So far, the EU and the UK have held two rounds of talks on the UK's withdrawal, focussing on citizens' rights, the so-called "divorce bill", arrangements between the Republic of Ireland and Northern Ireland and separation issues. The timetable for the next 3 rounds is as expected to be as follows:
- Third round of talks: week commencing 28 August
- Fourth round of talks: week commencing 18 September
- Fifth round of talks: week commencing 9 October
A meeting of the European Council is due to take place on 19-20 October, at which it is possible that a decision will be taken on whether "sufficient progress" has been made on these initial issues for Brexit talks to progress to the next phase. That stage will include discussion of matters such as trade and the UK's future relationship with the EU. By that time, the result of elections in Germany should be known (at least in broad terms – albeit that coalition talks may mean that the precise make-up of the German government has not been finalised by that point).
Some reports indicate that both sides see merit in holding additional rounds of talks, with suggestions that extra dates could be added in mid-August and that the negotiators should meet more frequently than the current four-weekly cycle.
No news is good news?
It is difficult to assess how much progress has been made in the negotiations to date. Concerns have been expressed by the EU that the UK is under-prepared and in particular that UK position papers have not indicated in sufficient detail how the UK proposes to achieve its high level objectives. This is unlikely to be entirely accurate, since it would appear that a key element of the UK's strategy is, so far as possible, to keep its negotiating position confidential ahead of the talks – hence its reluctance to engage in detailed specifics. The tendency for some UK position papers to focus on high level, general objectives, rather than concrete proposals may also be driven by a desire to minimise the scope for political controversy whilst the talks are ongoing and to maintain as much flexibility as possible in the UK's negotiating position. That said, officials writing the UK's position papers will undoubtedly have been hampered by the lack of clarity from government over its approach to Brexit since the election – and in that respect, some of the EU's criticisms may be justified.
A good example of this would be the conflicting messages emerging from government recently over the approach to transitional arrangements. At the end of last week, the Chancellor, Philip Hammond, announced that the Cabinet had reached a general consensus on the need for a transitional period, potentially lasting until the time of the next election in June 2022, so as to avoid a "cliff edge" for business and allow new systems (for e.g. customs and immigration) to be introduced gradually. He indicated that this would probably be based on an "off the shelf" model such as the EEA Agreement. He maintained that the Cabinet was united on the need for an implementation period of this type. However, his suggestion that little would change immediately on "Brexit Day" in March 2019 appears to have prompted some other Cabinet members to indicate, over the weekend, that they are not fully "signed up" to this approach and would be looking for immediate changes in areas such as immigration. Yesterday, a spokesperson for the Prime Minister indicated that free movement of people would end in 2019 and denied suggestions that an "off the shelf" model was being sought to the exclusion of other options.
Our view is that transitional arrangements are essential in order to avoid a potentially highly damaging "cliff edge" for business – see our submission to DExEU from earlier this year and our Q&A on transitional arrangements. We also agree with suggestions in recent press coverage that there will not be enough time to negotiate an entirely bespoke transitional arrangement and that, in any event, the EU is unlikely to be interested in such an approach; this means that such arrangements will probably have to be based on "off the shelf" models, such as the EEA Agreement (which we discussed here).
That said, there will probably need to be some bespoke aspects to any transition; for example, none of the "off the shelf" models would offer a solution to the probable lack of readiness on both sides of the Channel to introduce full customs controls by 2019 (which implies that agreement will be needed to allow the UK to continue to participate in some form of customs union with the EU until both sides are ready to re-introduce controls – a partial customs union, of the type which Turkey has with the EU, would probably not go far enough). See further our Q&A on customs arrangements. It is also possible that the UK could adopt a "mix and match" approach, seeking to combine different aspects of more than one "off the shelf" model; for example, in response to a question about the EU's insistence on any transitional arrangement being subject to the Court of Justice of the European Union, the Chancellor specifically mentioned the possibility of using the institutions of the EEA Agreement, such as the EFTA Court, instead (such a solution has been suggested to the Swiss as a means of supervising their arrangements with the EU).
Use of an "off the shelf" model does not necessarily imply that there could be no change at all to immigration rules in 2019; for example, Ukraine's "associate membership" does not provide for full free movement of people and the EEA Agreement would in principle allow the UK to exert a greater degree of control than is currently possible (see Q9 of our Q&A on the EEA).
The confidence problem
Although the EU has stated that a principle of the talks is that "nothing is agreed until everything is agreed", it would in our view be helpful if the parties were able to announce – sooner rather than later - that concrete progress had been made on at least some of the issues under discussion. So far, business confidence has been remarkably resilient in response to Brexit and it is relatively early days in the negotiations. However, if the UK government continues to be perceived as divided over what it wants and there is little outward sign of progress in the negotiations with the EU by later in the year, concerns over the ultimate outcome may begin to have a more noticeable "chilling effect" on the economy.
What businesses should be doing now
Given this highly uncertain backdrop, businesses should continue to assess the risks they would face in a “no deal” scenario and make contingency plans, particularly in relation to matters over which they have some control. For a list of issues to consider, see our Brexit contingency planning checklist and for details of our commercial contracts Brexit review service, click here.