Following the announcement of the momentous decision of British voters to leave the European Union on the 24th of June, Hill+Knowlton Strategies gathered a team of experts from our London and Brussels offices to advise on the consequences of the vote.
Brussels, like the rest of the world, is still reverberating from the implications of the UK’s vote to leave the EU. As the formerly dim prospect of untangling the legal ‘spaghetti’ of the United Kingdom’s involvement in the European Union becomes unavoidable, lawmakers in Britain and the rest of the EU are being drawn into the uncertainty that many had foreseen in the event of this outcome. Tensions are beginning to show between what one can think of as the ‘legal’ and ‘political’ aspects of withdrawal, and between what happens immediately, and what the future relationship between the UK and the EU will be. As various actors and factors react to the changes at different speeds, we are likely to see a period of political confusion and legal and economic uncertainty. Hill+Knowlton Strategies advises that businesses that are directly affected should follow the ‘divorce’ negotiations closely once they are triggered, both from the UK and the EU’s points of view, while bearing in mind that within the EU 27 differences may emerge on particular points in the course of the negotiations.
Legally speaking, the United Kingdom is still a member of the EU. This means that, in the short run and strictly speaking legally, nothing will change. The United Kingdom has all the full rights and obligations of an EU member state until it formally withdraws from the European Union. Once the UK declares its intentions to leave to the Council, invoking Article 50 of the Lisbon Treaty, there will be two entirely separate negotiations. One regards the ‘divorce settlement’; this will determine the legal situation of the UK as it leaves the EU and will have to be conducted within the two year timeframe in Article 50 (unless all member states agree to extend it, which is very unlikely). The German Chancellor and the French and Italian Prime Ministers have ruled out informal negotiations until Article 50 is triggered. Any aspects of the UK and EU’s relationship which do not remain standing after this ‘divorce settlement’ will need to be negotiated in an entirely new agreement which will probably take much longer than two years and will have to be adopted unanimously and ratified by the EU 27.
Politically speaking, however, the changes will be much more immediate. Despite the fact that UK lawmakers and civil servants technically and legally, have positions in the European institutions until the UK is formally no longer a member, it is hard to imagine that any of them can continue to work until then as though nothing had happened. Would, for instance, UK lawmakers be allowed to participate in decisions that will not affect the UK, or in decisions made by the Parliament on behalf of the EU 27 regarding the UK’s exit? There is huge confusion over this, and no fixed rules exist.
The European Commissioner for the UK, Jonathan Hill, who would have been exceptionally well-placed to not only gather intelligence from within the European Commission but also to influence its decisions vis-à-vis Brexit, has understandably but unexpectedly resigned. His portfolio covering financial services was transferred to Latvian Commissioner Valdis Dombrovskis. David Cameron said in the House of Commons on 28 June that as a “full paying member of the European Union” he expected the UK to nominate another Commissioner once a new Prime Minister is in power, however any new nomination would have to be endorsed by the European Parliament, so this may not get far.Within the Council of Ministers, UK ministers will still have access to the Council as long as the UK is a member of the EU, however, they will be excluded from any discussions regarding the UK’s departure. This means an exceptionally difficult task for the secretariat, who have to devise meeting schedules to accommodate this. As we saw this week, in any matters regarding Brexit, David Cameron or any other UK minister will be invited to address the EU 27, and then will be asked to leave as the EU 27 ministers continue discussions among themselves. This has already provided some powerful images of empty chairs and flag-moving showing more concretely what leaving the EU actually means. The European Parliament has also passed non-binding measures asking the UK to forego its Presidency of the Council in 2017. The role of the Council presidency is to call for meetings, set the agenda and broker compromise between Member States, which would be difficult for the departing UK.
The 73 Members of the European Parliament from the UK also have a mandate to remain until the UK formally exits, probably in 2019, however there is likely to be much political tension and confusion over their roles until then. Will British MEPs be allowed to vote in plenary and in committees on laws that no longer affect them, let alone propose amendments? Will they continue to work on important EU legal dossiers? Will they resign immediately, or stay on under an observer status, taking no part in proceedings? Will Scottish Nationalist MEPs be invited to join the Greens/EFA political group if Scotland gains independence and is allowed into the EU? These are all sensitive and as of yet undecided issues. So far, one British MEP, Ian Duncan, has given up an important portfolio on the emissions trading scheme, but it is expected that others will follow.
Going forward, there are many other areas of policy and law that will need to be ‘untangled’. Thomas Tindemans, Chairman of H+K Strategies Brussels, has likened it to ‘trying to un-cook spaghetti’. Major areas of commercial law which are currently governed at the EU level will within two years of Article 50’s invocation require national legislative initiatives in the UK.
This includes many important areas, notably antitrust legislation and trade deals with third countries. In competition matters the UK has its own Competition and Markets Authority, however will the UK continue to apply EU competition law as it stands or will it create new legislation? As appeals will now be held in the UK’s courts rather than the European Court of Justice, will decisions by the UK authorities be aligned with EU decisions or not?
Trade deals with third countries that are already in place will presumably continue to include the UK as a member of the EU, however for ongoing negotiations, what will the future hold? Will the UK be included in CETA? Can the European Commission continue to negotiate on behalf of the UK, or hold UK concerns into account concerning TTIP?
Most importantly in trade terms will be the UK’s relationship with the EU post departure, and whether access to the single market will be granted or not. As much of this depends on internal UK politics, it is not easy to know how much a new UK Prime Minister would be able to concede, and therefore hard to know what level of access the UK will have. In any case, access to the single market will require a contribution to the EU budget, which will create wonderful scenes in the House of Commons as the costs are being discussed.
The Norwegian model has been suggested, it would give access to the single market however it requires EU budget contributions and conformity with EU law without having any say of how the laws are made. The Swiss model involved a huge array of bilateral agreements, either with the bloc or with 27 individual states, and will never be completed within 2 years. A customs union, such as Turkey has, would allow free movement of goods but not services, which would present an issue given the UK economy’s reliance on services. They would also have to accept all regulation, without having a say in how they are made. A UK – EU free trade agreement, such as those with South Korea, Canada and the US, is extremely hypothetical, as it could take decades to complete. They raise questions for each sector, product line and service, and in such negotiations the EU with a market of several hundred million people would be in a much stronger negotiating position than the UK.
In conclusion there is, as everyone predicted, much confusion both politically and legally. Although some factors such as the UK’s membership of the WTO will continue normally, tensions will be felt, and the coming period will be one of great uncertainty.
Implications for Business | A Strategic Outlook
The primary concern is that companies should investigate to what extent they are covered by EU regulations, especially in highly regulated sectors such as pharmaceuticals, chemicals, food, technology, energy and health-related industries. Secondly, companies should assess what is the importance of their UK operations on a global level, such as whether headquarters are located in London, or whether they use the UK to access the EU or vice versa. Hill+Knowlton Strategies’ advice to clients who are potentially affected is to follow closely the negotiations in the UK’s exit treaty with the EU, both from the UK’s perspective, where concerns may arise as to the UK’s capacity to represent the economic interests of those companies, but also the EU’s, while being watchful for individual EU 27 states who may not be aligned with the rest, as this can stall negotiations. Where the EU has exclusive powers or shared powers with Member States, companies should think about what their desired outcomes from these negotiations are, as well as what strategy they will deploy to achieve them.
Thomas Tindemans, Chairman, H+K Brussels