Article 50 Triggered: What Next?
March 29th saw Sir Tim Barrow, the UK’s permanent Brussels representative, hand over a letter to President of the European Council, Donald Tusk. The letter’s significance? Signed by Prime Minister Theresa May, it gave formal notice of Britain’s intention to leave the European Union, to invoke Article 50 of the Lisbon Treaty. It’s taken a long time to get to this point – nine months since the historic referendum vote to leave – but Britain is officially on its way out of the EU.
The clock is ticking
Two years – or 716 days (at the time of publishing) if you’d rather – until Britain’s departure from the EU on 29th March, 2019. This blog post will delve into what we can expect from the intense period of negotiation that lies ahead, how the Government intends to ensure that the process runs as smoothly as possible and what Britain’s prospects are outside the EU.
First, the UK-EU negotiations. There are two elements to these – settlement of Britain’s terms of exit, how it’ll resolve outstanding EU commitments and map out future collaboration, and conclusion of a Free Trade Agreement (FTA).
Second, Britain’s exit terms, or ‘divorce terms’, will involve great complexity. Since its entry into the then European Economic Community in 1973, there are few areas of our national life that have escaped its influence. Our farmers receive subsidies from the Common Agricultural and Fisheries Policy, our pharmaceuticals are evaluated by the European Medicines Agency and our students receive funding from the European Research Council. The passage of the planes in our sky is governed, and the VAT levied on our goods is defined, by the EU. Brexit means all these must be reconsidered. Either some involvement with the EU will endure. Or we will undertake its functions ourselves. Or they simply won’t happen.
Continued involvement with the EU from outside is possible
Other non-EU European countries, such as Norway and Switzerland, have bespoke relationships with it. So will Britain once negotiations are concluded.
There will be bumps along the road. A contentious part of the negotiations will likely be the total of Britain’s outstanding EU contributions, to EU staff members, research projects and its budget. Taken together, the divorce bill is likely to exceed £50 billions, although how much the UK will ultimately pay remains an open question. Brexit Secretary David Davis has suggested it could be nothing while Chancellor Philip Hammond has stated he “does not recognise” the EU demand amid reports Cabinet ministers have told him to cap it at £3 billions.
The status of EU nationals in the UK, and UK nationals in the EU, is another point of contention. Despite efforts to guarantee EU nationals’ rights in the UK on our own, or unilaterally, by the House of Lords, the Government will head into negotiations with their status on the table so as that of British expats remains unknown. That means up to two years of uncertainty for both camps residing in countries not of their birth.
Ensuring a smooth legal transition out of the EU is another challenge
Without action, the entire body of EU law that has applied to the UK since the 1970s will cease to apply on departure. Given it comprises somewhere between 10 to 70% of current statute (depending on how you define an EU law), the Government, companies and individuals will find themselves no longer having to abide by many rules to which they’ve grown accustomed. Avoiding this cliff edge, the Government proposes a ‘Great Repeal Bill’ to cut and paste all EU law into UK law. That sounds straightforward enough, but some EU law invokes its institutions – for example, the Offshore Petroleum Activities (Conservation of Habitats) Regulations 2001 asks that the European Commission’s opinion be sought on offshore oil and gas projects. Clearly, outside the EU, it will be senseless for UK law to require this. Either it won’t be converted into UK law or the reference to the Commission will be replaced with a UK body.
Controversially, the Great Repeal Bill may wield some ‘Henry VIII’ clauses, or the ability for the Government to evaluate that EU legislation it wants to keep, or get rid of, without Parliamentary scrutiny. Already Gina Miller, who forced a vote to be held on Article 50’s triggering, has threatened to take the Government to court should it use them. So, a legal tussle is not beyond the realm of possibility.
The other aspect of the UK-EU negotiations is agreement of an FTA
FTAs seek to lower or remove trade barriers while freeing up signatories’ ability to invest in one another’s economies. As an EU member, minimal trade and investment barriers between ourselves, and other member states, already exist. Getting rid of those was the main attraction for our EU entry in the first place. The FTA, then, also aspires to avoid a sudden change by preserving that arrangement post-Brexit.
We can’t expect this to be plain sailing either. The EU has demanded Britain continue to apply its regulations, and keep its tax rates the same as elsewhere in the EU, to prevent it from gaining what it believes to be an unfair advantage before the break-up. And, if history is any indicator, it will likely take more than two years to negotiate. The EU has a track record of spending lengthy periods agreeing FTAs, partly because deals must be separately agreed by the legislatures of all 28 member states.
If no UK-EU FTA is agreed, the UK’s trading relationship will default to World Trade Organisation (WTO) rules which could mean the EU charging tariffs on British exports and customs delays as products are verified for conformity to EU standards.
So, what do we at Khaos Control HQ think the prospects for British business now that Article 50 has been triggered?
It’s important to recognise that, at the negotiations’ outset, both sides will play hardball. Britain, that we’re prepared to accept no deal over a bad deal, and the EU that Britain should settle an onerous divorce bill. These are negotiating tactics, designed to afford maximum room for maneuverer. Rather than pay attention to day to day scare stories, worst and best case scenarios, businesses would do well to recognise the negotiations’ outcome will be a compromise.
And while it’s hard to say exactly where each party will give and take, we expect:
- an FTA,
- continued residency rights for EU citizens in the UK and UK citizens in the EU,
- and substantially reduced contributions by Britain to the EU budget.
For these things are all in both parties’ self-interest. Regaining our seat on the WTO, Britain will be able to negotiate bilateral trade deals faster on its own.
Not everyone will be pleased with the final settlement, but it would be wrong to say that it will not open opportunities.
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