The European Union agreed yesterday to move Brexit talks onto trade and a transition pact, setting the stage for a diplomatic wrangle over whether transitional arrangements to avoid a cliff-edge Brexit will also apply to Gibraltar.
Spain moved quickly to publicly set out its position that Madrid must reach agreement with the UK before any transitional deal can apply to the Rock.
But the UK and Gibraltar insist the Rock is covered by the withdrawal talks, which include transitional arrangements.
As UK and EU officials prepare to move the Brexit negotiations onto the next phase, the issue is likely to take on prominence in the coming days and weeks.
EU leaders took just 10 minutes at a summit yesterday to agree that “sufficient progress” had been made after a deal on respective citizens’ rights, the Irish border and Britain’s outstanding payments, giving negotiators a mandate to move on to the main phase of talks.
“This is an important step on the road to delivering the smooth and orderly Brexit that people voted for in June of last year,” Prime Minister Theresa May said outside her home in Berkshire, southern England.
“There is still more to do but we’re well on the road to delivering a Brexit that will make Britain prosperous, strong and secure,” Mrs May said, adding that Britain would be leaving the EU on March 29, 2019.
Summit chair Donald Tusk said the world’s biggest trading bloc would start “exploratory contacts” with Britain on what London wants in a future trade relationship, as well as starting discussion on the immediate post-Brexit transition.
A transition period is crucial for investors and businesses fearful that a cliff-edge Brexit would disrupt trade flows and sow chaos through financial markets.
But Spanish Prime Minister Mariano Rajoy said yesterday the transitional arrangements would only apply to Gibraltar if Spain agreed it with the UK first.
“What we have agreed is that any future agreement between the United Kingdom and the European Union must have the agreement of Spain and the United Kingdom before it is applied to Gibraltar,” Mr Rajoy told reporters.
“What we have asked for is that this is also applied to the transition period, not only to the future relationship, obviously, but to the transition period too.”
Mr Rajoy said Spain’s position had been reflected in yesterday’s agreement as an “inspirational principle”, but added: “These are complex, technical issues.”
The issue now is one of detail and interpretation.
Last April, the EU granted Spain an additional veto in respect of the application of any future UK/EU agreement “after the United Kingdom leaves the Union”. However guidelines approved by the European Council yesterday state clearly that the transitional arrangements “will be part of the Withdrawal Agreement”.
That means the Spanish view is at odds with the position in the UK and Gibraltar, placing a spotlight on Madrid’s hope to make Gibraltar’s inclusion in the transitional subject to its agreement.
“The position of the Government of Gibraltar is that the Withdrawal Agreement applies to Gibraltar,” a spokesman for No.6 Convent Place said.
“The position of the European Council, the European Commission, the UK and the 27 EU members is that transitional arrangements will be part of the Withdrawal Agreement.”
Despite Mr Rajoy’s statements, the European Council itself does not yet appear to have a clear stance on this issue.
A spokeswoman told the Chronicle that the April guidelines, which seek to grant Spain an additional veto over the application of any future UK/EU deals to Gibraltar, “remain completely valid”.
But asked to explicitly state whether this covered the transition arrangements too, the spokeswoman added: “I am afraid I can’t go further into the interpretation of April guidelines in this regard.”
Yesterday the Prime Minister made clear she wanted talks on post-Brexit trade relations with the EU to begin “straight away”, as the UK continues with its goal of negotiating a deal which can be signed immediately after the official date of departure on March 29 2019.
Her target was described as “realistic” but “dramatically difficult” to achieve by the president of the European Council, Donald Tusk.
Mrs May was boosted by the terms of a statement agreed by the EU27 at the European Council summit in Brussels, which left the door open for “exploratory contacts” early in the New Year to allow Brussels to gain greater “clarity” on the UK’s ambitions.
But the formal process is likely to run to a slower timetable, with official EU guidelines for trade talks not due to be approved until March 2018, when European Commission president Jean-Claude Juncker said the “real negotiations” would begin.
And the EU27 confirmed Brussels’ position that a final trade deal cannot be signed until the UK has formally left.
The four-page document also sets out the process for agreeing the terms of a transition period expected to last two years after the date of Brexit.
And it makes clear that the EU expects the UK to observe all of its rules – including on freedom of movement – and accept the jurisdiction of the European Court of Justice during this time.
It also set up a potential clash with London over Mrs May’s hopes of negotiating early trade agreements with countries outside the EU, stating firmly that the UK will stay in the single market and customs union during transition and will “continue to comply with EU trade policy”, which bars deals by individual states.
Speaking in her Maidenhead constituency, Mrs May said the move to the second phase of talks represented “an important step on the road to delivering the smooth and orderly Brexit that people voted for in June of last year”.
She said Britain would be “beginning the talks about our future relationship straight away”, adding: “There is still more to do but we are well on the road to delivering a Brexit that will make Britain strong, prosperous and secure.”
With Cabinet ministers due to discuss their preferred “end state” relationship with Europe for the first time next Tuesday, pressure is mounting on Mrs May to deliver a detailed statement on her aims which the EU will regard as an adequate basis to enter swiftly into substantive talks.
Asked at a Brussels press conference whether Mrs May’s goal of concluding negotiations by March 2019 was achievable, Mr Tusk said: “It is still realistic and of course dramatically difficult. For sure, the second phase will be more demanding, more challenging than the first phase.”
Mr Juncker said he was “convinced” a legally binding Withdrawal Agreement will be signed by October, to allow time for ratification by the European Parliament and MPs in Westminster.
The Commission will consult member-states on their priorities in a series of seminars early next year, he said, adding: “I think the real negotiations on the second phase will start in March next year. I cannot say when these negotiations will be concluded.”
Mr Tusk’s call for “unity” among the EU27 – whose trade interests in relation to the UK vary dramatically – was echoed by German chancellor Angela Merkel and French president Emmanuel Macron at a joint press conference.
Mrs Merkel said the upcoming talks would be “an even tougher piece of negotiation than we have had up to now”.
But she added: “The good news is that all 27 member states so far… have stood together, and I am very optimistic that we will continue to go forward in quite the same spirit.”
Mr Macron said: “We managed to keep the unity of the 27, the integrity of the single market, compliant with our rules. In the future we will do what it takes to do the same.”
The momentous decision to declare that “sufficient progress” was achieved in the first phase of negotiations, which dealt with the divorce issues of citizens’ rights, the Irish border and the UK’s £39 billion exit bill, was made by the EU27 in the PM’s absence in a meeting lasting less than half an hour at the European Council summit in Brussels.
Mrs May left the two-day summit early after winning applause from the other leaders as she assured them on Thursday evening of her determination to see Brexit through despite this week’s defeat in the House of Commons.
She now faces the prospect of a second setback next week, with backbench Tories preparing to rebel again to prevent her enshrining the March 2019 Brexit date in law.