H+K’s Public Affairs Chairman, Thomas Tindemans, gives his in-depth perspective on the state of Brexit in the UK and how the 27 EU Member States could react.

  1. 27 EU Member States have to agree with the UK

In her extensively commented speech, Prime Minister Theresa May outlined how the UK government plans on leaving the European Union. What matters now is what the EU27 can accept and agree upon with the UK.

May stated that the UK wanted full control over the immigration of people, whether they came from other EU countries or from outside the EU, that only laws adopted in Westminster would be adhered to, and that the UK would withdraw from the jurisdiction of the European Courts of Justice.  As a logical consequence, she recognized that the UK could not take part in the internal market, where freedom of movement for goods, services, capital and workers is the fundamental rule.

So the UK will now signal its decision to leave the EU to the 27 government leaders in the Council and then start talking about the exit arrangements, which have to be concluded within two years. A whole range of practical issues needs to be resolved. Among them will be: the payments for pensions of EU personnel, the return of real estate owned by the EU in the UK, when exactly do payments in and out of EU programs and common policies, such as agriculture and fisheries, end, where the EU agencies based in the UK, such as the European Medicines Agency, will move to, and what transitional measures are required for a smooth dissolving of all UK ties with the EU.

These exit modalities will be negotiated by the Commission’s envoy, Michel Barnier, based on guidelines that the EU27 heads of government will issue upon receipt of the Article 50 letter and the mandate he will receive from the EU27 Council of Ministers of Foreign Affairs. Obviously, the Commission can only accept what is compatible with the Treaty on the Functioning of the EU (Lisbon Treaty), by which it is legally bound. There is therefore no question of tinkering with the fundamental freedoms as enshrined in the basic law of the EU – and this position was clearly endorsed by the 27 heads of government at their summit in Bratislava on 16 September 2016.

The resulting exit treaty requires approval by a qualified majority of the EU27 Member States and by the UK.  The European Parliament and the Houses of Parliament in the UK will have to ratify it. Without a formally agreed exit treaty, the UK will be out of the EU two years after invoking Art. 50, without any practical arrangements. No doubt, such an abrupt cut off would lead to many unresolved matters being the source of conflict and cost.

2. Every Member State has a veto on the future relationship with the UK

Leaving the EU is one thing, and difficult enough, but for the moment, the future relationship between the EU27 and the UK seems even more complicated and unclear.  From a Brussels’ perspective, negotiations about a new relationship treaty with the UK can only start once the UK has actually left the EU, although some broad outlines of future ties may be considered during the exit talks.

The EU cannot negotiate a free trade agreement with an existing Member State, and the UK remains a full member until it has left the EU. Free trade agreements aim to bring down tariff and non-tariff barriers between countries and seek convergence or mutual recognition of regulatory provisions.  Between EU Member States, there are no such barriers in place and there is full legal alignment. There are no hindrances to trade to get rid of.

Agreeing on a comprehensive trade agreement post Brexit will take years, as shown by previous examples of EU trade negotiations with third countries, such as the CETA with Canada.  Similarly to CETA, a comprehensive FTA will require the unanimous support of the 27 EU Member States, meaning that each single country has a veto. That could become even trickier when the 38 national and regional parliaments will have to ratify the new treaty. This was the case with CETA, when the regional parliament of Wallonia delayed the approval of the agreement.

Another idea that has been raised, concerns sectoral agreements that would secure at least partial free movement of goods and services between the EU and the UK, say for pharmaceuticals or cars or financial services. Obtaining unanimous support from 27 Member States for such deals seems at minimum doubtful, since there is uneven interest depending on the importance of the given sector in each Member State.  Why should Romania or Bulgaria, whose workers will no longer be allowed into the UK, support a sector agreement that benefits mainly Germany, like for automobiles? Why would Ireland, that stands to lose important trade flows to the UK, bless a sector agreement that benefits Belgium most?

To complicate matters further, these talks are completely novel. There is no handbook or precedent on how to conduct the process of an EU Member State leaving the club. Therefore, a negotiating protocol has to precede the real discussions. It should outline who calls for the meetings, where they take place – in Brussels, in London? – who sets the agenda, what the sequence of subjects will be, who drafts the minutes, who chairs, who attends, whether there will be one chronological negotiation or several parallel exercises.  These practical elements are essential to achieve any results and can be cumbersome, since the EU27 will also need to ensure that the Member States and the European Parliament feel included and remain aligned, because, ultimately, they have to approve whatever the outcome is.

Meanwhile, the political environment may change, after the elections in the Netherlands in March, in France in May and in Germany in September. The outcome of those ballots can greatly modify the EU27 position.

3. Demons of the past

If invoking Art. 50 is indeed irreversible and therefore inevitably leads to the UK leaving the EU, the question arises whether during the exit period, the UK ministers can debate and vote in the Council on EU laws that will no longer apply to the UK.  The same problem arises for the MEPs: is it appropriate for UK MEPs to amend and vote on future EU laws that will not affect them? The situation promises political fireworks, e.g. when internal market legislation is being considered.

To render impossible the economic heresies practiced in the 1920’s and 30’s, identified as fierce nationalism, autarchy, protectionism, currency manipulation and hyperinflation, the founding fathers of what is today the European Union concluded the Treaty of Rome in 1957, 60 years ago. The noxious policies had led to general impoverishment and mass unemployment, thus providing fertile ground for totalitarian ideologies, such as National Socialism and communism, and the rise to power of the worst dictators in European history. To avoid the horrors of World War II being repeated on European soil, the root causes had to be eradicated. Beggar thy neighbour policies, by dropping problems across the border into the rival country, were replaced by common policies in a unified legal framework that guaranteed rights of individuals and companies derived directly from the European Treaties. On that basis, the reconciliation between France and Germany became possible, and much later the countries that had suffered under soviet communism were welcomed back into democracy, market economy and human rights. Fair competition was enforced, common standards applied, consumers protected, ambitious climate policies formulated. The euro became the shared currency of 19 Member States and more are willing to join.

Massive solidarity through EU funding and unprecedented income growth based on economic success made the European single market the largest integrated market in the world with the highest purchasing power.

The European Union was never just about money, trade and economics, but also became the largest humanitarian and development aid donor in the world. Its voice in the global debates on war and peace is increasingly heard. This led to a nascent common foreign and security policy for the 28 Member States.

The UK government may have clarified its expectations for the exit and future EU relations agreements, but what the 27 other Member States will find acceptable remains unknown.

Companies and organizations affected by Brexit would do well to analyse clearly, what the impact of Brexit on their operations will be.  They should articulate concerns now and pass the message not just to the UK government, but also to the 27 EU Member States and the Commission. The key will be to gain the support of the EU27. Since the better advice is likely to come from insiders rather than outsiders, it will pay off to closely monitor the negotiations that are about to commence in Brussels and in the Member States. That is where the decisions on Brexit will be made. It permits to seize every opportunity, to make remarks, and to mitigate possible negative developments. After all, the EU will remain the largest integrated single market, with 450 million consumers, once the UK will have left.