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BREXIT - THE ROAD AHEAD

Prepared by Headland

CONTENTSOn your marks, get set…

The hurdles

Deal or no deal?

EU – the insiders

The red lines

The transition

Plan B?

Political dangers

Key issues for X sector

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ON YOUR MARKS, GET SET…

Don’t expect a frenzied start: The Government has now sent the letter triggering Article 50.

Although the EU plans to give an initial response within 48 hours, it will be several weeks before a

summit of EU Members approves formal guidelines for negotiations. In the meantime, the UK will

continue to build bilateral relations with individual countries, laying the groundwork to future post-

Brexit agreements. Towards the end of May, the EU will nominate the Commission as its lead

negotiator and confidentially adopt more detailed directives for its negotiating remit. Only then can

talks finally begin.

In reality, there are only 18 months to get the deal done: The man leading negotiations for the

EU, Michel Barnier, has said that all negotiations will need to be completed by October 2018 to

ensure time for ratification by European leaders, as well as British and European parliaments.

The UK needs to negotiate two agreements: Firstly, an exit deal and secondly, new rules of

engagement with the EU. While the UK hopes that a twin-track approach will be taken, ideally with

the two agreements being implemented at once, time looks very tight. Michel Barnier has said he

aims to first secure ‘divorce’ by December 2017, and then work on a new relationship agreement in

time for his October deadline.

The UK has pulled the trigger via Article 50, bringing to an end over 40 years in the EU club. Whilst we have at least two

more years of membership ahead of us, we still know very little about the process which will bring this chapter to an end.

In fact, so far the EU has yet to set out any guidelines for the biggest negotiation facing the UK in decades.

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EU Initial Response [30 March]

Article 50 triggered [29 March]

Queen’s Speech [Mid-May]

Negotiation guidelines adopted at EU

Member summit [Late April/Early May] EU Commission appointed

as lead negotiator. Confidential negotiation

directives adopted [Late May/Early June]

2017 2018

De facto deadline for agreeing a transition

agreement[March]

EU (Michel Barnier) plans to end

‘divorce’ talks, and begin ‘new

relationship’ talks[December]

The UK exits the EU –irrespective of achieving an

agreement, unless EU approval given for

time extension[29 March 2019]

Official negotiations

begin [Late May/Early

June]

EU (Michel Barnier) plans to conclude negotiations ready for agreements to

be ratified [October]

Bilateral trade talks can officially begin

[Mid-May]

The ‘Brexit’ Autumn Budget

[Likely November]

French election[7 May]

Local government elections [4 May]

German election [24 September]

Local government elections [3 May]

UK Parliament votes on the final

deal [Winter 18/19]

European Parliament votes on the final deal[After UK Parliament]

European Council votes on the final deal

[Autumn]

2019

EU

UK

THE HURDLES

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DEAL OR NO DEAL?

It will be a convoluted process: The Commission will lead negotiations under guidelines agreed by

the European Council. Once the UK and EU negotiators reach a deal, it will need to be approved by

Member States. It will then move to UK Parliament to give its consent, and presuming that is given,

the European Parliament will also need to have its say. With so many players, delays seem inevitable.

Size matters in the Council: Approving a UK exit deal in the European Council will require support

from at least 20 of the 27 Member States (representing at least 65% of the EU population).

UK Parliament has a binary choice: ’Deal or no deal’ is the option laid out by the Prime Minister

through the ‘Notification of Withdrawal’ Act. If it turns down the proposals, the UK will leave the EU

without an agreement in place.

European Parliament will be a stern test: The Parliament has a tendency to diverge from official

national views. The Brexit Taskforce lead for the institution, Guy Verhofstadt, therefore has a crucial

role to play in uniting the parliament not to veto the final deal.

The European Commission will be leading negotiations with the UK team. On either side of the talks, there

will be a flurry of backward, forward and sideways activity, as EU Members look to coordinate their position

and the UK works to build lucrative bilateral friendships.

“A no-deal scenario is not our goal. We want

an agreement. We want to succeed”

– Michel Barnier, Commission negotiator

GUY VERHOFSTADT

• Brexit chief for the European Parliament and Leader of the Alliance of Liberals and Democrats within it.

• Former Belgian Prime Minister and straight-talking Europhile.

• Adamant that Single Market access must be accompanied by the EU’s four freedoms. Believes the EU should not punish the UK for leaving.

MICHEL BARNIER

• Leading negotiations on behalf of the Commission Task Force on Brexit. Has already held bilateral talks with all EU Member States to prepare the EU position.

• Identifies four main principles to negotiations: preserving EU unity; protecting membership rights; refusing negotiations until notification; and the indivisibility of

the Single Market and the EU’s four freedoms.

• Former French Foreign Minister and arch-federalist.

Several key individuals will be pivotal to securing consensus between nations and institutions. This is

Headland’s guide to the people spinning the web behind future headlines.

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EU – THE INSIDERS

MARTIN SELMAYR

• Chief of Staff to the European Commission President, Jean Claude Juncker (the equivalent of Nick Timothy at Number 10).

• Views negotiations as an opportunity to reassert the European Commission’s authority.

• Has a reputation for ruthlessness and strongly-held views against Britain’s ‘have your cake and eat it’ approach.

DIDIER SEEUWS

• Head of the European Council UK task force and coordinating the positions of member states.

• Veteran Belgian diplomat described as a “fine intellectual machine”.

• Agrees the guidelines for negotiations and oversees the work of the Commission during negotiations.

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THE RED LINES

Political posturing has been rife ahead of the start of official negotiations. Both sides are highly conscious of

the need to balance pleasing home crowds whilst appearing to compromise in negotiations. Understanding

the boundary lines for each side in both the exit and new relationship negotiations is therefore crucial.

ISSUE UK VIEW EU VIEW

Exit payment £3 billion max. (reportedly). £50 billion min. (reportedly) with a threat to take the UK to the European

Court of Justice for non-payment. The bill must be paid before any deal

can me done on a new relationship.

Immigration Domestically controlled. Free movement for EU citizens.

Citizens abroad Rights to be guaranteed reciprocally. Rights to be guaranteed reciprocally.

Northern Ireland/Republic of

Ireland

Maintaining the Common Travel Area will be a priority. Michel Barnier has said there will be an impact on external borders, but he

will do his utmost to “preserve the success of the Good Friday process”.

Single Market access To be pursued via a free trade deal. Requires participation in the four freedoms of the EU: goods; capital;

services; people.

Customs Union Against membership so that the UK has the freedom to make other

trade agreement. But open to associate status or forming a new

customs agreement to secure tariff-free trade with the EU and

avoid the Common External Tariff.

European officials have mooted charging an annual fee if the UK wants access

to EU markets to buy and sell its products but remains outside the customs

union.

Free trade deal A “bold and ambitious” priority. Possible but unlikely to be secured before Brexit. It would also require

agreements on social welfare, tax, environmental and consumer

protections standards in return.

Rule of law Domestically controlled. EU law essential for any transition arrangements providing Single Market

access.

EU Budget contribution Only those EU programmes in which the UK participates. Required for members of the Single Market and EU programmes.

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THE TRANSITION

The UK wants a transition agreement: Prime Minister Theresa May has confirmed that whilst she

wants an agreement about future partnership to be in place by the end of two years, she also wants

to secure a transitional agreement to avoid a ‘cliff-edge’ threat to business. It would look to create a

phased process of implementation of the new agreement.

Any agreement on transition needs to be timely: March 2018 is recognised as the latest for a

transition period to be agreed, if the UK is to minimise action by companies looking to protect their

interests.

A transition deal would be covered by the EU legal system: Guy Verhofstadt has said that if the

UK is to secure a transition agreement, it will meaning agreeing to the authority of the European

Court of Justice throughout that time. This will be a hard sell for the UK team at home.

With cross-sector fears of “hard Brexit” array, pressure is mounting on UK Government to secure a deal on a

post-Brexit transition period. Although the Prime Minister plans to smoothly transfer EU law into the UK

statute books via “the Great Repeal Bill”, there is currently no such option for EU market access.

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PLAN B?

The World Trade Organisation (WTO) is the fall back: If no deal with the EU is secured, the UK

would need to renegotiate its current relationship with the WTO to trade on new terms. For the UK,

demonstrating the acceptability of this option is vital to negotiations.

There’s been no economic assessment: Brexit Secretary David Davis has been widely criticised after

admitting that his department has not made any attempt to assess the full economic implications of

this scenario.

WTO membership may not be automatic: The UK would need to renegotiate its current

relationship with the WTO to trade on new terms. Some commentators say this is likely to take years.

But it would allow us to avoid an EU vendetta: Although the UK would have to pay higher tariffs

under WTO rules, the EU would not be able to discriminate against the UK as part of any kind of

Brexit vendetta. There can be no preferential treatment of WTO members and therefore no

corresponding retaliation.

The lack of time and the volume of signatories means there is every chance that a new relationship deal may

not be reached before the two-year deadline. Whilst the UK has said it’s happy to walk away from the

negotiating table, the reality of a ‘no deal’ option seems bleak.

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POLITICAL DANGERS

The PM faces a testing legislative programme: There are likely to be up to fifteen separate

Parliamentary Bills to set out Britain’s future post Brexit, including agriculture, customs and

immigration. This is on top of the Prime Minister’s Great Repeal Bill, which aims to provide regulatory

certainty by translating EU law into UK law. The Prime Minister’s future success is bound to the loyalty

of her narrow majority.

Scottish independence: Scotland’s First Minister, Nicola Sturgeon, has already called for a second

Scottish independence referendum, on the grounds that Scotland overwhelmingly voted to remain in

the EU. What is not certain, however, is the process for an independent Scotland to remain or re-join

the EU – several senior European ministers have already made it clear that Scotland would not be

able to ‘queue-jump’.

Snap election ruled out by the Prime Minister until 2020: A potential war on three fronts with

Brexit, a Scottish referendum and a General Election would prove costly. Particularly for a prime

minister whose political life depends on the success of Brexit negotiations. That said, increasing

pressure from the backbenches may yet prove too much for Mrs May, as Conservatives eye the

chance of an increased majority against a flailing Labour Party. However, such a move would require

the repeal of the Fixed-Term Parliaments, and with Brexit-related legislation levels already sky high,

this cautious Prime Minister is likely to be mindful of overreach.

The stakes are high for Theresa May, whose political career is now inextricably bound to the success of Brexit.

As even her most loyal supporters attest: a bad deal will spell the end of her Downing Street reign. However,

success is not restricted to events in Brussels. The Prime Minister must also balance troubles at home: