The key documents for the EU Brexit negotiations have now been published, but what they actually mean still remains a mystery for some businesses.
The guidelines are as follows, in the order that they were produced:
The Article 50 Letter from the UK Government
The EU Parliament’s Negotiating Guidelines
The EU Commission Negotiating Guidelines
The EU Negotiating Directives
Setting aside the recent press leaks, these documents reveal a fundamentally different approach to the negotiations between the UK and the EU. The depth of the difference taken with the short time available to negotiate means that a trade deal is highly unlikely to be concluded in time. Businesses must now plan for World Trade Organisation rules, to safeguard against no deal being reached.
Research conducted by the firm that looked into the views of UK mid-sized businesses on the eve of triggering Article 50, revealed that businesses were not yet planning for Brexit. At that point there was too much uncertainty about the direction of negotiations and understanding what to plan for was stalling any action taking place.
However, well advised businesses should now be preparing for the likelihood that there will be no trade deal, meaning that businesses should prepare for tariffs and customs barriers.
How will the negotiations go?
The key to the difference between the UK and the EU is what outcome each side expect from the negotiations. The UK government is focussed on the future trade arrangements and the EU is focussed on separation.
Theresa May’s Article 50 letter referred several times to the importance of running trade negotiations in parallel with the separation process. In the letter, the Prime Minister stated ‘because the future partnership between the UK and the EU is of such importance to both sides, that I am sure it [an agreement covering both withdrawal and future partnership] can be agreed within the time period set out by the Treaty [i.e. by 30 March 2019]’.
However, it is becoming clear that the EU has no intention of following this approach as all parts of the EU negotiation are focussed on the separation agreement.
Even when the trade negotiations are brought to the table, discussions will be in the context of ‘preliminary and preparatory discussions on a framework’ for the future trade relationship. However, in any difficult negotiation, you should always avoid being the only person in the room who can make concessions. The EU have set up their negotiating structure so they are not able to make concessions on the sequence of negotiations.
The EU Parliament’s resolution states that ‘substantial progress’ must be made before talks can start on the future relationship. This hold huge significance for future separation and trade for three significant reasons:
The EU Parliament must have known that insisting on substantial progress on the separation will make concluding a trade deal in time almost impossible
The EU Parliament’s opinion matters because they have a veto over any final deal and have made clear their involvement in the process is a necessary precondition to giving their consent to the final deal
The resolution was passed by a substantial majority with 516 votes in favour and 133 against. All countries other than the UK voted in favour. Notably, 80 of the 96 German MEPs voted in favour of the hard line approach.
The EU Council’s guidelines for Brexit are also important. They reinforce the message that the main purpose of the negotiations will be to ensure an orderly withdrawal. They reiterate that ‘sufficient progress’ must be made on the separation agreement, before trade talks begin.
Again, the Council is referring to ‘an overall understanding on the framework for the future relationship’ – a far cry from Theresa May’s hope to complete the arrangements for a ‘deep and special relationship’ within the two years available.
Finally, there are the directives for negotiating the Brexit agreement published on 3 May 2017. This sets limits on the scope of Michel Barnier’s mandate to negotiate and no matter how much the UK Government wants to speak about trade, Michel Barnier does not have the legal capacity to comply.
The only way he can have the mandate to speak about trade is to go back to the EU Commission who will in turn want to confer with the EU Parliament.
With already tough time constraints, all of this will take time and the clock is ticking. Businesses should not fall victim to uncertainty and preparations for a ‘no deal’ scenario must be begun now. For more information on where to start, see Shakespeare Martineau’s Brexit report to help businesses plan for the changes ahead.
Adam McGiveron, Brexit specialist and head of the advanced manufacturing sector at law firm Shakespeare Martineau.