Sunday, 10 December 2017

The Joint UK-EU Report (3) - The money !

On Friday 8th December, there was acceptance by the EU that "sufficient progress" had been made to allow talks to proceed further - Joint report from the negotiators of the EU and the UK government on progress during phase 1 of negotiations under Article 50 TEU on the UK's orderly withdrawal from the EU.  This post looks at the Report in relation to the Financial Settlement.  It is covered in some detail in paras. 57 to 86 but a great deal remains to be worked out as negotiations proceed.

A methodology, with four parts, has been agreed for the financial settlement. 
It consists of:

(a) a list of components;

(b) a set of principles for calculating the value of the settlement and payment modalities;

(c) arrangements for the UK to continue to participate in the programmes of the current Multiannual Financial Framwork (MFF) until their closure; and

(d) financial and related arrangements for the European Investment Bank (EIB), the European Central Bank (ECB), European Union trust funds, the Facility for Refugees in Turkey, Council agencies and also the European Development Fund (EDF)  - (paras. 57 and 58).

(a) Components of the settlement

(i) - Annual budgets to 2020 -

The UK will contribute to, and participate in, the implementation of the EU annual budgets for the years 2019 and 2020 as if it had remained in the EU (including revenue adjustments), on the basis of the applicable EU legal provisions including the Own Resources legislation - (para 59).

(ii) - Reste a liquider (RAL) - Outstanding commitments at the end of 2020

UK will contribute its share of the financing of the budgetary commitments outstanding at 31st December 2020 - (para 61).

As explained HERE, the RAL is "the sum of outstanding commitments, commitments agreed to but that have not yet translated into payments. Long term budgetary commitments lead to the existence of amounts of commitments remaining to be paid out (RAL). The phenomenon is similar to when a contract is signed, e.g. to build a house, the commitment is being made, but the construction company will only be paid according to the progress of the work."

(iii) - Liabilities, contingent liabilities and corresponding assets -

 UK will contribute its share of the financing of EU liabilities incurred before 31st December 2020 - with certain exceptions - (para 62 and footnotes 6 and 7).  There is considerable complexity on this point.  

UK will remain liable for its share of EU contingent liabilities as established at the date of withdrawal - (paras 63 and 64).

Para 65 - as the financial operations,  supported by the net asset of the European Coal and Steel Community (ECSC - now in liquidation) and of the European Investment Fund decided before withdrawal date, mature, the UK will receive its share.

EU assets relating to EU space programmes (EGNOS, Galileo and Copernicus) are not part of the financial settlement (para 66).  The UK's past contribution to the financing of space assets could be discussed in the context of possible future access to the services offered.   Any loss of access to those services will have major consequences in many areas - e.g. aviation.  On this see European Global Navigation Satellitae Systems Agency.   

The European Geostationary Navigation Overlay Service (EGNOS) is Europe's regional satellite-based augmentation system (SBAS) that is used to improve the performance of global navigation satellite systems (GNSSs), such as GPS and Galileo. It has been deployed to provide safety of life navigation services to aviation, maritime and land-based users over most of Europe.  

Galileo is Europe’s Global Satellite Navigation System (GNSS), providing improved positioning and timing information with significant positive implications for many European services and users.

Copernicus is the European system for monitoring the Earth and is coordinated and managed by the European Commission.

(b) - Principles of calculating the value of the financial settlement

The agreed principles are in para 67:-

UK will not finance any commitments that do not require funding from Member States and will receive a share of any financial benefits that would have fallen to it had it remained a Member State - (para 67 a).

Except for the UK payments relating to UK participation to Union annual budgets to 2020 as set out in paragraphs 59 and 60, the UK share in relation with the Union budget will be a percentage calculated as the ratio between the own resources made available by the UK from the year 2014 to 2020 and the own resources made available by all Member States, including the UK, during the same period - (para 67 b).

Payments arising from the financial settlement will become due as if the UK had remained a Member State. In particular, the UK will not be required to incur expenditures earlier than would be the case had it remained a Member State unless agreed by both sides.  It may be appropriate for the UK and the Union to agree on a simplified procedure for settling some elements of the payment schedule in the second phase of negotiations. Such a procedure should be based on an agreed forecast and, where appropriate, provision for subsequent review and correction - (para 67 c and footnote 9).

The financial settlement will be drawn up and paid in euros - (para 68).  Data for the calculation of UK obligations is to be drawn up from publicly available resources where possible, and audited by the European Court of Auditors - (para 69).  Phase 2 of the negotiations will address the practical modalities fore implementing the agreed methodology and the schedule of payments - (para 70).

(c) - UK participation in programmes of the MFF 2014-2020

Following withdrawal from the EU, the UK will continue to participate in the EU programmes financed by the MFF 2014-2020 until their closure - (para 71).  Participation in EU programmes will require UK to respect all relevant EU legal provisions including co-financing.  The UK may wish to participate in some EU budgetary programmes of the new MFF post 2020 but would do so as a non-member State - (para 73).

(d) - Other components of the settlement -EU bodies and funds related to EU policies

The Joint Report addresses withdrawal of the UK from the European Investment Bank but also notes at para 80 that there could be mutual benefit from a continuing arrangement between the UK and the EIB which the UK wishes to explore during Round 2 of the negotiations.

Capital paid in by the UK to the European Central Bank will be reimbursed to the Bank of England after the date of withdrawal - para 82.

UK will honour commitments made before withdrawal in relation to the Facility for Refugees in Turkey and also the EU Emergency Trust Fund for stability and addressing the root causes of irregular migration and displaced persons in Africa- para 83.

UK will remain party to the European Development Fund until the closure of the 11th EDF - (para 84).  The 11th EDF was created in 2013 by intergovermenntal agreement and is not part of the EU budget.  It entered into force on 1st March 2015.

The above is only a summary of the complex financial section in the Joint Report. The financial experts will doubtless be analysing the Report with a fine-tooth comb and, at this stage, a definite overall cost figure has not been calculated though some reports suggest it will be in the region of £40 billion.  By way of contrast, the cost to the economy of hard Brexit with no trade deal would be enormous - estimated in this report as £400 billion by 2030.

I will add any links to expert financial analysis of the Report as and when they become available.

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