Brexit: still a long way to go

Three months have now passed since a historic referendum resulted in the UK, in which voters chose to withdraw from the European Union – the first Member State to make such a decision. The unexpected vote sent shockwaves throughout the UK and the rest of the Union, causing a political crisis in London and leaders on the continent scrambling to deal with the result.

The UK will be withdrawing from the EU, but there’s a long way to go to until the exit. Upon her appointment as the new Prime Minister of the UK, Theresa May began a roadshow across the EU, meeting with the leaders of Germany, France, Ireland, Poland, Slovakia and Italy, in order to reassure leaders and buy more time before having to trigger Article 50.

The famous Article 50 has been at the top of discussions since the referendum result was announced. When the UK activates the article of the EU Treaty (signaling its intention to leave the Union), the clock starts ticking towards a two year deadline to reach an agreement with the EU on exit conditions. After this period, the UK will automatically cease to be a member of the EU, agreement in place or not. The two year period will cover two different negotiations. Firstly, the Withdrawal Treaty will decide how the UK leaves the EU, covering the technical aspects of a UK withdrawal, ranging from the arrangement on EU legislation already transposed into UK law and that which must be transposed during negotiations, to the nitty gritty aspects on, for example, intellectual property, financial services, real estate etc. Practical issues, such as the UK’s contribution to the pensions of EU civil servants and the splitting of EU properties, need to be resolved. Another aspect will focus on the European Court of Justice, namely, what happens with pending cases and those that arise during negotiations. This agreement requires approval by the 27 EU Member States via a qualified majority vote and by the European Parliament. The UK Parliament is also likely to have a vote on this agreement.

The second agreement that will be negotiated will cover the UK’s new relationship with the EU – will they have access to the Single Market? What will happen to EU citizens in the UK and UK citizens abroad? In coming to an agreement on such questions, the negotiations will not be bound to the two year deadline. This agreement will have to be approved unanimously by all 27 Member States, by the European Parliament and by each national parliament. The UK Parliament will also need to express consent as well.

In the meantime, the UK remains a full member of the EU, with all the rights and obligations attached to this.

Negotiating these agreements will be led by recently-appointed negotiators from the Council, Commission and Parliament. Former European Commissioner for Financial Services and the Internal Market, Michel Barnier, was appointed by President Juncker as the European Commission’s chief negotiator. Seasoned Belgian diplomat Didier Seeuws, and former head of cabinet of the previous European Council President Van Rompuy, will be leading the Council’s Brexit taskforce. Taking the lead for the European Parliament, which will have to ratify both the UK’s Withdrawal Treaty and future relationship agreement is Guy Verhofstadt, head of the liberals in the Parliament and former Prime Minister of Belgium.

Preparing such all-encompassing negotiations is no light feature. As there is no handbook available for conducting talks on leaving the EU, the procedure has to be invented. Council and Commission teams are being formed and the UK government is rapidly recruiting officials with expertise in fields that need to be covered – from fisheries to environmental and consumer protection and way beyond. A protocol for negotiations is being imagined, with elements such as who calls for meetings, who drafts the agenda, what sequence of issues will be respected etc. The EU has to sort out whether the Council will give the main guidelines to conduct talks and the Commission will be involved in the day to day technical discussions. How the European Parliament will be kept informed also has to be established.

As these teams draw up scenarios on what the consequences of various exit and future relationship aspects can be, they also discover every day new and unexpected problems. Thus, since the UK is a net contributor to the EU budget, its departure will have serious consequences for the future EU budget and the money available for regional funds and structural funds that benefit many poorer EU Member States.

One of the trickiest problems will be to define the scope of the negotiations. When the UK’s tariff-free access to the internal market must be tackled, the question arises as to whether that will take the form of a general agreement or whether this requires sector by sector negotiations. This could have a decisive impact on the length of the negotiations, with a sectoral approach obviously requiring much more time to conclude.

The EU has made it clear that no negotiations can start before the UK sends its letter invoking Article 50. Yet it seems increasingly necessary to sort out a few of these organizational aspects before commencing the palavers. Informal and discreet contacts between the UK and Brussels can be helpful in that respect.

The political calendar over the coming year will also be important, with national elections due to take place in various European countries. First up is the Dutch election in March, revealing whether anti-EU sentiment has either lost traction or gained traction since the Brexit result. The French election will take place in May, and it will be particularly interesting to see if Marine Le Pen’s Front National comes out victorious in the presidential and then parliamentary elections. Finally, and most importantly, the German election in October. The key question will be whether Angela Merkel can win a 4th term, and what national coalition can be formed.

The EU has made a commitment on moving on from Brexit, and stay unified in the face of one of its members deicing to leave the group. This month, the first EU summit without the UK was held in Bratislava, in which the 27 Member States declared that “although one country has decided to leave, the EU remains indispensable for the rest of us”. These discussions on how to improve the EU for citizens will continue in the years to come. Maintaining EU 27 unity is also important for the UK, since any future relations agreement needs unanimous support. That implies that every Member State has a veto against a deal with the UK.

The Brexit referendum result has led to a period of uncertainty, to say the least. Until negotiations take off, companies should go through various internal checks, such as the impacts that this may have on current staff, reviewing their existing contracts with, for example, suppliers, intellectual property impacts, etc. And if companies or organizations have concerns or wishes, the time to convey them to London and Brussels, where the future negotiators are still taking stock of all contentious matters to be put on the table, really is now.

Daniel Hart,

H+K Brussels

Michael Stott

Hill & Knowlton Strategies Search