Triggered: Article 50 and what happens next

Wednesday, 29 March 2017

The UK has made its first formal move in its chess game with the European Union, and the game clock is ticking down from 730 days. Tim Barrow, the UK's permanent representative to the EU today hand-delivered the UK's notification of withdrawal from the EU under Article 50 TEU to Donald Tusk, President of the European Council. With this comes the formal commencement of a two year period for the UK to negotiate its withdrawal from the EU. On the day Article 50 is triggered, we assess what we know about next steps and potential outcomes.  

To date discussions have focused on the UK's negotiating position around trade and single market access. However, 29 March marks the beginning of the two year period to negotiate the UK’s technical and institutional withdrawal from the EU, which is likely to be a fraught process. An agreement on withdrawal from the EU must be reached before any new relationship agreements (such as in relation to trade) are formally entered into.

Withdrawal Agreement

The challenge posed by the technical withdrawal is monumental given the UK's entrenchment in the multitude of European institutions over its 40 year membership of the EU. This will have to be carried out under significant time pressure given the two year deadline, and it is unclear what will happen if no withdrawal agreement is reached within that timeline. An extension may be granted, but only if the remaining 27 EU Member States are in unanimous agreement, at which point withdrawal negotiations could continue, presumably for an agreed period.

The European Council (minus the UK) will meet on Saturday, 29 April to formally discuss its Brexit negotiation strategy for the first time, while the European Council’s guidelines for negotiation are set to be published in the coming days. Once concluded, the negotiated withdrawal agreement will need to be adopted by a qualified majority of 72% of the remaining 27 Members, representing 65% of the population. The final agreement will also need to be approved by the European Parliament, voting by a simple majority.

Notably, the negotiations will be carried out by the “national interest” driven Member States in the European Council, while the European Commission (driven by the "EU interest") has no formal role. Diverging perspectives among the remaining 27 members around the European Council table, not least of which will be Ireland with its unique concerns, will cause delay.

Different Member States have different priorities with regard to economic, political, and even security factors. Those Member States that rely most heavily on the UK for trade will seek the smoothest single market solution (Ireland, the Netherlands and Denmark); while from a political perspective, Germany will want to be seen to “punish” the UK as a deterrent to other exits. Meanwhile, the Baltic States will have national security fears around Brexit in light of the EU’s Common, Foreign and Security Policy, and the potential knock-on effects for cooperation in NATO. 

Conflicts of interest between the European Council and UK are even more likely, not least around a settlement of UK liabilities to the EU. It is highly foreseeable that negotiations will fail or at least be significantly delayed, even if the parties are starting from a position of goodwill to achieve a successful outcome. 

A complete breakdown in withdrawal negotiations would be a mutually destructive outcome to UK-EU relations and the international reputations of both, and as such is unlikely. However, while the conclusion of some kind of minimal deal is imperative, it is unclear to what extent a comprehensive agreement can be reached within a two year timeline.

Trade Agreement

Depending on the parameters, it is possible that some kind of “future relationship agreement” could be reached between the EU and UK in relation to trade and other single market access issues, as part of the withdrawal agreement, which would govern UK-EU relations going forward. However, this is not a necessary condition of withdrawal. 

Should the UK separate from the EU with a narrow withdrawal agreement with no provisions on a future relationship agreement, the UK will have the same status as any other non-EU Member State and negotiations will be conducted in accordance with the EU’s rules for concluding agreements with non-members under Article 218 TFEU. 

In the absence of a future relationships agreement, there are several possibilities in relation to trade: 

The UK may:

• conclude a transitional agreement which may govern the UK-EU relationship until a future relationship agreement is reached;
  


• attempt to immediately enter a Free Trade Agreement (FTA) with the EU. Although the conclusion of an FTA tends to be a lengthy and cumbersome process, it is surely an advantage that the starting point for negotiations is that the EU and UK have enjoyed a common trade regime since 1973;
  


• revert to the default “floor” of the most basic WTO trading rules. Trade would be conducted on the same terms as other non-EU countries have with the EU and include the imposition of tariffs to different goods across a range of sectors ranging from car parts (5%) to agriculture (up to 40%); or


• agree with the EU that it may trade with non-EU countries on the same terms as under the existing EU FTAs.

At this point, it appears highly unlikely that the UK will seek to conclude an agreement to remain a part of the European Economic Area (EEA) (à la Iceland and Norway). EEA Members are still subject to the single market rules (including free movement of persons), but critically, do not participate in decisions as to how the rules are made.  It is however much clearer to determine what the UK does not want, rather than what it does. 

Conclusion

Any assessment of the actual outcomes of the withdrawal and trade negotiations is purely speculative, and the triggering of Article 50 raises more questions than answers. For now, the UK has just made its first move, though both sides are likely to lose pieces before the game concludes.

ByrneWallace has established a dedicated multi-disciplinary team to advise and represent both Irish and international businesses on the possible legal and regulatory implications of Brexit. 

For advice and support preparing your business for Brexit, contact a member of our Brexit team.