By Alastair Macdonald and Jan Strupczewski
BRUSSELS (Reuters) - European Union leaders approved on Saturday guidelines for their chief Brexit negotiator, Michel Barnier, setting priorities that the Union of 27 governments staying in the bloc wants to achieve in talks on Britain's withdrawal.
Below are key points of the 8-page guidelines:
If "sufficient progress" towards agreeing the terms of an "orderly withdrawal" on March 29, 2019, is made in a first phase of talks starting probably in June, the EU27 could launch talks on how a long-term future free trade relationship could work.
That represents a compromise between the position of EU hardliners, who want no trade talks until the full Brexit deal is agreed, and British calls for an immediate start.
The chairman of EU leaders, Donald Tusk, told reporters the EU could assess if progress was "sufficient" as early as autumn, but officials noted the decision would ultimately be a political one and hinge on a recommendation from Barnier.
Barnier's recommendation will depend on progress in talks on Britain's contributions to the EU budget and on the way London would treat some 3 million EU expats now living in Britain.
Britain could have a few years after March 2019 when it does not have to give up all benefits of membership, to ease the shift for people and businesses. But in that case it would have to accept EU rules, e.g. on free migration, and submit to supervision by the European Court of Justice and other EU authorities.
"Any such transitional arrangements must be clearly defined, limited in time, and subject to effective enforcement mechanisms. Should a time-limited prolongation of Union acquis be considered, this would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply," the guidelines say.
The EU 27 will stick together against British efforts to divide and conquer and is prepared to play hardball against Prime Minister Theresa May's threat to walk out without a deal. Brussels thinks Britain needs a deal more than the EU.
"In accordance with the principle that nothing is agreed until everything is agreed, individual items cannot be settled separately. The Union will approach the negotiations with unified positions, and will engage with the United Kingdom exclusively through the channels set out in these guidelines and in the negotiating directives. So as not to undercut the position of the Union, there will be no separate negotiations between individual Member States and the United Kingdom on matters pertaining to the withdrawal of the United Kingdom from the Union."
Free trade will be a good outcome but Britain should not expect to get that if it seeks competitive advantages for its companies by state subsidies or by tearing up EU environmental or labour standards or setting itself up as a tax haven.
"Any free trade agreement should be balanced, ambitious and wide-ranging. It cannot, however, amount to participation in the Single Market or parts thereof, as this would undermine its integrity and proper functioning. It must ensure a level playing field, notably in terms of competition and state aid, and in this regard encompass safeguards against unfair competitive advantages through, inter alia, tax, social, environmental and regulatory measures and practices.
"Any future framework should safeguard financial stability in the Union and respect its regulatory and supervisory regime and standards and their application."
RIGHTS AND BENEFITS
Britain cannot have a better deal outside than inside the EU -- that would be a slippery slope to others leaving the Union. The guidelines stress there can be no "cherry picking" from the benefits of single market membership without accepting freedom of movement for EU workers.
"Preserving the integrity of the Single Market excludes participation based on a sector-by-sector approach. A non-member of the Union, that does not live up to the same obligations as a member, cannot have the same rights and enjoy the same benefits as a member. In this context, the European Council welcomes the recognition by the British Government that the four freedoms of the Single Market are indivisible and that there can be no 'cherry picking'. The Union will preserve its autonomy as regards its decision-making as well as the role of the Court of Justice of the European Union."
Britain must pay its share of potential losses from guarantees given by the EU, among other things. Until it leaves, the actual bill probably can't be calculated with accuracy. The main thing for the EU is to agree this year on a methodology of how to calculate it and then put the latest numbers into the formula when Britain leaves in March 2019.
"A single financial settlement - including issues resulting from the MFF (Multiannual financial framework - the EU's 7-year budget which ends in 2020) as well as those related to the European Investment Bank (EIB), the European Development Fund (EDF) and the European Central Bank (ECB) - should ensure that the Union and the United Kingdom both respect the obligations resulting from the whole period of the UK membership in the Union. The settlement should cover all commitments as well as liabilities, including contingent liabilities."
The EU doesn't want to disturb peace in Northern Ireland, where there will be a new EU land border. It is also paying attention to British military bases in Cyprus and is giving Spain a special say on the fate of the British territory of Gibraltar, which is not part of the UK but is in the EU.
"In view of the unique circumstances on the island of Ireland, flexible and imaginative solutions will be required, including with the aim of avoiding a hard border, while respecting the integrity of the Union legal order. In this context, the Union should also recognise existing bilateral agreements and arrangements between the United Kingdom and Ireland which are compatible with EU law."
(Reporting by Alastair Macdonald; @macdonaldrtr; Editing by Mark Trevelyan and Robin Pomeroy)