On 29 March 2017, over nine months after the majority of the UK voted to leave the EU, Theresa May, the British Prime Minster, finally gave notice to the European Council of the UK’s intention to leave the EU, as is formally required under Article 50 of the Treaty on European Union. The notice was given in a letter to Donald Tusk, the President of the European Council. This now triggers the two-year process for the UK and the EU to try to agree a withdrawal agreement taking into account the framework for their future relationship. In this briefing, we set out the next steps in this process.

What are the next steps?

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Negotiating Guidelines

The European Council, which is composed of the leaders of each EU Member State, will issue guidelines for the withdrawal negotiations. The UK will, naturally, not be included in this process. Mr Tusk has said that the draft guidelines will be ready within 48 hours of the notice being given. They will be high-level and will set out the broad objectives of the European Council for the Article 50 negotiations with the UK. A special European Council meeting has been scheduled for 29 April 2017 to adopt the guidelines, which will need to be approved unanimously by the heads of the remaining 27 Member States. Once agreed, the Commission will use the guidelines to draft a more detailed negotiating mandate.

Negotiating Mandate

The mandate will flesh out the details on the EU’s negotiating strategy. It will include the Commission’s recommendations on each area under negotiation as well as detailed institutional arrangements. The Council of the European Union (“Council”), which represents the governments of each Member State of the EU, will then need to approve the mandate (excluding the UK) by a majority representing at least 65% of the combined population of those Member States.

Once the Council agrees the mandate, the Commission will commence the negotiations with the UK. The Commission will report back to the European Council and to the Council throughout the negotiations, and will keep the European Parliament regularly informed.

Who are the EU’s lead negotiators?

The Commission, the Council and the European Parliament have each appointed their lead Brexit negotiators.

The Commission has appointed Michel Barnier, a former Vice-President of the Commission and former French Europe Minister. Mr Barnier’s team will prepare the draft negotiating mandate and will lead the talks with the UK negotiating representatives.

The Council has appointed Didier Seeuws, a Belgian diplomat, to lead its Brexit taskforce. He will have a key role in co-ordinating the positions of each of the Member States, agreeing the European Council’s negotiating guidelines and in overseeing the work of the Commission during the negotiations.

The European Parliament has elected Guy Verhofstadt, a former Belgian Prime Minister and MEP, to represent it during the Brexit negotiations.

Timeline

The UK and the EU will have two years to negotiate a withdrawal agreement (unless this timeframe is extended with the unanimous consent of the European Council and the UK). However, this timeframe will, in practice, be considerably shorter.

Firstly, the negotiations will not commence straightaway. Once the negotiating guidelines are approved on 29 April 2017, the Commission will need to draw up the mandate, which will then need to be approved by the Council. The negotiations are, therefore, likely to commence around May/June 2017 although they will be affected by the French presidential elections and the German federal elections which will take place in May 2017 and September 2017, respectively.

Secondly, Mr Barnier has said that the deal will need to be agreed by October 2018 to allow for it to be ratified. Once the draft text of the withdrawal agreement is agreed by the Council, it will be sent to the UK Parliament for its consideration which will either approve or reject it. If it is approved, the withdrawal agreement will be considered by the European Parliament, which will need to approve it by simple majority to proceed. The draft agreement will then return to the Council and will be passed if 20 of the remaining 27 Member States, representing 65% of the population vote in favour of the agreement.

Furthermore, the process will be affected by the European Parliament elections which will take place in May 2019. This means that in order to ensure that Parliamentarians focus on the Brexit deal rather than their re-election, the draft agreement will need to be before the European Parliament by early 2019.

Scope of the withdrawal agreement

The Article 50 negotiations will focus on the separation of the UK’s rights and obligations from the EU, which have been acquired over the past 40 years. This will include issues such as the relocation of EU bodies currently located in the UK, for example, the European Banking Authority and European Medicines Agency; the UK’s future involvement in international treaties signed by the EU on the UK’s behalf including more than 50 trade agreements; the UK/Irish border; the future of British civil servants working in the EU institutions and the status of EU cases which will no longer be under the EU’s jurisdiction post-Brexit.

The two issues that will be discussed first, however, will be:

  • the separation of the UK’s financial obligations from the EU’s finances; and
  • securing rights for EU nationals living in the UK and UK nationals living in the EU.

EU finances

Mr Barnier has stated that the UK will not be charged to leave the EU. It will, however, be expected to honour the financial commitments that it made whilst being an EU Member State. At the start of the negotiations, the UK and the EU will agree the method to calculate these commitments. The exact figure will be calculated towards the end of the negotiation period.

The EU expects the UK to cover its contribution to the cohesion fund which is used to pay for infrastructure projects in deprived parts of the EU, as well as the UK’s share of the EU’s deficit (the so-called “reste à liquider”) and the EU’s pension liabilities. However, does the UK have any legal obligation to meet any payments?

Article 50 makes clear that a Member State can unilaterally decide to withdraw from the EU. It can do so either (i) on the basis of an agreement setting out “the arrangements from its withdrawal” or (ii) without an agreement. Article 50 does not contain any details on the nature of those arrangements nor is there any EU guidance on the subject.

Article 50(3) makes clear, however, that “the Treaties shall cease to apply to the State in question” either on entry into force of a withdrawal agreement, or two years after the notification to withdraw (or if that timeframe is extended, at the end of that period). Therefore, once the UK leaves the EU, the rights and obligations arising under the EU Treaties will cease to apply to the UK. As the UK’s obligation to pay into the EU’s budget derives from the Council’s Own Resources Decision, which was made under the Treaties, that obligation will cease to apply on the UK’s withdrawal from the EU. Notably though, there is no express provision in Article 50 which states that the withdrawing Member State must honour its liabilities before it leaves the EU.

Some guidance may, however, be found in the Vienna Convention on the Law of Treaties 1969 (the “Vienna Convention”). This is a treaty which sets out the international law on treaties, as well as customary international legal practice on treaty making between States. The EU is not a signatory to the Vienna Convention, but many EU Member States are, including the UK.

The EU does, however, have a self-imposed obligation to adhere to international law. Article 3(5) of the Treaty on the Functioning of the European Union provides that the EU shall contribute to “the strict observance and the development of international law.” Moreover, the Court of Justice of the EU (“CJEU”) has relied on the Vienna Convention to interpret EU law and has held that the EU must respect the principles of customary international law set out in the Vienna Convention1. This means that the interpretation of Article 50 should be consistent with the provisions in the Vienna Convention relating to customary international law.

Article 70(1) of the Vienna Convention sets out the consequences of the termination of a treaty. It states:

1. Unless the treaty otherwise provides or the parties otherwise agree, the termination of a treaty under its provisions or in accordance with the present Convention:

(a) releases the parties from any obligation further to perform the treaty;

(b) does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination.”

In the House of Lords paper on Brexit and the EU budget, the European Union Committee of the House of Lords concluded that because Article 50 sets out the withdrawal procedure under EU law, Article 70 of the Vienna Convention does not apply. Furthermore, it argues that Article 50 does not make any provision for ensuring that EU legal obligations on the withdrawing State persist after the Treaties cease to apply to it, because a withdrawal agreement is intended to resolve such issues. Consequently, Article 50 permits the UK to leave the EU without being liable for its outstanding financial obligations unless a withdrawal agreement is concluded which resolves this issue.

In practice, it seems unlikely that the UK would leave the EU without honouring its financial obligations, as this would jeopardise the UK’s chances of entering into a free trade agreement with the EU. In the UK Government’s White Paper on the UK’s exit and new partnership with the EU (“White Paper”), it states that the UK would “of course continue to honour [its] international commitments and follow international law.” Furthermore, the UK Government has made a number of commitments to honour funding to UK businesses which they were expecting to receive from the EU. For example, the White Paper states that UK organisations should continue to bid for EU funding and that the UK Government “will work with the Commission to ensure payments when funds are awarded. HM Treasury will underwrite the payment of such awards, event when specific projects continue beyond the UK’s departure from the EU.

The key issue will be the exact amount that the UK will be willing to pay. Under EU law, the EU’s annual expenditure must be covered by its annual revenue; the EU cannot accrue a budget deficit. Consequently, if there is any shortfall as a result of Brexit, the other EU Member States will be required to meet this. Ultimately, the requirement of the UK to pay any balancing payment due will arise from its withdrawal/future relationship agreement with the EU.

Securing rights for EU nationals living in the UK and UK nationals living in the EU

Under EU law, all EU citizens are allowed to live and work in any EU Member State by exercising their freedom of movement. As a result of this right, over three million EU nationals currently live in the UK and over one million UK nationals live in the rest of the EU.

There appears to be consensus between the UK and the EU that the rights of EU nationals living in the UK and UK nationals living in the rest of the EU should be protected once the UK leaves the EU. Indeed, in Mrs May’s letter to Mr Tusk she states that they “should aim to strike an early agreement about their rights”. Although the EU and the UK Government are likely to make a declaration guaranteeing these rights early on in the negotiating process, the exact details are likely to be complex. The withdrawal agreement will need to set out all of the rights that will remain in force post-Brexit to ensure legal certainty such as health and social security rights, and employment rights.

The UK and the EU will also need to decide the cut-off point up to which the rights of EU nationals living in the UK (and vice-versa) will be eligible for protection. The EU will want this to be the date on which the UK actually leaves the EU whereas the UK Government will want it to be earlier to avoid an influx of EU migrants into the UK before Brexit.

Both sides have made it clear that EU citizens will not be used as bargaining chips in the Article 50 negotiations. In the absence of a withdrawal agreement, therefore, we would expect that the rights of UK and EU nationals would be protected under a separate agreement between the UK and the EU.

Parallel Trade Negotiations?

In her letter to Mr Tusk, Mrs May made clear that during the Article 50 process, the UK Government wants to agree the terms of the UK’s “deep and special partnership” with the EU, taking in both economic and security cooperation. Mr. Barnier has stated that the withdrawal agreement, in particular a consensus on the EU finances and the status of EU/UK nationals’ rights, would need to be resolved before any substantive trade discussions can take place.

Although Article 50 states that the withdrawal agreement will take account of the framework for a Member State’s future relationship with the EU, this does not mean that the Article 50 negotiations have to cover the details of a comprehensive free trade agreement between the UK and the EU. That is not to say, however, that parallel trade negotiations between the parties cannot take place alongside the Article 50 negotiations.

As the UK’s law is already aligned with EU law, it should take less time for the UK to agree a free trade agreement with the EU than for the EU to reach such an agreement with third countries with different legal systems. Moreover, in her letter to Mr Tusk, Mrs May states that the UK Government is looking towards a future where the UK’s and the EU’s regulatory frameworks are developed in tandem. She states that the management of “the evolution of our regulatory frameworks to maintain a fair and open trading environment, and how we resolve disputes" should be prioritised. Furthermore, Mrs May highlights that the UK starts from a unique position in the trade discussions with “trust in one another's institutions and a spirit of cooperation stretching back decades”.

Unlike the withdrawal agreement, any trade agreement would need to be approved by the parliaments of each Member State including some regional parliaments.

Transitional Arrangements?

The UK Government wants to avoid a cliff-edge whereby the EU Treaties cease to apply to the UK once it leaves the EU. Instead it is seeking a smooth, orderly exit from the EU by having a phased implementation of the new relationship between the UK and the EU. In Mrs May’s letter to Mr Tusk, she asks that such a principle is agreed early in the process in order to minimise disruption and give as much certainty to individuals and businesses as possible.

The EU is also keen to enter into transitional arrangements with the UK. Mr Barnier has stated that the UK and the EU would need to agree the framework for their new partnership before it will be possible to identify the transitional arrangements needed to cover the time to finalise the EU’s new relationship with the UK.

Conclusion

According to our report, ‘Preparing for Brexit – the views of UK business’, 80 per cent of the respondents are still taking no action on Brexit planning and are instead opting a “wait and see” approach. Now that the countdown has begun, businesses should consider what Brexit could mean for them – the time to plan is now. If you have any queries regarding the content of this briefing or any legal query on Brexit, our team of legal experts would be happy to assist you.