The UK Government today formally triggered the process of leaving the EU by invoking Article 50 of the Treaty on European Union. How are the negotiations likely to affect your business? Defining your priorities, developing concrete proposals, communicating these to influencers and decision-makers, and planning for different potential outcomes are all now critical.

Following the passing of the European Union (Notification of Withdrawal) Act by Parliament on 13 March, the UK Government has today formally initiated the process of leaving the EU.

The EU Treaties1 will cease to apply to the UK when the withdrawal agreement to be negotiated between the UK and the other 27 Member States enters into force or in two years, whichever is earlier, unless there is unanimous agreement to extend the process. Until that date, the UK will remain a member of the EU, will still be in the single market and still subject to all EU laws and rules.

The Process

The 27 other EU Member States (EU 27) are expected to give an initial response to the British Government within 48 hours. Their leaders will meet, in April or May, to agree their overall negotiating stance. Detailed negotiating aims will then be drawn up in the form of Council directives for approval by the EU 27 leaders, probably in June or July. The negotiations will then begin.

A Commission team, headed by Michel Barnier, a former French Minister and European Commissioner, will lead the negotiations for the EU 27. Their governments will input into the process through a Council Working Party chaired by Belgian diplomat Didier Seeuws. The European Parliament’s lead Brexit negotiator Guy Verhofstadt, a former Belgian Prime Minister, will have no formal role but is expected to be closely associated with the talks.

The negotiations will proceed against a backdrop of political uncertainty: the French presidential election on 23 April, with a likely second round on 7 May, followed by parliamentary elections in June; German federal parliamentary elections on 24 September; and preparations for an Italian general election early next year. Each has the potential for major impact on the negotiations.

In autumn 2017, the UK government is expected to introduce a Great Repeal Bill to leave the EU and adopt the existing EU laws as British law; a White Paper is to be published this week. A raft of other primary and secondary legislation will also be required so as to put in place new policies and administrative processes in a wide range of areas, such as customs, trade and immigration. This must be done before the UK exits the EU – and represents a formidable legislative challenge.

Unless it is extended, the negotiating period is likely to need to be concluded by autumn 2018 to allow for the UK Parliament, the European Parliament and the European Council all to vote on the deal before the UK formally leaves in March 2019.

The Issues

Article 50 requires the EU to conclude an agreement with the UK “setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union”. The UK government has said that it wants an early agreement on the rights of EU 27 nationals living in the UK and those of British nationals living in the EU 27. The withdrawal agreement will also need to address, in particular, the existence and size of any UK financial contributions to outstanding obligations under the EU budget such as the pensions of EU civil servants and unfinished infrastructure projects, as well as issues such as the future of EU agencies headquartered in the UK and cross-border security arrangements.

The UK’s top priority is to establish a new strategic partnership with the EU 27, including an ambitious and comprehensive Free Trade Agreement and a new customs agreement, and transitional arrangements to enable a phased process of implementation of the new relationship, to ensure a smooth, orderly exit by giving businesses time to plan and prepare.

But EU representatives have suggested that the withdrawal agreement should be largely concluded before work on a trade deal can begin. Given the short timescale provided under Article 50, the timing of the start of negotiations on the future UK-EU relationship is likely to be a key early issue.

The UK government is apparently confident that an agreement on the future relationship can be concluded within 2 years. But some have suggested that, given the complexity of trade negotiations, they could take as long as 10 years. The UK government has also made clear its view that ‘no deal for the UK is better than a bad deal for the UK’ indicating that it may choose to leave without an agreement. Either outcome would mean that no deal would be in place when the UK left the EU, and that the UK’s trade with the EU-27 would therefore be conducted on the basis of the World Trade Organisation’s (WTO) rules.

Other Issues to be Pursued in Parallel

By the time the UK leaves the EU, it will need to have established its own schedules covering trade in goods and services at the WTO. These will form the basis for the UK’s trade with all other countries, in the absence of free trade agreements between them and the UK. The UK aims for these schedules to replicate as far as possible the UK’s current position as an EU Member State. This approach should reduce the risk of objections from any of the other 163 WTO members. But issues such as dividing up the UK’s share of EU quotas between exporting states could nonetheless be complex.

Until the UK leaves the EU, it cannot conclude its own trade agreements with non-EU countries. But this does not preclude informal discussions, which are already underway with a number of potential partners. Potential trading partners will though likely want to understand the terms of the future EU-UK relationship before making deals with the UK.