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Formal Brexit negotiations between the UK and the EU have begun in Brussels. The talks, led by David Davies, Secretary of State for Leaving the European Union, and Michel Barnier, the EU's Chief Negotiator, will determine the terms of the UK's withdrawal and the nature of the future relationship between the UK and the EU. Whereas the EU is ready and keen to go, the UK elections have thrown a spanner in the works as far as the UK is concerned. The new Government's position on Brexit is far from clear and we don't know to what extent there will be a change in approach from the original negotiating position as set out in the Prime Minister's Lancaster House speech and in the UK's White Paper on the UK's exit from and new partnership with the EU following the election results. All political parties are positioning their vision of Brexit and their Brexit red lines.
As the early stages of the negotiations can focus on issues which are less politically divisive, such as the rights of citizens exercising their rights of free movement at the time of Brexit, the negotiations will be able to proceed as planned, at least for now. Without intending to speculate on any political outcome, in this Q&A briefing we simply aim to answer some commonly asked questions as a result of the recent confusion and to clarify some of the key terminology increasingly used in the context of Brexit.
The Brexit timeline started running on 29 March 2017 when the Prime Minister gave formal notice under Article 50 TEU of the UK's intention to leave the EU. Article 50(3) TEU sets a two-year timeline from the date of formal notification for the Treaties to cease to apply to the State in question, unless the European Council, in agreement with the UK, unanimously decides to extend this period. The EU negotiation directives have set the withdrawal date for the UK at the latest as 30 March 2019 at 00.00 (Brussels time). A delay in the negotiations does not extend this deadline but simply shortens the time available for negotiating a deal, thereby increasing the risk that the UK may crash out, moving from full membership of the EU to trading on WTO terms.
It is not clear whether the UK would be able to withdraw its Article 50 notice. Article 50 itself is silent on the issue and arguments can be made for either view. Article 68 of the Vienna Convention on the Law of Treaties for example provides that a notification or instrument dealing with withdrawal or termination may be revoked at any time before it takes effect, but this may not be applicable to the TEU. Others rely on Article 50(5) TEU which considers the possibility of reapplying for membership in order to support the opposite view, although the provision refers to a State which "has withdrawn" suggesting it applies after completion of the withdrawal process has occurred. Should the issue become material and not be dealt with by agreement, it will ultimately be up to the Court of Justice of the EU (CJEU) to determine the correct interpretation of Article 50.
Would a change in the UK's approach to the type of Brexit require new legislation to empower the Government to negotiate this?
No. The European Union (Notification of Withdrawal) Act 2017 which gave the UK Government parliamentary authority to serve the withdrawal notice does not contain any detail as to the type of Brexit the Government was authorised to negotiate, it simply provides that the Prime Minister may notify the UK's intention to withdraw from the EU. Any proposed amendments such as a requirement for the Government to guarantee the rights of EU citizens living in the UK after Brexit were dismissed by the Commons as being matters that need not be dealt with in the Act.
Yes, the Queen's Speech which is now scheduled for Wednesday 21 June can be expected to be a 'Brexit Queen's Speech'. It is expected to continue the Government's legislative agenda to repeal the European Communities Act 1972 and to apply current EU legislation in the UK after Brexit, so as to provide legal certainty. As long as the UK still intends to leave the EU it will be necessary to put in place such a mechanism to ensure there is no massive void in the UK statute book the moment the UK is outside the EU. For more information on the Government's White Paper on the Great Repeal Bill see here.
According to the European Commission, the term "Single Market" refers to the EU as one territory without any borders or other regulatory obstacles to the free movement of goods and services. This includes measures such as standardisation, the CE mark, public procurement and State aid rules, and the removal of disguised restrictions on trade, as well as the development of a digital Single Market. The term used in this sense is interchangeable with the term "internal market" as used in the EU Treaties, and the European Commission and politicians in the EU often assert that all four freedoms are essential to the operation of the Single Market. The term "Single Market" is sometimes also used loosely to include Norway, Iceland and Liechtenstein, which, with the EU Member States, form part of the European Economic Area (EEA). While the EEA Agreement incorporates the four freedoms, the non-EU countries in the EEA are not party to the EU customs union even though goods originating in these countries have tariff-free access to the EU Single Market and most Single Market measures relating to trade in goods and services extend to the EEA. In addition, the EEA Agreement does not cover trade in certain areas (eg fisheries and energy are excluded) and it does not extend to civil or criminal justice measures or to a common foreign policy. It may be described a "Single Market lite".
It is important to distinguish between 'membership' and 'access'. Only the EU Member States are true members of the Single Market, but any country that trades with the EU has access to the Single Market. In order to remain in the Single Market the UK would need to remain an EU Member State. Very close access would be afforded by the UK joining the EEA or entering into a bilateral agreement with the EU on similar terms. In either of these events the UK would seek to rejoin EFTA and enjoy free trade in goods also with Norway, Iceland, Switzerland and Liechtenstein. Any other close relationship with access to the Single Market can only exist as part of a bespoke free trade agreement with the EU, which will impose conditions and a price to be paid for such access.
The EU Customs Union consists of a free trade area in which goods can travel freely between participating countries without restrictions and a common external tariff on imports from third countries. This is a recognised term for a trading bloc for WTO purposes. In order to align these external tariffs the EU negotiates any free trade agreements with third countries on behalf of the Member States. Under a customs union the UK would therefore keep continued tariff-free access to the EU for goods, but it would also be bound by the EU's common commercial policy and would not be in a position to negotiate its own free trade agreements with third countries, save on the basis of identical tariffs as the EU. The UK would remain able to negotiate an individual trade agreement on services and any products not covered by the Customs Union. The Customs Union is irrelevant for trade in services, which are more likely to face non-tariff barriers. Remaining in the Customs Union would eliminate the need for customs checks and may therefore be an attractive solution for the Irish border problem.
None of these concepts have any particular legal meaning. The hardest form of Brexit is typically equated with the WTO option, under which there is no free trade agreement with the EU but the UK and the EU trade with each other on WTO terms. The Brexit advocated in the Prime Minister's Lancaster House Speech (resigning membership of the Single Market and leaving the EU's Customs Union) is what the term "hard Brexit" is generally taken to mean, although the Government now refers to it as "clean Brexit". What prevents this proposal from being the "hardest Brexit" is that the UK also seeks "the greatest possible access to the Single Market, through a new, comprehensive, bold and ambitious free trade agreement", and a customs agreement with the EU to ensure tariff-free trade between the EU and the UK. At the other end of the scale, the "softest Brexit" refers to membership of the EEA. An "open Brexit" as advocated by the Scottish Conservative Leader, would seem to refer to a "softer Brexit" which prioritises free trade over cutting immigration.
At the end of the day, the main trade relationship options open to the UK are the following:
The EU has published detailed negotiation directives for the EU Commission which also give formal authority to the EU Commission's chief negotiator, Michel Barnier, to start the negotiations. In line with the EU's two-phased approach to the negotiations, the current version of the negotiation directives deals with the first phase of the negotiations, the withdrawal agreement, and focuses on matters necessary to ensure an orderly withdrawal of the UK from the EU. These include safeguarding the status and rights of citizens affected by Brexit, settling the UK's financial obligations, the position of goods placed on the market before withdrawal and ongoing judicial and administrative procedures and arrangements for an effective enforcement of the commitments made under the withdrawal agreement. Only once sufficient progress (as determined by the European Council) has been achieved during the first phase, is the EU prepared to proceed to the next phase in the negotiations under which the framework for a future relationship between the EU and the UK will be agreed and for which new negotiation directives will be adopted.
The EU is committed to conduct the negotiations in a transparent manner, in order to allow for an informed public debate. Negotiation guidelines and directives will be made public and EU Member States will be consulted on all negotiating documents.
In addition to the negotiation directives the EU has also published a position paper on "Essential Principles on Citizens' Rights" which contain the main principles of the EU position in this regard. These documents make it clear that the withdrawal agreement should safeguard the status and rights derived from EU law at the withdrawal date (as well as rights which are in the process of being obtained), for EU citizens and their family members living and working in the UK and for UK citizens and their family members living or working in the EU, for the lifetime of those concerned. These rights will at least include the following: the right to reside in another Member State, the right to work in another Member State and rights to social security and healthcare. The agreement should ensure the continued recognition of qualifications in the UK and in the EU27 which are obtained in any of the EU Member States before withdrawal (or in a third country and recognised in the EU), and should provide for arrangements relating to procedures for recognition which are ongoing on the withdrawal date. The Commission should have full powers for monitoring compliance and the CJEU full jurisdiction over disputes for the duration of the protection of these rights.
"Securing the status of, and providing certainty to, EU nationals already in the UK and to UK nationals in the EU" is listed as one of this Government’s early priorities for the Brexit negotiations in the White Paper on the UK's exit from and new partnership with the EU. To this end the Government has engaged with a range of stakeholders, including expatriate groups, to ensure they understand the priorities of UK nationals living in EU countries. No further detail as to how far these rights should extend and how they will be enforced is available.
The negotiation directives provide that a single financial settlement should be based on the principle that the UK must honour its share of the financing of all obligations undertaken while it was a member of the EU. The EU position paper on "Essential Principles on Financial Settlement" recognises that the UK should continue to benefit from all programmes as before the withdrawal until their closure, provided it respects applicable EU law.
The directives and the position paper do not contain a proposed figure, but instead refer to need to work out the principles and methodology for calculating the settlement. The financial settlement should cover:
The EU budget
Termination of UK membership of all bodies or institutions established by the EU Treaties
- Participation of the UK in specific funds and facilities related to EU policies
Specific costs related to the withdrawal process such as the relocation of agencies and other EU bodies
The UK House of Lords have indicated that, while there is room for argument, their preferred view under international law is that the UK will have no liability to meet budget obligations payable after it has left the EU. The UK may take a pragmatic view of its ultimate willingness to make a contribution depending on the overall deal in relation to the period during which these payments are due, the benefits available to the UK and how desirable they are. For example, the UK may well be interested in particular in the Research and Innovation programme which ends in 2020. Switzerland and the EEA countries participate in this. This would also sit well with any soft transitional option under which the UK either extends its EU membership or moves to a position similar to EEA membership for a few years, which given the current political uncertainty in the UK is looking more likely than before the recent general election. In any case the issue of financial settlement is likely to be a controversial topic in the negotiations.
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The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2017