Project Brexit

Negotiating Brexit

How to leave

First notify…

Article 50 of the Treaty on European Union (TEU) grants Member States the right to withdraw from the European Union through a procedure that starts with a notification of its intention to leave being presented to the European Council. No Member State had ever used it before. After the UK’s Supreme Court ruled the Government needed Parliament’s approval to trigger Article 50, Brexit Secretary David Davis published the European Union (Notification of Withdrawal) Bill, a Bill to confer power to the Prime Minister to notify, under Article 50 of the Treaty on European Union, the UK’s intention to withdraw from the EU.

Having won approval from Parliament to press ahead with triggering Article 50, on 29 March 2017 the UK Government handed to European Council President, Donald Tusk, the letter notifying the EU the UK’s intention to leave the bloc.

Prime Minister Theresa May emphasised in the letter that it would be in the interest of both the UK and the EU to negotiate the exit “in a fair and orderly manner” and added that the EU would remain a close partner for the UK in future. The letter highlighted that Britain’s desire is to negotiate the terms of the future partnership with the EU alongside the terms of withdrawal from it. The letter also outlined the next steps for the UK, starting by repealing the European Communities Act 1972, which gives EU law supremacy over UK national law. Furthermore, the letter reiterated the UK Government will negotiate on behalf of one United Kingdom while taking into account the interests of nations and regions. Once powers have been transposed to the UK, the British Government has said that it expects the devolved administrations will also see an increase in decision-making powers.

The UK Government White Paper – a slightly fuller version of a speech made by the Prime Minister on Brexit in January 2017 – on the United Kingdom’s exit from, and new partnership with, the European Union, outlines the country’s goals for the upcoming negotiations.

The White Paper notes that “securing the freest and most friction-less trade possible in goods and services between the UK and the EU” is a priority, but repeats that the UK will not be seeking access to the Single Market. Instead, the UK “will pursue instead a new strategic partnership with the EU, including an ambitious and comprehensive Free Trade Agreement and a new customs agreement”. It also underlines that the new EU-UK agreement “may take in elements of current Single Market arrangements in certain areas”, suggesting that some pieces of legislation might continue to apply, although any arrangement will be “on a fully reciprocal basis”.

The UK will continue to be a full Member State in the EU as negotiations on its departure continue – giving British businesses the opportunity to work with UK officials and MEPs to influence the shape of a future deal.

When the request for the UK to leave was formally put forward, a negotiation mandate was soon drawn up by the European Council, without the participation of the UK. This opened the discussions on the UK leaving the EU. The President of the European Council, Donald Tusk, sent other Member State Governments draft guidelines for the negotiations, after which the European Council at a Summit on 29 April 2017, without the participation of the UK, fine tuned and adopted these guidelines and thereby provided EU negotiators with a mandate to start the Brexit talks.

In a bid to secure a strong mandate before the Brexit negotiations started, Theresa May called for a general election that took place on 8 June 2017. Her Conservatives remained the biggest party but lost their majority and the election result produced a hung Parliament. The Conservative will continue to rule with a ‘confidence and supply’ agreement with the Democratic Unionist Party (DUP), however the result is expected to greatly impact the Brexit negotiations. It is less likely Theresa May will find support in the House of Commons for her “hard Brexit” plans as outlined in the White Paper. She will therefore have to look for more common ground with other parties, while keeping both her ‘remainer’ and ‘Brexiteer’ backbenchers satisfied. The negotiations officially started on 19 June 2017, almost a year after the referendum.

Then negotiate…

The UK agreed to the EU’s two-phased approach to the negotiations, whereby the first phase is focused on the divorce settlement and the second on the terms of a future relationship. In the first phase, negotiators discussed the rights of EU and UK citizens, the UK’s financial bill and the border between the Republic of Ireland and Northern Ireland. Only once the EU27 believed sufficient progress had been made in these areas, talks could proceed to the second phase.

On 15 December 2017, the European Council decided that sufficient progress had been made in the first phase to proceed to talks on the transitional period and future trade deal. Negotiations on the transitional period started on 5 February 2018.

On 29 January 2018, the EU27 adopted negotiation guidelines on the transitional period. The text states that the transitional period should last until 31 December 2020 to coincide with the end of the EU’s 7-year budget. It also demands that the UK complies with all EU laws during this period without being part of the decision-making process. Furthermore, the UK will have to continue to contribute to the budget and remain subject to the jurisdiction of the European Court of Justice. With regards to citizens’ rights, the EU wants citizens in the UK to enjoy the same rights as now until the end of the transition.

On 23 March 2018, the European Council signed off the transitional deal, which will last until 31 December 2020. The text will be part of the withdrawal agreement and gives full rights to EU citizens moving to the UK during the transitional period and allows the UK to negotiate trade deals with other countries during this period. The aim is to finalise the withdrawal agreement in October 2018. 

On 23 March 2018, the European Council also adopted the guidelines on the framework for a future relationship with the UK. These guidelines highlight that there is no legal certainty, including over the transition deal, until the whole agreement is ratified. In terms of trade, they suggest putting in place a free trade agreement with no tariffs on goods and a close partnership on security and defence. The European Council will discuss the future relationship in further detail at the Summit on 28-29 June 2018.

Withdrawal takes effect once a negotiation agreement is agreed upon, or two years after notifying the European Council of the intention to withdraw, which in this case will be 29 March 2019. Given the complexity of the negotiations, it’s highly likely that they would need to last longer than two years: with unanimous agreement by the remaining EU Member States (and so a fair dose of political goodwill on their part), the negotiations period can be extended.

During the negotiation period, the UK will continue to be a full Member of the EU, bound by EU law, and with the same rights and obligations as any other EU member. Unless the Council specifically decides otherwise, the UK’s MEPs and other UK representatives continue to keep their posts throughout the withdrawal negotiating process.

The Journey to Brexit

Negotiating Brexit

 

Legal Implications

The UK leaving the EU means that EU law will cease to apply in this country – although any EU law transposed into UK law would remain valid until the Government decides to amend or repeal it. In view of Theresa May’s plan, it will also mean the UK will no longer be subject to the jurisdiction of the European Court of Justice. However, it is also important to note that if there is to be a future relationship between the UK and the EU, complete isolation from EU regulations would be impossible.

Because of this, negotiations and discussions would also revolve around provisions on the transitional application of EU rules, particularly with regards to free movement, the rights of EU nationals living in Britain and trade relations. Among other issues, it’s likely cross-border security and foreign policy issues as well as the use of unspent EU funds, would also be a focus for discussion.

On 13 July 2017, the UK Government published the European Union (Withdrawal) Bill (once known as the Great Repeal Bill), which repeals the 1972 European Communities Act and also incorporates all existing EU legislation into UK law. This is to ensure that there is legislative certainty for businesses and consumers when the UK does eventually depart in March 2019. The UK Parliament can then “amend, repeal and improve” the laws as necessary.

The Bill also contains provisions for the use of statutory instruments (also known as Henry VIII clauses) that will allow the Government to change certain provisions in EU law ahead of the transfer into UK law without full Parliamentary oversight.Opposition parties have called it a “power grab” and insist they are not in favour of the Bill as it currently stands. With only a slim working majority, the Government now faces a Parliamentary battle in both houses to pass the EU (Withdrawal) Bill. 

The Bill is currently being scrutinised by the Parliament. During the eight-day committee stage in the House of Commons – which has been concluded -, the Government suffered a defeat after Conservative rebels backed an amendment that allows Parliament to have a final vote to approve or reject any Brexit deal negotiated between the UK Government and the EU. The Government lost the vote by 309 votes to 305. To avoid another defeat, the Government a week later decided to drop on the idea of enshrining the exact date and time of Brexit – March 29, 2019 – in the Bill. The resulting compromise will allow Brexit to be delayed in “exceptional circumstances”.

On 8 May 2018, the House of Lords concluded the report stage of the EU (Withdrawal) Bill. It adopted 14 amendments to the Bill, including on ensuring the UK stays in the European Economic Area and giving MPs the power to stop the UK leaving the EU without a deal or to force the Government return to negotiations. The Bill will now return to the House of Commons which can overturn Peers’ amendments.

Options on Trade

Unsurprisingly, business concerns mostly revolve around the future of trade deals. As Theresa May announced during her speech in January she intends to pull the UK out of the European Single Market, the trade arrangements between the EU and UK will be crucial for businesses operating in the UK.
In very simplistic terms, there are three plausible models for the UK’s future trading relationship with the EU (it is important to note however that any deal negotiated will be unique):

Model Name Main Features
The Norway Model
  • Considerable access to Single Market, though not in agriculture or fisheries
  • No say in making or amending rules covering the Single Market
  • Involves significant contributions to EU budget
  • Involves accepting free movement of people

Theresa May has already announced she will not be seeking this type of model, nor any other model that leaves the UK ‘half-in/half-out’. This was, therefore, an unlikely scenario, however the outcome of the general election may have changed this.

Negotiated bilateral agreements
  • Each bilateral agreement the EU has is different, but none include full access to services – which make up 80% of UK economy
  • Again, likely to involve access to Single Market but no say in making Single Market rules
  • Could potentially involve accepting free movement of people too, as with the EU’s deal with Switzerland
  • In some cases, involves making contributions to EU budget

Prime Minister Theresa May has announced she wants to negotiate a bilateral free trade agreement with the EU. Before the general election, she was clear in saying she will pull the UK out of the EU Single Market, wants full control of immigration from the EU and that she no longer wants to contribute “vast sums” to the EU budget.

World Trade Organisation Deal Only
  • Provides the most radical, complete break with the EU
  • Does not involve accepting any free movement or contributing anything towards the EU budget or being bound by Single Market rules
  • But the EU would apply WTO tariffs to UK exports, raising their price and causing economic problems for exporters
  • The UK could either impose tariffs on EU imports, raising the price of basic foodstuffs or lower tariffs on imports from all countries, cutting the UK’s revenue stream

The “nuclear option”, this would cause economic damage for both the EU and the UK and so is unlikely to come to pass. EU governments, however, will keep this option in reserve as a negotiating tool, correctly judging that such a scenario would hurt the UK more than themselves.

Latest on the negotiations

Negotiations can be long…

It’s possible, even probable, that a notification under Article 50 would be the start of a decade or more of uncertainty until the future arrangements between the UK and the EU are negotiated, passed into law and implemented.

Theresa May announced that she wants to secure an outline of a trade agreement within the two-year timeframe, followed by a phased implementation process of post-EU regulations.

Indeed, it is not clear whether Article 50 itself simply covers the process of withdrawing from the EU, or also covers the arrangements for the future relationship with the EU. The EU and the UK agreed to start by negotiating the withdrawal terms – the financial bill, securing citizens’ rights and the Irish border – first before entering phase two of the talks, which cover the future relationship, including a trade deal.

With a very limited timeframe to discuss a future trade deal, the chances are that it will not be finalised by March 2019. It is therefore that the UK and EU have agreed on a transitional period in order to make the final exit as smooth as possible for business and citizens.

Negotiations will be complex…

Because EU law applies in most policy areas, most (if not all) government departments will have to participate in the negotiations. It seems clear therefore that negotiations will result in a significant bureaucratic and administrative burden both in the UK and in Brussels. There is also still the question of what role the Houses of Parliament will play exactly within the negotiations. The Prime Minister has already made it known that Government ministers will continue to provide regular updates to Parliament and that MPs and peers will have the right to vote on the final deal.

On the EU side, the Commission is the competent institution when it comes to negotiating international agreements. Former financial services Commissioner and centre-right Les Républicains politician Michel Barnier was named chief Brexit negotiator on behalf of the Commission. The appointment of the Frenchman sent a clear message to Britain as, when Commissioner, he was accused of plotting to weaken London’s status as the EU’s financial hub by trying to regulate the financial sector heavily and cap bankers’ bonuses.

When an agreement between the UK and EU is reached, the European Parliament will have to give its consent to the withdrawal agreement by a simple majority. Due to the political sensitivity of Brexit, the European Parliament has made known they want to be heavily involved in the negotiations as well. This is why MEPs have appointed their own Brexit negotiator, Guy Verhofstadt. As a former Prime Minister of Belgium with liberal and pro-European views, Verhofstadt was very much against Brexit and aims to make sure no other country will want to leave the EU. Consequently, he is seen as a tough negotiating partner for the UK, though it is currently unclear what role he will have within the discussions.

Given the unprecedented nature of this situation, the Council of the EU (representing the Member States) will also be involved in the negotiations. Its members – all EU Member States but the UK – will have to agree to withdrawal by qualified majority vote. Veteran Belgian diplomat Didier Seeuws is the Council’s Brexit negotiator and will lead its internal Brexit task force. Mr Seeuws has extensive experience in the EU and was Herman Van Rompuy’s Chief of Staff whilst the latter was Chairman of the European Council.

It is worth stressing that, even though most EU officials and Member State politicians are said to regret Britain’s decision, they also share the belief that the results of the referendum should be respected. The UK cannot be stopped from leaving in any case – though it can be denied a departure deal with the EU.

In absence of an agreement, the UK would be bound to World Trade Organisation (WTO) rules. This would impose certain tariffs on particularly goods and services, which could be overcome were the UK to strike trade deals with other countries. This will be near impossible: whilst negotiating its departure, the UK is still an official member of the bloc and is prohibited to formally negotiate any free trade agreements with other countries – a point EU officials have been making regularly over the months following the referendum.

Finally, under Article 50 a Member State having previously withdrawn from the EU, can ask to re-join, though EU diplomats have been clear in saying that once Article 50 is triggered, it cannot be revoked.

Get Engaged!

Businesses need to assess the threats and opportunities of the UK leaving the EU for their business and their sector – and no sector will be unaffected.

Opportunities During the Renegotiation Process

The formal negotiation process has now begun, on terms decided by Member States (but not the UK). Discussions will be general, focusing on one of the three trade options outlined above. Businesses must, however, follow developments closely and engage as and when appropriate.

There will be both general and specialist negotiators involved in this process. It’s likely those specialists will be civil servants who have long provided liaison between the UK and other Member States as part of the EU law-making process. Maintaining and building links with these experts will be vital in ensuring that a business or sector has its interests protected to the fullest possible degree.

It’s also possible to engage at the EU level through MEPs from different Member States. Many non-UK actors will be keen to see a deal that creates a harmonised market across the UK and the EU for businesses that operate in their country.

Influencing the EU During the Renegotiation Process

There will also be opportunities to engage during the renegotiation process. Unless the European Council specifically decides otherwise, the UK can take part in normal EU decision-making process as its departure is being discussed. Inevitably the UK’s influence will dwindle, but the relationships and the expertise built up over many years of engagement by experts within the UK Permanent Representation to Brussels, and by certain British MEPs, will remain. Businesses should take advantage of this, working with these civil servants and elected officials to protect key interests and head off threats that may appear during the renegotiation process.

In many respects, engagement by UK companies in the EU will increasingly mirror engagement from US-based businesses. Many American firms have extensive contacts with EU officials and elected representatives and regularly seek to influence the development of policy. They must rely, however, on arguments based on science or trade and employment within Member States rather than the impact of a law on their home market – as UK firms could and can currently do for the foreseeable future.

Opportunities Post-Brexit

When the UK finally leaves the EU, it will be more difficult for UK-based businesses to shape and influence EU policy development. But it won’t be impossible. Businesses should seek and exploit links in other EU Member States to advance interests through them. They should also look to form alliance/trade associations that cover both the UK and the EU: it will be as much in the interest of all to achieve a harmonised regulatory framework in both polities.

Much depends on the shape of the deal achieved by the UK in the coming years. In any event, The Whitehouse Consultancy can help. Our European team has more than a decade’s worth of experience conducting successful campaigns on behalf of multinational corporations, small companies and pan-European trade associations. Our success is based on our multilingual team’s expertise in both European politics and law, as well as valuable experience of working with and within the institutions of the European Union.

We can help you navigate the next few years of uncertainty from both a UK and a European perspective. In particular we can help you:

  • Follow and make sense of the debate
  • Understand what various proposals on the future relationship between the UK and the EU will mean for your business
  • And crucially, influence the shape of a future deal to maximise opportunities for your business and minimise the threats.

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For media enquiries, please contact Mayar Raouf on 020 7463 0698 / 0750 232 7092, or email Mayar.Raouf@whitehouseconsulting.co.uk.

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