United Kingdom: UK begins divorce proceedings
March 29, 2017
Some relationships are built to last. In the case of the UK and the EU however, it was never true love, with the UK always viewing its membership of the club as more of a marriage of convenience. Prime Minister Theresa May filed for divorce on 29 March by triggering Article 50 in a written letter to the European Council, opening a two-year negotiation window with the European Union. The move comes after the government’s Brexit bill was passed on 13 March. Peers in the House of Lords had proposed amendments to the original text to guarantee the rights of EU citizens residing in the UK after Brexit and to give parliament a meaningful say on the final terms of the deal, but eventually backed down after the House of Commons rejected the changes.
The President of the European Council Donald Tusk has convened an EU summit for the 29 April, the aim of which will be for the EU-27 to thrash out a common set of guidelines for the negotiation process. Once a rough set of rules has been established, the European Commission will present more detailed proposals for approval by EU-27 ministers, a process which could take several weeks. Only once the negotiating strategy has been agreed upon can talks begin in earnest, which is likely to occur in May or June. While the EU is clarifying its position, the UK should announce the Great Repeal Bill in the spring Queen’s Speech. The bill will set out the process for transposing all existing EU legislation into UK law and end the jurisdiction of the European Court of Justice in the UK. This promises to be a mammoth undertaking, with potentially thousands of laws set to be reexamined in order to ensure they are fit for after Brexit.
The EU’s negotiating team will be headed by Michel Barnier, a French politician with ample negotiating experience who has spent several decades working for French and European institutions. His second in command will be Sabine Weyand, a German Trade expert, ensuring the Franco-German axis which has been the beating heart of Europe for decades remains at the center of the talks. On the opposite side of the table, May will play a pivotal role in driving the negotiations. David Davis, who occupies the newly created post of Secretary of State for Exiting the European Union, and Tim Barrow, the permanent representative of the UK to the EU are also set to play important parts.
The EU’s chief negotiator has stated that he wishes to discuss the main principles of the withdrawal process first, in particular guaranteeing the rights of the millions of EU citizens currently residing in the UK, before trade talks begin. This flies in the face of the UK government’s aim of discussing trade simultaneously in the hope of sewing up a deal before March 2019 and thus avoiding a cliff edge which could see the sudden reestablishment of trade barriers between the UK and the EU. One particular sticking point is likely to be the sum payable by the UK to the EU after Brexit to cover unpaid spending commitments, pension liabilities and loan guarantees, estimated by Brussels to amount to around EUR 60 billion. The UK has so far expressed its unwillingness to foot the bill. In addition, the UK government’s insistence on controlling European immigration runs counter to the EU’s cherished free movement of people principle. According to Kallum Pickering, Senior Economist at Berenberg:
“The UK will not be able to negotiate full single market access without keeping an open border to the EU-27. [...] In our baseline scenario we expect the UK and EU-27 to agree a post-Brexit trade deal in which the UK maintains access to the EU single market for almost all goods and some services but loses its EU financial services passport. This follows from the UK raising some barriers to migration from the EU.”
With the EU aiming to wrap up negotiations by October 2018 in order to allow time for the final agreement to be approved by the European Council and ratified by the European Parliament, the UK will have barely 18 months to seal the deal. The ratification process is also by no means a foregone conclusion; 20 of the 27 remaining states, representing at least 65% of the EU’s population, will have to back the text. With so little time to finalize a trade deal, a transitional arrangement may be necessary in the interim, in order to avoid an immediate reversal to World Trade Organization (WTO) rules. According to Andrew Goodwin, UK Economist at Oxford Economics:
“We see the most likely outcome as being a 2-3 year transitional arrangement (similar to the status quo) giving way to a free-trade agreement (FTA). [...] However, the chances of being able to agree a FTA are only marginally better than 50/50 - there are plenty of areas where talks could very easily break down (e.g. the cost of the ‘divorce bill’, customs arrangements, the nature and coverage of the FTA).”
Complicating matters even further, Theresa May will have to handle Brexit proceedings while simultaneously keeping the country together. The First Minister of Scotland, Nicola Sturgeon, recently announced plans for a second independence referendum before March 2019. This came on the back of the UK government’s refusal to back a bespoke agreement for Scotland which would have allowed it to stay in the single market after the UK left the European Union. Theresa May has so far refused to bow to demands for a referendum, in an effort to avoid fighting on two fronts.
Author: Oliver Reynolds, Economist