How to leave?
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 has ever used it – yet. 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 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 Government also published the Great Repeal Bill White Paper. Among other things, the Bill will create a power to correct elements of domesticated EU law which pose problems from leaving the EU, and leaves open the option of having to create a “complete and functioning statute book” if the UK leaves the EU without any deal.
The UK Government White Paper on Brexit– 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”.
In theory, informal initial negotiations, outside the formal processes of Article 50 TEU, can smooth the path towards achieving a deal that satisfies all. Yet this required political goodwill that the European institutions – the collective name given to the Commission, European Council and European Parliament – did not show leading up to the Article 50 notification, repeating what’s become a key phrase in Brussels: “no negotiations without notification”.
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.
Now that the request for the UK to leave has been formally put forward, a negotiation mandate is drawn up by the European Council, without the participation of the notifying Member State. This opens the discussions on the UK leaving the EU. The President of the European Council, Donald Tusk, will send other Member State Governments draft guidelines for the negotiations, after which the European Council will meet at a Summit on 29 April, without the participation of the UK, to fine tune and adopt these guidelines and present a mandate for EU negotiators to start the Brexit talks.
During the negotiation period, the Member State continues 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.
Withdrawal takes effect once a negotiation agreement is agreed upon, or two years after notifying the European Council of the intention to withdraw. 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.
The Journey to Brexit
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 – including vital issues such as access to the Single Market and free movement of people. The latter may require the negotiation of a separate agreement with the EU, though Prime Minister Theresa May has indicated she wants to negotiate the terms of the exit and of the future partnership simultaneously, something not all EU partners agree with.
This has prompted a raft of expert opinion and speculation. Some have argued that the withdrawal negotiations would focus on the mechanics of withdrawal and a possible transition period, before a separate agreement on the future relationship with the EU comes into force. 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.
What this transition period will look like (possibly a status quo), and how much the UK will be expected to contribute towards the EU budget before it leaves (a major issue in the EU referendum campaign), was not disclosed.
Negotiations will be complex…
Because EU law applies in most policy areas, probably 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, in theory, 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 ambitions, 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 Member States) will also be heavily 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.
What are the legal consequences of leaving the EU?
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 agreements. 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.
In the past months, Theresa May mentioned her intention to pass a Great Repeal Bill in the UK, which will annul the 1972 European Communities Act (ECA), which gives EU law instant effect in the UK. This Bill is a pragmatic one, giving the UK Parliament the power to absorb EU legislation into UK law so they do not have to go through the lengthy process of looking at forty years of legislation and deciding which to keep and discard.
What are the UK options for 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||
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 is, therefore an unlikely scenario for the future relationship between the UK and EU.
|Negotiated bilateral agreements||
Prime Minister Theresa May has announced she wants to negotiate a bilateral free trade agreement with the EU, making this option the most likely. However, she has been 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. Therefore, achieving a bespoke deal that protects British economic and political interests (e.g. restrictions on free movement) whilst giving 27 remaining EU Member States what they want will likely involve difficult and protracted discussions.
|World Trade Organisation Deal Only||
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.
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.
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.