Navigating Brexit - PKF Littlejohn€¦ · NAVIGATING BREXIT 19 Conclusions +Short and long term uncertainty +Brexit infects all policy areas +Brexit discussions suck energy out of

Navigating Brexit

Friday 4 November 2016

NAVIGATINGBREXIT

November 2016

© Hill+Knowlton Strategies 2016

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2016-2019 Political Timeline

31 October 2016: Deadline to form a governing coalition in Spain

November (TBC) 2016: Italian Constitutional Referendum

8 November 2016: US Presidential Election

20 November 2016: Result of French Republican Party’s Primary

23 November 2016: Chancellor Hammond’s Autumn Statement

4 December 2016: Re-run of Austrian Presidential Election

5-7 December 2016: German CDU Party Conference

15 December 2016: Deadline for candidates to declare in the French Parti SocialistePrimary

15-16 December 2016: European Council Summit

22 & 29 January 2017: First and second

round of the Parti Socialiste Primary in

France

March 2017 (TBC): UK Triggers article 50

15 March 2017: Dutch Parliamentary

elections

23 April & 7 May 2017: Rounds of the

French Presidential Election

Between 27 August and 22 October 2017:

German federal election

April 2019 (TBC): Deadline for UK Withdrawal Negotiations

June 2019: European Parliament Elections


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What is the procedure for leaving the EU?

Article 50 – Treaty on European Union (TEU)

1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.

2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it. A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.

5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.


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+ Commission (negotiation) + Council EU27 (unanimity) + EP

+ It will likely require ratification by EU27 Parl + UK Parl (similar to trade agreements)

+ Council (qualified majority) + EP + UK Parl(likely)

+ EU27 to discuss exit arrangements (without UK)

+ 2-year deadline – but somewhat flexible (an agreement can be reached earlier, or deadline may be pushed by unanimity of EU27)

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Two negotiations – will they be conducted in parallel?

EU EXIT‘DIVORCE TREATY’

EU-UKRELATIONSHIP


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The Treaty | Two parallel negotiations

I. ‘Divorce Treaty’ to exit the EU (triggered by article 50)

+ To be negotiated with Council (qualified majority) and Commission + approval of the EP

+ The UK has to leave the room when the 27 others discuss the exit arrangements amongst themselves.

+ Will discuss settle status of 3 million EU citizens in UK (and 1.2 million British living in EU)

+ UK budget contribution to EU budget for internal market access is £20bn

+ Two years. Negotiation can be extended by unanimous consent of the Council

II. ‘Future relations agreement’ to govern trade and other ties

+ To be negotiated by European Commission + approved by Council

+ Needs to be ratified by national parliaments

+ Treaty change?


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Other considerations

Impact on the EU budget

+ The UK is a net contributor to the EU budget – either States contribute more, or budget is reduced

+ Regional funds, structural funds, R&D framework – all of these will be impacted

+ Programs and funds set up by Member States what will happen to UK programs, and those that they benefit from

European Parliament involvement

+ Interinstitutional mechanism in which the EP is informed on negotiations

+ Will they actively participate in negotiations? Will a specific Committee be set up?


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Michel Barnier

+ Former European Commissioner for Financial Services

+ Appointed by President Juncker as the Commission’s chief negotiator

+ Will lead technical discussions on the Withdrawal Treaty

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The negotiators – EU

Didier Seeuws

+ Former chief of staff to former European Council President Van Rompuy

+ Will lead negotiations on the future relationship between the EU and the UK

Guy Verhofstadt

+ Former Prime Minister of Belgium and current leader of the ALDE Group in the European Parliament

+ Will be the European Parliament’s rapporteur for the Withdrawal Treaty

+ European Parliament will have to ratify the agreement


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Theresa May

+ Selected as Prime Minister following David Cameron’s resignation after the referendum

+ Former UK Home Secretary

+ Backed the UK to remain in the EU during the referendum campaign

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The negotiators – UK

David Davis

+ Chosen by Theresa May as Secretary of State for Exiting the European Union

+ Will lead negotiations with the Commission on the Withdrawal Treaty and future relationship agreement

+ Campaigned for the UK to withdraw from the EU during the referendum campaign

Liam Fox

+ Secretary of State for International Trade

+ Will be involved on negotiations on with the EU on the future relationship agreement

+ Will also lead negotiations with 3rd

countries on FTAs

+ Campaigned for the UK to withdraw from the EU during the referendum campaign


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+ UK to remain Member of the Council – but they will leave the room when Brexit matters are discussed by EU27

+ Limited political impact but voting rights

+ 2017 Presidency relinquished

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What happens within the EU institutions?

+ Diplomat Sir Julian King approved as new UK Commissioner

+ Financial Services portfolio handed to Commissioner Dombrovskis

+ Involved in BREXIT talks plans?

+ Michel Barnier announced as EU’s Brexit negotiator

+ 73 MEPs in current EP, elected for full mandate until May 2019

+ EPP set to become even larger, S&D loses LabourMEPs

+ EFDD, ERC resized or dissolved?

+ Amending, voting legislation?

+ Guy Verhofstadt announced as EP negotiator

+ The ECJ’s role in the UK legal order was a hot topic for Brexiteers

+ ECJ rulings continue to remain applicable to UK domestic law – exit treaty will settle what happens when the UK leaves the EU

+ What happens to cases and preliminary rulings that are currently pending before the Court of Justice?


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Heading for a hard Brexit?

+ Hard Brexit: leaving the EU without conclusive agreements

+ The ‘Great Repeal Bill’ will be introduced in the next UK Parliamentary session, getting rid of the European Communities Act, which gives EU law instant effect in the UK

+ Existing EU law will be transposed into domestic law ‘wherever practical’ on the day that the UK withdraws

+ Prime Minister May’s priorities are immigration control, legislative autonomy, only subject to national courts

+ Merkel and Hollande: Four Freedoms not negotiable

+ EU Council President Donald Tusk: The only real alternative to a "hard Brexit" is "no Brexit“

+ Industry wants a ‘friendly’ Brexit but principle of reciprocity will apply


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Modalities for state/state commercial relations

EU Member State

European Economic Area

Customs Union

Bilateral Agreement

FTA WTO Relations

Market access

Singlemarket, FPS

Single market, FPS

Common tariff

Ad-hoc No tariffs,MFN treatment

Tariffs,national treatment

Decision making

Co-decisionin EU Council

No vote,implement

Participate in EU FTAs

Bilateral Regulatory approximation

WTO

Enforcement ECJ EFTA Court Sectoral committees

Dispute settlement

Lesser access

One Market

Source: Centre for European Policy Studies (CEPS)

Hard Brexit


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Considerations for Companies

• Companies active in both the UK and the continent, or companies trading with the UK - these are the most affected

• Companies should be specific on their demands and treaty provisions involvedRisk Assessment

• If companies are present, look at the impact on their workforce (e.g. visa, work permits etc.)Human Resources

• If no agreement on Single Market access is reached, will the UK be considered a third-country for data flows?Data Protection

• Specifically when it comes to suppliers – will they face tariffs?Products and Services

+ International companies may also wish to re-visit how they interact with the EU and the advisors that they engage in carrying this out


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EU Council | No empty chair

Before formally ‘Brexiting’, the UK will continue sitting in the EU council with limited political power

+ British PM would remain a full member and formally be involved in European Council deliberations on all other agenda items at EU summit meetings.

+ The same applies to UK ministers negotiating in the various Council configurations.

+ There are no provisions available to guide us on how the legislative process has to be conducted in such circumstances.


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The European Parliament | Drastic changes to the political configuration

The 73 UK MEPs are elected for a mandate that extends until June 2019. Once the withdrawal takes effect, their mandate would end abruptly.

+ In a European Parliament without the Brits, the centre-right EPP will be by far the largest group

+ Two political groups risk disappearing: without British MEPs, the anti-EU EFDD group would lose half its members and be dissolved; the ECR group, where British Conservatives sit, would lose its largest national contingent and it remains to be seen whether parties like Belgium’s separatist NVA could stay on board when the Polish PiS takes over leadership of the remainder of the ECR.

+ The Socialists & Democrats group (S&D) would lose over 10% of its membership with Labour MEPs out.

+ The situation becomes even more confusing for British MEPs who currently form part of negotiating teams of delegations for the relations with non-EU countries.


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Additional considerations

EU is negotiating other deals and trade agreements+ Will UK start negotiating agreements with third countries, to be

signed after leaving the EU?

– Legally: no UK trade negotiations or agreements before Brexit in place

+ During Brexit negotiations, UK position within the EU will be weakened, also in ongoing trade negotiations (e.g. TTIP)

Political Brexit inspires continental anti-EU forces from left and right+ Populist, nationalist, protectionist


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Norway, EEA and Brexit

+ Brexit from EU also means Brexit from EEA and EFTA?

– Separate trade negotiations between Norway and the UK?

+ Norway, Iceland, Lichtenstein are members of the European Economic Area and of the European Free Trade Association (EFTA), Full members of the internal market

– Implement all EU legislation on internal market + competition law

– Contribute to the EU budget

+ Option for UK to join EEA and EFTA?

– UK to be accepted by existing members

– Contrary to May’s legislative sovereignty

– Annual budget contribution to be voted on by House of Commons

– Subject to EFTA court


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Brexit Impact Before Brexit Takes Effect

+ Private sector investment decisions on hold

+ UK no longer part of integrated across border supply chain

+ Situation of foreign EU workers uncertain

+ Security: NATO in place for security, what about economic warfare, cyber crime, propaganda war etc. UK no longer part of EU response

+ Huge technology and administrative challenge for the UK

– E.g. customs services

– European Medicines Agency

– Agriculture and fisheries

– Trade negotiators

– Competition law enforcement


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Conclusions

+ Short and long term uncertainty

+ Brexit infects all policy areas

+ Brexit discussions suck energy out of highest-level policy makers

+ BUT, time is the decisive factor. Britain may change, the EU may change

Hill+Knowlton Strategies

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Thank you

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Thomas Tindemans

[email protected] +32 2737 95 00+32 495 380 869

www.hkstrategies.com

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Navigating Brexit - PKF Littlejohn€¦ · NAVIGATING BREXIT 19 Conclusions +Short and long term uncertainty +Brexit infects all policy areas +Brexit discussions suck energy out of

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