements with the U.K. The U.K. has said it will continue to pay into the EU budget for two years after leaving, to avoid tearing a hole in the current seven-year budget. Prime Minister Theresa May also agreed to meet the country’s financial obligations more broadly.

But the U.K. side didn’t flesh out those vague commitments, the EU’s chief Brexit negotiator Michel Barnier said on Thursday, and so there were no talks about the bill in this round. “This is not a process of agreeing specific commitments -- we have been clear this can only come later,” U.K. Brexit Secretary David Davis said.

The EU says the U.K. is liable for payments extending into the future, well past the exit date of 2019, a claim Britain disputes. For example, the U.K. doesn’t accept it’s on the hook for a share of pension liabilities for EU staff, according to people familiar with the matter.

Britain also says it won’t pay at all unless it gets the final trade deal it wants, while the EU claims that a methodology to calculate the settlement must be agreed upon before discussions on trade. “We are, therefore, at a deadlock on this question,” Barnier said.

Enforcement

The EU has maintained that the withdrawal agreement is a “union act” and therefore falls under the broad jurisdiction of the European Court of Justice. It wants the ECJ to be the ultimate guarantor of citizens’ rights.

May has pledged to leave the jurisdiction of the European court -- and it’s an issue of totemic importance for the pro-Brexit camp. A concession by her government that it’s only trying to escape the “direct” jurisdiction of the ECJ has advanced the debate but still doesn’t go far enough for the EU. The U.K. won’t accept EU citizens having recourse to the ECJ, while U.K. citizens living in the EU don’t.

May accepts that the ECJ will have jurisdiction during the transition period, when the U.K. wants to maintain current access to the single market. Even that has stirred unease in her fractious Conservative Party.

Ireland

Though both sides said there’s real progress toward a deal that would minimize disruption along the Irish border, EU officials warn that there are still many issues that need to be resolved, especially when it comes to preserving the Good Friday agreement that brought peace to the island.

According to this pact, British nationals born there are also entitled to Irish (and by extension EU) citizenship -- even if they’ve never set foot south of the border. While unusual, it was straightforward enough when both countries were in the EU. Now it opens up a legal and political minefield.

EU citizens have recourse to the ECJ (see above). So what if, after the U.K.’s withdrawal in March 2019, you’re a citizen of Northern Ireland, and therefore live in the U.K., but have European rights associated with your Irish citizenship and want to take a case to the ECJ?

One of the most intractable problems created by Brexit is that when the U.K. leaves the EU’s single market and the customs union, border controls will have to be re-established. No matter how advanced the technologies used for these controls, the island will be physically divided. 

Bypassing this issue won’t be easy, because the EU won’t accept a solution undermining its legal order, including the integrity of its single market. And the U.K. won’t accept Northern Ireland staying in the single market to avoid border controls, as in that case there would have to be checks between mainland Britain and Northern Ireland.

Citizens Rights

There’s been some progress on this issue, particularly in the previous two rounds of talks. But the issue of family reunion -- Europeans being able to bring their parents, spouses or children to come and live with them in Britain -- remains a stumbling block. The EU also wants Europeans to be able to bring their U.K. disability benefits with them if they move back to Europe. Both sides wanted this issue sorted quickly, and May has repeatedly told the 3.2 million EU citizens living in the U.K. that she wants them to stay. Still, in a no-deal scenario, their rights will be thrown into limbo.

After the previous two rounds, a joint technical note was published, showing the two sides converging on a series of issues related to citizens’ rights. At this round no clear progress was made, according to an EU official, and no technical note was released.

--With assistance from Viktoria Dendrinou

To contact the reporters on this story: Nikos Chrysoloras in Brussels at nchrysoloras@bloomberg.net, Ian Wishart in Brussels at iwishart@bloomberg.net.

To contact the editors responsible for this story: Emma Ross-Thomas at erossthomas@bloomberg.net, Vidya Root at vroot@bloomberg.net, Alan Crawford