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A recap on Brexit: what do we know so far?

5 July 2016

By Elina Eriksson

Today marks twelve days since the UK voted to leave the European Union.  We examine below what we have learnt about what lies ahead, as the dust is settling in Brussels and in Westminster.

ARTICLE 50

A deliberate act

Several aspects of Article 50 of the Treaty on the European Union (“Article 50” and “TEU“) – now arguably the most famous provision of European Union law – have been subject to debate following the referendum results.  In particular, what amounts to a “decision” under Article 50 and what is required for that decision to the “notified” to the European Union?  Comments last week by the Presidents of the European Council and the European Commission, Donald Tusk and Jean-Claude Juncker, make it clear that the European Council considers the invocation of Article 50 to be a deliberate act by the UK government that is yet to take place.  This alleviates concerns that the UK might be deemed to have unwittingly triggered the withdrawal process.

The only way out

There has been speculation as to whether the European Union, pending or in the absence of an Article 50 notification by the UK, could force the UK to invoke Article 50 or use alternative measures to eject the UK from the European Union.  In press conferences last week, Tusk and Juncker described the UK government’s invocation of Article 50 as the only possible legal route forward. This tells us two things: (1) because there is nothing the European Council can legally do to compel a notification, the divorce from the European Union will only begin once the UK government pulls the trigger; and (2) the European Council does not consider there to be alternative procedures to Article 50 – at least openly. The ball is therefore in the UK’s court, as far as the European Council is concerned.

This of course does not preclude political and economic pressure from Europe.  In addition, although not mentioned in press conferences, it remains open to the European Union under Article 7 TEU to suspend the UK’s membership of the European Union, if the UK does not comply with its European Union obligations while still a member.

Timing of notification

There is no doubt that Europe wants to see a notification imminently.  The European Parliament, attempting to put pressure on the UK government, went so far as to pass a resolution that “in order to prevent damaging uncertainty for everyone and to protect the Union’s integrity“, it expected David Cameron to make the notification last week.  That resolution, however, was not binding as a matter of law.  Despite pressures from Europe, David Cameron has made clear that the decision to invoke Article 50 will be a matter for his successor.  This means that we will not see a notification until the Conservative Party appoints a new Prime Minister.

Europe seems to accept that this will be the case.  While the European Council wants the UK to specify its intentions as soon as possible, Tusk has recognised that “some time is now needed to allow the dust to settle in the UK“.  Comments by Juncker on how soon after his or her appointment the new Prime Minister should invoke Article 50 (two weeks if from the Remain campaign, and the day following the appointment if from the Leave campaign) also show that the European Council has thought pragmatically about what the leadership changes in the UK mean for the timing of the notification.

When, then, do the five candidates for the UK Prime Minister post intend to make the notification if appointed?  We outline below indications given so far by the Prime Minister candidates in press interviews and their respective campaign launches.

Theresa May thinks there should be “no decision to invoke Article 50 before the British negotiation strategy is agreed and clear, which means Article 50 should not be invoked until the end of this year“.  Michael Gove wants extensive preliminary talks with the EU before triggering the Article 50 process next year.  Stephen Crabb has been less clear on timeframes and suggests that the country should be “brought together with an advisory council” before “we even get on to making any decisions about when we activate Article 50“.  Liam Fox wants to “talk to our German and French colleagues” before triggering Article 50 and has marked 1 January 2019 as a potential Brexit date.  Angela Leadsom, by contrast, wants the UK to “get on with it” and exit the EU as early as next Spring.

Despite diverging opinions on how and when the UK should exit the European Union, none of the five Prime Minister candidates back a second referendum or an early general election.

NEGOTIATIONS

No negotiations without notification

While the European Council cannot compel a notification in law, it is adamant that no negotiations will take place until Article 50 is invoked.  This was made abundantly clear by Tusk and Juncker at a press conference following the informal meeting of the remaining 27 Member States on Wednesday last week (referred to as the “EU27”). Once the decision to withdraw has been notified, the European Council will adopt guidelines for the negotiations of an agreement with the UK. We have therefore reached an impasse.  (Note, however, that David Cameron in Prime Minister’s Questions on Wednesday last week suggested that he believed this does not necessarily rule out “discussions”.)

The EU27 is due to meet next on 16 September 2016 in Bratislava to continue discussions.  In the meantime, as the European Council has specifically pointed out, European Union law continues to apply to, and within, the UK until the UK leaves the European Union, both when it comes to rights and obligations.

Potential negotiators

Tusk and Juncker stated that in the process going forward, the European Commission and the European Parliament will “play their full role in accordance with the Treaties“.  There is some indication that the European Union institutions are already taking steps to prepare for the negotiation stage of the withdrawal process.  There have been media reports about the creation of a Brexit taskforce in the European Council led by Belgian Diplomat Didier Seeuws, as well as that a three-person “Brexit negotiation team” has been put in place by the European Parliament, consisting of Belgian MEP and former Prime Minister, Guy Verhofstadt, German MEP and Chairman of the European Parliament Committee on Foreign Affairs, Elmar Brok, and Italian MEP and Chairman of the Committee on Economic and Monetary Affairs, Roberto Gualtieri.

No internal market à la carte

The European Council has been particularly firm on one point of the substance of the negotiations on the UK’s withdrawal: there will be no access for the UK to the internal market without acceptance of the four fundamental freedoms of people, goods, services and capital.  According to Juncker, such acceptance must be without exception and nuance.

Trade between the UK and the European Union

European Union trade commissioner Cecilia Malmström stated last week that talks on a new trade agreement between the UK and the European Union should not start until after the so-called withdrawal arrangement is completed.  She indicated that following the UK’s exit and pending the entry into a new trade deal with the European Union, business would be conducted with the UK as a “third country” under World Trade Organisation rules.  This suggests that the European Union will only focus on the terms of the withdrawal agreement until Brexit occurs.  However, Article 50 provides that the withdrawal agreement should take into account the framework of the future relationship of the exiting Member State with the EU27.  Therefore, both sides will inevitably consider the structure and the main elements of their post-Brexit relationship during the negotiations on the withdrawal arrangement.

IMPLICATIONS FOR BUSINESSES

Most of the Prime Minister candidates want time for deliberation and development of a negotiating position before triggering Article 50.  This means that businesses should not delay in considering the impact of European Union law on their businesses and make sure that their voice is heard by government.  For example, is access to the internal market of paramount importance to their business?  Is the nature of European Union regulation in their sector such that their operations are particularly at risk if there is a less-than-smooth transition to a post-Brexit settlement?

It is clear that engagement with business on the implications of Brexit is also a government priority.  On Thursday last week, Business Secretary Sajid Javid announced that a new inter-ministerial group has been established to coordinate engagement with the business community following the referendum.  According to a press release, the group will look at “where businesses are seeking clarity and certainty and make sure the government is sending a clear message that it remains committed to making the UK the best place in the world to start and grow a business“.

Businesses should therefore not hesitate to inform the discussion by making their position known.