Brexit Update – Article 50 is Just the Beginning

After an extremely eventful nine months regarding Brexit, our Senior Associate Ed Garston looks beyond Article 50 and what the future holds.

Those that believed the referendum would pave the way for a swift and decisive exit could not possibly have expected so many obstacles to the formal triggering of Article 50.  But even following unprecedented peacetime political change, a series of constitutional legal challenges, constant media debate over soft or hard Brexit, a backlash from the so-called “remoaners”, and various amendment requests from the House of Lords, the path is finally clear to trigger the exit process.

Official commentators make the Article 50 process sound simple.  They would have you believe that Prime Minister May symbolically delivers a notice to the European Council to kick-start a two-year withdrawal process.  So far, so good, but it is that two-year process which will determine what Brexit actually looks like.

No precedent 

If only there was a precedent for the UK, and the EU for that matter, to follow.  The simple truth is that the exit process has never previously been triggered and by all accounts, the treaty provision was never intended to be used.  Whether another nation will follow the UK’s decision remains to be seen, but for now at least the UK and the EU are both entering unchartered territory.

Financial markets loath uncertainty although current thinking is that reaction to triggering the notice will be muted.  As every business that depends on imported products will tell you, the supply chain is already dealing with the Brexit devaluation, so in a certain sense, the process is largely priced in.

Article 50 itself is brief. Once triggered, it obliges the EU and the UK to negotiate and conclude an agreement “setting out the arrangements for its withdrawal, taking into account of the framework for its future relationship”.  Just two years are allowed for the process which can only be extended if each EU member agrees.  So at this point, if no agreement has been reached, any single EU member could veto and effectively prompt the UK’s exit without a deal.

Deal pressure

Understandably the government is being coy about its negotiating strategy away but what is clear is the vast scale of the task ahead.  With so much at stake, it is questionable whether two years will be sufficient.  In the context of historical international trade negotiations, this timetable is indeed brief. 

As if any additional pressure were needed, Michel Barnier, the European Commission’s Brexit negotiator, claims negotiations will need to take less than 18 months.  This, he believes, will allow time at the outset for setting the negotiating mandate, and time at the end for approval from the tripartite of the European Council, the European Parliament, and the UK Parliament.

Just setting the scope of the negotiating mandate itself will be a huge task.  By simply considering the various areas to which the UK’s social, legal and economic framework are influenced by the EU creates a lengthy list of potential divisive negotiating topics.  The department for Exiting the European Union has suggested minimum areas which will need to feature but as each section is debated tensions will undoubtedly rise.

Breaking up is never easy

Talk continues of a “divorce bill” payment to the EU to fund all existing commitments, pension costs, and other budget liabilities.  A figure of €60-70bn has been mooted by the EU.  Some UK commentators refute this, calling instead for a rebate.  With figures as large as this, and a range clearly arguable, talks inevitably risk being bogged down with each side having a vested interest.  The EU’s desire to ease the impact of losing a net budget contributor remains at odds with domestic UK political pressure.

Aside from the finances, Brexit raises real personal and political tensions.  What does Brexit mean for the 3.3 million EU nationals living in the UK?  For that matter, what about UK nationals residing in the EU? Neither will want to return to their homeland, but a hard Brexit could prompt a whole new EU migration crisis as EU nationals become bargaining chips. 

At home, employers are already venting frustrations that a hard line will deprive them of a much-needed workforce, with the NHS set to bear the brunt of any changes to working permissions.  One of the most significant amendments to the EU Bill requested by the House of Lords was to guarantee the rights of EU citizens in the UK, although this never made it into the final legislation.  In this regard, Prime Minister May is keeping her powder dry, drawing some comfort from suggestions that up to 84% of the EU nationals living in the UK could be being entitled to stay either because they have been in the UK for more than 5 years or they have strong family connections to those already enjoying the right to stay.

The EU is being suitably non-committal for British citizens in Europe.  German Chancellor Merkel has previously blocked any hope of a deal until the commencement of formal exit talks.  But the European Parliament’s Chief Negotiator Guy Verhofstadt has already offered some flexibility, suggesting that Brits could be offered an “associate Citizenship” once the UK has left the EU.  Such opaque comments will provide little real comfort to those holding a UK passport.

Green and pleasant land

Closer to home the referendum has brought into focus two very important constitutional issues.  What about the border between Northern Ireland and the Republic of Ireland?  Historically significant, any new arrangement this need to be dealt with sympathetically given that it will become the border with the EU and all that this entails including the customs union and single market.  It will be a brave politician to be the first to speak out on this sensitive issue.

As if that were not enough, Scotland is taking matters into its own hands with calls for a second independence referendum.  Distracting at best, Downing Street sees this as a purely political move from the SNP and want it kicked into the post-Brexit long grass.

Deal, or no deal

The stakes could hardly be greater but as with any high-level negotiation, neither side is giving little away ahead of formal talks.  Prime Minister May insists that no deal is better than a bad deal. 

Whether the UK will actually exit without a deal remains to be seen since a bad deal would have to be fairly catastrophic to be worse that the default position of WTO rules.  Inevitably the talks will be volatile, highly pressurised, and very political.  With the outcome too close to call, some would argue that the exit process feels just like the referendum campaign all over again.

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For all enquiries relating to the above article, please contact Edward Garston, a Senior Associate in our Company Commercial Department. Call on 01708 229444 or email us using the form above.

This article was written by Edward Garston, a company commercial solicitor at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of March 2017.