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.

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. By triggering Article 50 the two-year negotiation period had started, thereby setting the date for the UK’s exit on 29 March 2019 (now extended until 31 October 2019). This would be the deadline by which the UK would have to disentangle itself from 44 years worth of legal, financial and regulatory cooperation with the EU.

Former Prime Minister Theresa May declared, that this “is a historic moment from which there can be no turning back”, demonstrating that her government wanted to assure the British people that it would see through Brexit and deliver on the result of the referendum.

Then negotiate…

Article 50 of the TEU states that “[…]the Union shall negotiate and conclude an agreement with [the leaving] State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. […]”. With no precedent to guide negotiators, there was still a lot of room left for interpretation as to how these negotiations should be conducted.

The EU got its first win when the UK agreed to its 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. This showed how the EU was leveraging the UK’s need for settling the conditions for a future relationship to get the upper hand in the withdrawal talks.

The UK will continue to be a full Member State in the EU up until the exit date – giving British businesses the opportunity to work with UK and EU officials to shape the relationship between the two blocs.

Negotiating positions

The UK Government set out its objectives for the talks in a White Paper in February 2017, a month before Article 50 was triggered. Here Theresa May announced that she aimed to withdraw the UK from the EU’s Single Market and Customs Union, also known as a “hard Brexit”. The Government planned to negotiate a free trade agreement and a new customs agreement to ensure the most frictionless trade possible. The new agreement may also “take in elements of current Single Market arrangements in certain areas”, suggesting that some pieces of legislation might continue to apply. This plan was further elaborated in the “Chequers agreement” and following White Paper. The paper proposes to establish a free trade area for goods, including agree-food, through a common rule-book. It also proposes to set up a facilitated customs arrangement where the UK would apply EU tariffs to goods going to the EU. This was the point where severe fractures in the governing Conservative Party started show, as Brexit Secretary David Davis and Foreign Secretary Boris Johnson resigned believing these conditions would keep the UK too close to the EU.

This also led to the three-time rejection by MPs of the Withdrawal Agreement Theresa May’s Government had secured with the EU. As a result of the deadlock, Theresa May resigned, after which Boris Johnson became Prime Minister. His priority is to ensure the UK leaves by 31 October, with or without a deal.

The EU, meanwhile, was quick in accusing the UK of “cherry-picking” – trying to keep elements of EU membership it liked without taking the associated responsibilities. Maintaining the integrity of the Single Market, constituting the freedom of goods, capital, services and people, has been the EU’s top priority from the start. This was also highlighted in the European Council’s first set of negotiating guidelines.

Other main objectives of the EU included securing citizens’ rights, agreeing a financial settlement and ensuring the Irish border remains open. EU leaders emphasised that nothing is agreed until everything is agreed, meaning the transitional period (to run until 31 December 2020) will not enter into force unless all the withdrawal terms have been agreed on and approved by both parties.

And then leave

In principle, 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 was 29 March 2019. Given the complexity of the negotiations, it’s possible for the UK to ask for an extension of the negotiations, which Theresa May did on 20 March 2019, nine days ahead of Brexit and again in April. The remaining EU Member States agreed unanimously to grant this extension until 31 October 2019, making this the new Brexit deadline.

When and if the UK Parliament approves the deal, it will then be referred to the European Parliament for consent. The Withdrawal Agreement then becomes legally binding and the UK can make an orderly withdrawal from the EU on 31 October 2019.

In case it changes its mind, the UK can also unilaterally withdraw Article 50 and remain in the EU. This option is considered by those calling for a second referendum, which, while increasingly being put forward as an option by politicians, does not look like would currently get the support it needs in the current Parliament.

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 the Government’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 were to be a future relationship between the UK and the EU, complete isolation from EU regulations would be impossible.

On 13 July 2017, the UK Government published the European Union (Withdrawal) Bill, which repeals the 1972 European Communities Act and incorporates all existing EU legislation into UK law. This is to ensure that there is legal certainty for businesses and consumers once the UK leaves. The UK Parliament can then “amend, repeal and improve” the laws as necessary. This constitutes the ideal opportunity for businesses to feed into the policymaking process and ensure optimal conditions in the UK moving forward.

The Bill was subject to much criticism, which led to the House of Lords adopting multiple changes – though these were mostly overturned by the House of Commons. The Government was defeated once over giving Parliament a “meaningful vote” on the final Brexit deal. The Bill received royal assent on 26 June 2018.

It was this “meaningful vote” that led to the Withdrawal Agreement negotiated by Theresa May with the EU to be rejected in the House of Commons three times. In the event that the Government cannot secure sufficient support for the deal, the UK would by default leave the EU without a deal. This means EU law would cease to apply in the UK immediately, resulting in potential trading barriers being set up. With the extension of Article 50, current legal conditions will continue to apply until at least 31 October 2019.

In case all parties accept the Withdrawal Agreement, a transition period will kick in as soon as the UK leaves on 31 October 2019. This would ensure continued application of EU law in and to the UK during that period, but without UK participation in EU institutions and governance structures and therefore the decision-making processes. This would also provide more time for administrations, businesses and citizens to adapt. The transition period would run until 31 December 2020 with a possibility to extend it once by one or two years.

Options on Trade

Unsurprisingly, business concerns mostly revolve around what will happen to the trading relationship between the EU and the UK. Indeed, the future trade arrangements will be crucial for businesses operating across the border.

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 Status
The Norway Model or “Soft Brexit” Norway is not a member of the EU, but of the European Economic Area, meaning it participates in the EU’s Single Market. This model would constitute a very close relationship with the EU and is therefore often referred to as a “soft Brexit”.

It involves:

  • Considerable access to the Single Market, though not in agriculture or fisheries
  • Participation in the freedom of goods, services capital and people
  • No say in making or amending rules governing the Single Market
  • Significant contributions to the EU budget
  • Oversight of EU rules by the European Court of Justice
  • The ability to negotiate free trade agreements with third countries (unless the UK decides to also remain in the Customs Union)
Theresa May announced in January 2017 that she would not be seeking this type of model, or any other model that leaves the UK “half in/half out”.

Prime Minister Boris Johnson has no plans to change these red lines as he wants a clean break from the EU.

The challenge for Theresa May then and Boris Johnson now is that Parliament is made up of many Remainers who are seeking a closer relationship with the EU. MPs on both sides of the isle have advocated for a softer Brexit.

The Canada Model or “Hard Brexit” The EU recently concluded a comprehensive bilateral free trade agreement with Canada. This agreement eliminated most tariffs on goods and provided for regulatory cooperation, but it does not commit Canada or the EU to a single customs or regulatory framework. As this would constitute a complete split from the bloc, this approach is referred to as a “hard Brexit”.

It involves:

  • Not being a member of the EU Single Market or Customs Union
  • No full access to services, which make up 80% of the UK’s economy
  • The end of free movement of people
  • Some alignment with EU rules, but without having a say in making them
  • No oversight by the European Court of Justice
  • The ability to sign own bilateral free trade agreements with third countries
Theresa May’s Government committed itself to achieving this Brexit model. It aimed to remain close partners with the EU, but wished to leave its Single Market and Customs Union. The aim was to conclude a comprehensive free trade agreement that would maintain a tight trading relationship without having to adopt EU laws or comply with the free movement of people.

This hard Brexit approach was also embedded in Theresa May’s Withdrawal Agreement that was rejected by MPs three times.

Prime Minister Boris Johnson now wishes to make adjustments to the Withdrawal Agreement to ensure there is a complete and clean break from the EU. He has emphasised his preferred option would be to leave the EU with a deal that ensures this.

World Trade Organisation Model In a “no-deal” scenario, whereby the UK leaves the EU without any arrangements in place, the trading relationship between the two blocs will continue on WTO terms. This would provide the most radical and complete break with the EU.

It involves:

  • Leaving the EU Single Market and Customs Union
  • No longer having to accept the four freedoms, including the freedom of people
  • No contribution to the EU budget
  • No oversight by the European Court of Justice
  • The application of WTO tariffs on products and therefore the rise of significant trade barriers
While Theresa May avoided leaving the EU without a deal, Prime Minister Boris Johnson has been clear that he is willing to do so. His priority is to leave the EU on 31 October 2019, with or without a deal. Considering the short timeframe for negotiations, this scenario became far more realistic.

However, Parliament has adopted a law that requires the Government to ask for an Article 50 extension if no new withdrawal agreement is agreed and a no-deal-exit has not been approved by Parliament. Prime Minister Boris Johnson is looking to work around this law. If he succeeds, a no-deal Brexit is the most likely outcome.

So far, both sides of the negotiating table have wanted to keep the no-deal option in reserve as a negotiating tool to strengthen their negotiating positions.

Latest on the negotiations

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 completed, passed into law and implemented.

A timeline of key events in the negotiations so far:

9 September 2019: Parliament blocks no deal in law

The House of Lords and the House of Commons have adopted a law that forces the UK government to ask the EU for an extension of the Article 50 negotiations at the European Council Summit on 19 October if Parliament does not approve a Brexit deal or a no deal Brexit before then. The bill stipulates that the extension would have to run until 31 January 2020.

Having promised to deliver the UK’s exit by 31 October 2019, Prime Minister Boris Johnson is seeking ways around the law. He put the option to hold a general election before the House of Commons twice, but failed to secure the two-thirds majority necessary to organise it. While opposition parties are in favour of holding a general election, MPs wanted to ensure it could not be held before 31 October so the next Prime Minister (potentially Boris Johnson) could ignore the new law and pull the UK without a deal anyway.

Meanwhile, the government decided to prorogue Parliament, meaning it is suspended until 14 October. It is likely MPs will support the motion for a general election when Parliament resumes. The vote will then likely take place in November/early December.

24 July 2019: Boris Johnson becomes Prime Minister

Boris Johnson has become the new Prime Minister after he beat Jeremy Hunt in the race to become leader of the Conservative Party. The former Foreign Secretary quit Theresa May’s government in July 2018 over disapproval of her approach to Brexit.

Throughout the leadership campaign, Mr Johnson emphasised he wanted to ensure the UK leaves the EU on 31 October 2019, with or without a deal. His positive attitude towards leaving without a deal was also reflected in the Cabinet he put together. This includes key Leave figures, such as Dominic Raab, Priti Patel, Michael Gove and Liz Truss.

7 June 2019: Theresa May resigns as UK Prime Minister

Theresa May has resigned as the UK’s Prime Minister. Her decision followed increasing criticism from her own party over her leadership and the way she had handled the UK’s withdrawal from the EU.

Following an internal leadership contest, Foreign Secretary Jeremy Hunt and former Foreign Secretary Boris Johnson are now in the running to succeed Mrs May. Both candidates have committed to pulling the UK out of the EU by 31 October 2019, though Mr Hunt has shown more reluctance to doing so without a deal.

The final result of the leadership contest on who will become the next Conservative leader and Prime Minister will be revealed on 23 July 2019.

10 April 2019: European Council agrees to extend Article 50 to 31 October

At a European Council summit, the 27 EU leaders agreed to extend Article 50 until 31 October 2019. This followed Theresa May’s request for a shorter extension until 30 June with the option to leave earlier if the Brexit deal got adopted. According to the European Council conclusions, the longer extension means the UK must now hold the European Parliament elections in May or leave on 1 June without a deal. The “flextension” can still be terminated if the Withdrawal Agreement is ratified before 31 October.

The EU27 also reiterated that the Withdrawal Agreement is no longer open for negotiation, but there is flexibility on the Political Declaration on the future relationship. While a no-deal Brexit has been averted for now, the question is how the UK will use these six months to get a deal through that is acceptable for all sides. European Council President Donald Tusk emphasised that the UK should “not waste this time”.

29 March 2019: House of Commons rejects Withdrawal Agreement for third time

On what should have been the day that the UK left the EU, MPs rejected Theresa May’s Withdrawal Agreement for the third time by 344 to 286 votes. This was despite her promise to Brexiteer Conservatives that she would stand down as PM before the next phase of the Brexit negotiations if the deal was passed. While this had convinced several MPs to switch sides (the rejection margin was now the smallest at 58 votes), 34 Conservative MPs still voted against, as did the government’s confidence and supply partners, the DUP. The government’s hopes for Labour rebels’ support also did not materialise with only five voting in favour of the deal.

To get a better idea of what Brexit arrangement does have Parliament’s support, the government organised another set of indicative votes. All the options, including a customs union and second referendum, were once again rejected. This led Theresa May to turn to Labour leader Jeremy Corbyn to start discussions on a cross-party solution – much to the dismay of many Conservative MPs. With Labour calling for a softer Brexit and another referendum, the question is whether Theresa May will change her red lines to get any deal across the line, which would likely come at the expense of to what is left of the unity of her party.

21 March 2019: European Council agrees to extend Article 50

EU leaders have agreed to extend Article 50 until 22 May 2019 on the condition that the UK approves the Withdrawal Agreement before 12 April 2019. This effectively makes 12 April the new Brexit day, chosen by EU leaders because the UK must decide by this date whether or not to take part in the European elections on 23-26 May. Theresa May had requested an extension until 30 June, but EU leaders felt this would interfere with the European and some national elections.

If the House of Commons approves the Withdrawal Agreement, the UK will have until 22 May to get the legislation in place for an orderly withdrawal. The EU has thereby been able to dictate the Brexit process, now leaving four options for the UK to move forward: To approve the deal and leave on 22 May, to leave without a deal on 12 April, to ask for a long extension and participate in the elections or to revoke Article 50 all together. So far, Theresa May has only ruled out the last option and will put all her efforts into getting the Withdrawal Agreement approved to avoid working with the other two unpopular options.

12 March 2019: House of Commons rejects Withdrawal Agreement for second time

MPs voted down the Withdrawal Agreement for a second time by 149. Theresa May put the deal back to a vote following concessions made by Brussels on the Irish backstop. This included a ‘joint legally binding instrument’, a ‘joint statement’ and a ‘unilateral statement’, highlighting the EU would act in good faith and not seek to keep the UK in the backstop. Brexiteers, the DUP and the opposition Labour party soon emphasised that these changes were not significant enough to support the deal.

Parliament also held a number of other votes:

  • It voted down a motion supporting a second referendum
  • It voted in favour of ruling out a no-deal Brexit
  • It approved the extension of Article 50 to postpone Brexit

The Government is now in a precarious position, as it is becoming increasingly uncertain of what Brexit approach would get Parliament’s approval and the EU has emphasised that it will only approve an extension to Article 50 if the UK provides a clear action plan. Furthermore, Theresa May’s authority over her party and Government is also increasingly being questioned, as her own Cabinet members defied her whip on these crucial votes without having to resign.

15 January 2019: House of Commons rejects Withdrawal Agreement

In an historic defeat for the Government, the House of Commons overwhelmingly rejected the Withdrawal Agreement and Political Declaration on the future relationship by 230 votes. Reasons for Members of Parliament to vote against the deal varied, but for most advocates of a “hard Brexit”, the Irish backstop posed the biggest problem. The Agreement does not include an end date for the backstop and the UK cannot leave it independently. MPs fear the UK may become “trapped” in the single customs territory, with the Government’s ‘confidence and supply’ partners (DUP) arguing this could even break up the UK.

Meanwhile, supporters of a softer Brexit feel that the Political Declaration does not provide enough certainty over the future relationship. Many wish the UK to stay closer to the EU than is currently proposed by the Government.

Following this vote, the House of Commons adopted an amendment on 29 January, asking the government to change the backstop and seek “alternative arrangements to avoid a hard border” in Ireland. The EU, however, reiterated that the Withdrawal Agreement is no longer open for negotiation.

25 November 2018: EU leaders endorse Withdrawal Agreement

The European Council have approved the Withdrawal Agreement and adopted the Declaration on the Framework for the Future Relationship.

14 November 2018: Withdrawal Agreement is finalised

Negotiators have reached a deal on the Withdrawal Agreement. It includes:

  • A transition period until 31 December 2020, which can be prolonged by one or two years once.
  • A financial settlement the UK will have to pay the EU. This is estimated to be around £39bn.
  • A guarantee that UK citizens in the EU and EU citizens in the UK will retain their residency and social security rights after Brexit.
  • A backstop ensuring that the border between Northern Ireland and the Republic of Ireland remains open. This backstop would kick in if no trade arrangements are agreed by the end of the transition period and would trigger “a single customs territory between the EU and the UK”.

The Withdrawal Agreement is also accompanied by a Declaration on the Framework for the Future Relationship. This 26-page document outlines the general aspirations of the future trading relationship and is not legally binding.

19 June 2018: Negotiators issue joint statement on Withdrawal Agreement

The joint statementprovides an update on the latest areas of agreement in the draft legal text of the Withdrawal Agreement. New agreements had been reached on matters such as goods, Euratom related issues and judicial cooperation in civil and commercial matters.

19 March 2018: Negotiators publish draft Withdrawal Agreement

The Draft Agreementon the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union includes agreed legal text for the implementation period, citizens’ rights, and the financial settlement, as well as a number of other articles. The green text is agreed at negotiators’ level, while the text in yellow still requires changes and/or clarifications. The aim is to conclude the agreement in October 2018, allowing sufficient time to get approval from all necessary parties before the exit.

15 December 2017: European Council agrees to proceed to trade talks

Following the adoption by negotiators of a Joint Reporton the progress on the first phase of the talks, EU leaders decided that sufficient progress had been made to proceed to discussions on the future relationship.

The report emphasises that “nothing is agreed until everything is agreed”, meaning the withdrawal terms can still become void if the second phase of the talks are not successful. It also highlights that the European Court of Justice will play a role in the protection of citizens’ rights and that, in the absence of another arrangement, the UK would align itself with the Single Market and Customs Union to ensure the Irish border remains open. The method for calculating the financial bill has also been agreed.

19 June 2017: Start of negotiations

Nearly a year after the referendum, Michel Barnier, the European Commission’s Chief Negotiator, and David Davis, Secretary of State for Exiting the European Union kicked off the Brexit negotiations. Their officials met in working groups to discuss citizens’ rights, the financial settlement and “other separation issues”, including the common travel area in Ireland. Mr Davis said the talks got off to a “promising start”.

8 June 2017: UK holds general election

In a bid to secure a strong mandate before the Brexit negotiations started, Theresa May called for a general election.Her Conservatives remained the biggest party but lost their majority and the election result produced a hung Parliament. The Conservatives continued to rule with a ‘confidence and supply’ agreement with the Democratic Unionist Party (DUP). The outcome of the elections meant it would become a lot more challenging for Theresa May to find a majority for her “hard Brexit” plans.

29 March 2017: UK triggers Article 50

The UK ambassador to the EU hands over the UK’s letter to European Council President Donald Tusk, notifying its intention to leave the EU. Article 50 was hereby triggered and started the two-year negotiation process.

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 is now well underway, however the terms on which the UK and EU will continue to trade post-Brexit are still up for discussion. Businesses must, therefore, follow developments closely and engage as and when appropriate.

There are general and specialist negotiators involved in this process. The specialist civil servants have long provided liaison between the UK and other Member States as part of the EU law-making process and are currently much involved. 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.

Inevitably the UK’s influence in the EU 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.

There will also be an opportunity to engage with the EU during this process. This is possible through the European Commission, which leads the negotiations, as well as Members of the European Parliament and Member States who provide the European Commission with their negotiation mandate.

Post-Brexit Opportunities

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.

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.

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 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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