By Charles Brasted and Andrew Eaton
This Wednesday, the UK embarks on a journey not previously taken by any other EU Member State. The process for withdrawing from the EU, which will get officially underway following the UK's formal notification to the European Council of its intention to withdraw from the EU on 29 March 2017, is untested and there is much uncertainty about how it will run.
Here we answer five crucial questions about what comes next. To find out more, join us the day after Article 50 is due to be triggered, 30 March 2017, for the first in a series of webinars we will be hosting throughout the Brexit process by clicking here.
1. What is the Article 50 process about?
The scope of the Article 50 process is itself contentious. The UK Government has made clear that it will seek to agree its future relationship with the EU during the two year period at the same time as the terms of withdrawal, but this is currently being resisted by the EU, which has indicated that withdrawal and any future relationship must be negotiated sequentially.
The terms of withdrawal will give rise to substantial issues. They include:
(a) unspent EU funds (grants etc) due to the UK;
(b) the UK's outstanding liabilities (budget, pension etc) to the EU;
(c) arrangements regarding third party rights and obligations deriving from EU law (such as farming subsidies, on-going regulatory obligations/investigations, the status of licences and certifications issued under EU law);
(d) whether the UK will continue to have access to certain EU regulatory bodies and agencies in the immediate future, such as the European Medicines Agency or the European Aviation Safety Agency, pending settlement of the future relationship;
(e) the transfer of regulatory responsibilities from EU to UK bodies and arrangements for the migration of EU agencies headquartered in the UK where UK participation will end on Brexit day;
(f) border arrangements, particularly between Northern Ireland and the Republic of Ireland; and
(g) the status of UK citizens living in the EU and EU citizens living in the UK.
2. What do we know about the positions of the parties?
The UK Government's stated objectives for the negotiations are relatively well known and are focused on the future UK-EU relationship: see its White Paper from February 2017. They are, broadly, to secure maximum possible access to the EU's Single Market while also "taking back control" of immigration from the EU, ending the jurisdiction of the Court of Justice of the EU in the UK and the UK being able to enter into its own free trade deals with non-EU countries.
By contrast, not much is known about the EU's negotiating position, beyond its focus on the withdrawal terms. The first step in the process is for the European Council (the heads of state and governments of the remaining 27 EU Member States) to draw up negotiating "guidelines", which will set the high level mandate under which the EU Commission will negotiate. The President of the European Council, Donald Tusk, is expected to publish draft guidelines by the end of the week, but these are unlikely to be formally adopted before the next official meeting of the European Council on 29 April 2017. The European Parliament is also expected to publish its own objectives for the negotiations.
3. How will the negotiations end?
Deal or no deal, March 2019 is probably Brexit date. The UK's notification has triggered the formal two-year negotiation period under Article 50. Any extension to the two-year period requires the unanimous agreement of the UK and all the other 27 EU Member States. The UK's membership will automatically terminate at the end of that negotiation period, with or without a deal.
Brexit is not inevitable — but the UK may find it hard to reverse. It is broadly accepted that, if all of the other 27 EU Member States agree, the UK could revoke its notification and remain an EU Member State. However, it remains unclear whether the UK is legally entitled to revoke its notification unilaterally, in the event one or more of the EU27 do not agree.
It takes more than two to tango. A withdrawal agreement must be approved by resolutions of the European Parliament (by simple majority) and the Council (by super qualified majority, 72% of the member states also comprising 65% of the EU population). The UK Government has also indicated that it will put the final deal to a vote in both Houses of the UK Parliament before the deal is voted on by the European Parliament. Michel Barnier, the EU Commission's chief negotiator, has suggested that, in order for the withdrawal agreement to be approved before March 2019, the negotiations would need to be concluded by autumn 2018.
Any deal on the future relationship between the UK and the EU is likely (depending on its contents) to require ratification by each of the remaining EU Member States, in addition to approval by the European Parliament (by simple majority) and the Council (likely by unanimity).
Without a deal, the UK's exit will be disorderly and disruptive. Even setting aside an agreement on the future relationship between the UK and the EU, no deal on the withdrawal issues outlined above would cause serious disruption. Questions relating to the accrued rights of citizens and businesses would have to be resolved on a case-by-case basis, leading to severe uncertainty.
4. Are the UK-EU negotiations the only show in town?
Brexit will also require legislation by the UK Parliament. The UK Government has announced that it will introduce a Great Repeal Bill to repeal the European Communities Act 1972 and ready UK law for Brexit. The Bill is expected to transpose into UK law the rights and obligations that already exist in the UK under EU law, "wherever practical". It will also enable changes to be made by secondary legislation to UK laws that would otherwise not function properly post-Brexit.
Transposing 40 years' worth of EU law into UK law will be a mammoth task. The scope of EU law is vast and the forms it takes are numerous. It is unlikely that the UK will wish to, or even be able to, transpose it all. For example, Brexit will render certain EU laws, for example about access to EU institutions, such as the European Parliament, defunct.
Policy choices will have to be made. Where EU law is transposed, decisions will have to be made before Brexit takes effect about the alterations needed to ensure EU-derived rules function effectively in their new domestic environment. In some places, this may simply require the removal of references to an EU institution and/or the substitution of UK bodies here and there. However, it will not be an entirely mechanistic exercise. For example, certain principles of EU law are currently found only in rulings of the Court of Justice of the EU; if the UK wishes to retain these, it will need to decide how these principles should be given a new domestic legal footing.
We do not yet know how this unprecedented legislative process will be conducted. An early draft of the Great Repeal Bill, and an accompanying White Paper, is expected to be published before or around the Queen's Speech in May 2017. Given the scale and complexity of the challenge, Parliament is likely to grant the UK Government wide delegated powers to perform the transposition. This could result in the UK Government performing the most comprehensive reform of UK law in history with reduced parliamentary scrutiny. Businesses should be prepared to identify and monitor closely the aspects of the transposition process relevant to their operations.
The UK will also be looking to the rest of the World. Although the UK is not entitled to conclude any free trade agreements before it has left the EU, Liam Fox's Department for International Trade hopes to be busy in the coming years in preparatory negotiations. For international businesses, the terms of these deals could be as significant as the UK-EU relationship.
5. What should businesses be doing now?
Engage early and engage often. Pro-active engagement with policymakers on both sides of the Channel will be crucial to understanding the emerging picture and to ensuring that your priorities are not their compromises. Click here to read our prescription for an effective Brexit engagement strategy.
Do not forget the legislation. Shaping the legislative process in the UK could have a crucial impact on the outcomes for your business. Click here to read our note deciphering the Great Repeal Bill, considering how it might work in practice and highlighting emerging issues.
For more resources on readying your business for Brexit, including our Brexit toolkit and latest thinking:
(a) Visit our Brexit Hub at: www.hoganlovells.com/brexit
(b) Sign up for our Brexit Bulletin at: bit.ly/2q9GeDT
(c) Contact us with any questions about Brexit at:
(i) Brexit@hoganlovells.com; or
(ii) via our Constitutional Change Taskforce www.hoganlovellsbrexit.com/contacts