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Blogs

Voting on Withdrawal: take it or leave it?
What happens with my orders for goods either side of Brexit Day?
The Guidelines at a glance ...
Article 50: will anything change for business?
EU Data Protection rules after Brexit, ditch or do?
UK EU exit and small businesses


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April 2017

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Blogs

Voting on Withdrawal: take it or leave it?

The EU27 have now agreed the negotiating guidelines for the talks on the UK’s withdrawal from the European Union. From June, EU UK negotiations on the divorce terms will kick off. These will then take at least 16 months. When there is an agreement, who will have a final say on it?

There will be two negotiating parties: 27 EU member states (EU27) and the UK. The EU will conduct talks on behalf of 27 member states in the form of Chief Negotiator Michel Barnier, but the EU negotiating team will regularly consult with its members on positions to take. Obviously, the UK cannot participate in deliberations about its own withdrawal according to article 50 (4) of the Lisbon Treaty: ‘(...) the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it’. So the EU27 (EU28 minus UK) decide on negotiations carried out by the EU negotiating team, that acts as one party.

When there is an agreement, the EU and the UK need to validate it. The UK Government said both Houses of Parliament will have a vote on the Brexit deal. In addition, the Government wants the UK Parliament to vote before the European Parliament does.

In the EU, validation of the Withdrawal Agreement (irrespective of a potential trade deal, that’s likely to be different) is done through 1) consent of the European Parliament and 2) agreement in the European Council (Heads of State and Government of 27 EU member states) with a qualified majority.

Now, this qualified majority is special. It means that at least 72% of the EU27 comprising at least 65% of the population of the EU27 need to agree. This is an exception to the normal qualified majority rule, which is 55% of the EU28, comprising 65% of population of the EU28. See art. 50 (4) TEU and art. 238 (3) (b) TFEU.

This rule rule makes it more difficult to get an agreement through: almost three quarters (72%) of the EU27 are needed for a qualified majority. It also makes it easier to block an agreement: at least the number of member states representing more than 35% of the EU27 population, plus one member state. This will favour big member states. In theory, France, Germany and any other member state would be able to block an agreement. If the Council doesn’t reach a qualified majority, the deal will be sent back to the negotiating table, the remaining negotiating period permitting.

Is this 'take it or leave it’ for the UK? On closer inspection of article 50, it seems to be in a weaker position than the EU, that has a veto in the European Parliament, and a relatively easy way to block the deal in Council. However, it will be political factors that determine who has the upper hand. If the EU27 demonstrate unity of purpose, they will be in a better position to present an ultimatum to the UK. If they cannot, and the UK Government has a strong mandate for its Brexit position as a result of the upcoming General Election, the EU27 are less able to dictate terms. Ultimately, the UK can walk away without an agreement, although this will be seen as a lose-lose outcome.

What happens with my orders for goods either side of Brexit Day?

No early May Bank Holiday weekend this year for leaders of 27 EU member states, as they gathered to agree guidelines for the forthcoming negotiations with the UK. The official talks haven’t started, but TradePeers’ Sietske de Groot gives a glimpse of the future for those who do business on the European single market.

The withdrawal negotiations kick off this summer. As well as issues such as citizens’ rights, financial obligations, and Northern Ireland, its first phase is also likely to deal with uncertainties about goods placed on the market before the UK’s withdrawal from the EU (‘Brexit Day’).

Goods made available for purchase before Brexit Day would ideally be permitted to be traded on the same basis afterwards. For goods brought to market after Brexit Day, EU-UK trade terms will be anybody’s guess, and will remain so for a while.

We might have to await the second phase of negotiations, when both parties identify an ‘overall understanding’ of the future EU-UK relationship. This is where market access should come into the picture. However, it is unknown when the negotiators will go down to the nitty-gritty of customs procedures, tariffs, quotas and rules of origin, let alone product rules. The EU is adamant that a trade deal will only be finalised after Brexit Day, which, smooth negotiations permitting, is scheduled 29 March 2019.

The Guidelines at a glance ...

EU President Donald Tusk was quick to present draft guidelines for negotiations after the UK activated article 50 to leave the European Union. Here is my assessment of what they could mean for trade, if adopted by the EU27 on their summit on 29 April.

The EU is taking its time. It wants an orderly withdrawal through a phased approach. This means first negotiating a Withdrawal Agreement and then other agreements such as a trade deal. The UK, by contrast, prefers negotiations to be rolled into one and have them done by 29 March 2019. Let’s look at the EU approach.

The following will need to be agreed for the Withdrawal Agreement:

The negotiating parties have 16 months to agree on those. If there is ‘sufficient enough progress’ with them, the parties may also decide to make a start with negotiations on:

The parameters for negotiations are unprecedented. For example, there are 54 trade agreements, but there is no country that has a deal with the EU that has:

Also, the EU’s red lines are:

The above is what an ‘orderly and phased approach’ means. On the one hand, it is good for businesses to get gradually used to life outside the EU and reduce uncertainty. They can also enjoy full access to the world’s biggest market on their doorstep, at least for the next couple of years.

On the other hand, if the UK is bound by EU rules, during transition, it would not be able to strike deals with other countries until it has fully left the EU, which may take years.

However, the world is moving fast. The UK is going it alone and needs to be part of the international dealing room sooner rather than later. Also, it is estimated that the majority of growth will originate outside the EU. Finally, the shaping of trade rules is moving from multi-country deals to bilateral deals, which is in the UK’s favour. If it has to wait until everything with the EU is agreed, it may miss out on the the current reshuffling and newly forming trade alliances.

Both positions of (1) a phased approach and (2) concurrent negotiations are fully understandable, and speed will have to be balanced against orderly withdrawal and legal certainty.

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Article 50: will anything change for business?

This week will see two major steps in the Brexit proces. The UK is withdrawing from the EU under ‘article 50’, and the Government will publish a White Paper on the 'Great Repeal Bill'.

Future UK-EU trade could mean tariffs, rules of origin, and changes to the recognition of licences, employing staff, opening branches, and travel. However, regulation is the biggest business issue.

The Government will inherit EU regulation onto its statute book through the ‘Great Repeal Bill’, but will also scrutinise each piece of law. This leads to many uncertainties.

The Government will inherit EU regulation onto its statute book through the ‘Great Repeal Bill’. It will offer certainty for business in the short term, as EU and UK laws will be the same. However, UK ‘EU’ law may change under a next government, and the EU will update its laws as and when necessary, so rulebooks could start to diverge. Also, the UK will adopt case law of the European Court of Justice. But will it follow future rulings? Will I need to know different versions of the rules, depending on my customer?

Now it has received the UK’s notification to leave, the EU will decide on the negotiations. Talks will last until October 2018 for the UK to leave in March 2019. Ideally, the deal comprises a transition period, and withdrawal and trade terms. However, trading under WTO rules remains a possibility.

Going forward, questions for businesses are:

‘Art. 50’ is happening. Will anything change for business? Not immediately. But plan ahead! Anticipate changing trading conditions and chart uncertainties.

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EU Data Protection rules after Brexit, ditch or do?

The General Data Protection Regulation (GDPR) will hit the UK’s shores in May 2018 to replace the current legislation. But what happens when the UK leaves the European Union (EU) a year later in 2019?

As long as the UK is a member, it has to abide by all EU legislation. So European companies, UK companies and, indeed, all companies operating in the EU, will have to comply with data protection rules, encompassing:

After the UK has left the EU, the Government’s forthcoming ‘Great Repeal Bill’ will put all EU legislation on the UK statute book to ensure businesses don’t face a cliff-edge of legal uncertainty the day the UK leaves. The idea is that the UK Parliament would scrutinise each EU law and decide which ones would be retained, amended or dropped.

However, this could mean creeping non-tariff barriers as EU and UK rules increasingly diverge through updates and court cases. Also, legal rights in cross-border trade can no longer be enforced directly by companies via a UK court, as the UK will leave the EU arbitration system.

As long as EU data protection rules are not ditched by the British Parliament, or die in EU-UK negotiations, please take heed of the upcoming GDPR, at least until 2019, and likely beyond.

This article was also published in Trade and Investment Update, British-American Business.

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UK EU exit and small businesses

The Federation of Small Businesses (FSB) published a preview of its report on what small businesses want from Brexit with regard to markets, jobs and skills, EU funding and regulation. Nearly 1,800 small firms participated in the FSB survey on future trade with EU and non-EU markets (FSB, 2016). This is what they found:

While the EU single market is the largest market for small exporters, FSB also believes that there will be new global trading opportunities for small firms after the UK leaves the EU. However, FSB stresses that small firms would need support in accessing those markets.

New trade relations need time to become established. Therefore, it is vital there is a transitional arrangement with the EU as long as there is no EU UK trade deal and the UK has not concluded deals with the rest of the world. In this way UK exporters may continue to benefit from the preferential rates the EU has negotiated with 53 non-EU countries, and from unfettered access to the single market.

It is difficult to predict whether, and how, a transitional deal will materialise. Therefore, it is important to understand potential changes to overseas trading conditions when the UK exits the EU.

Choosing export destinations

One way that trading conditions could change if the UK leaves the single market and/or the customs union is the introduction of (non-)tariff barriers. For example, businesses could be faced with new licensing requirements, taxes, standards, labelling requirements and testing procedures.

FSB asked its exporters to what extent such barriers determine which countries they export to. This is what they found:

Finally, FSB looked at what exporters and importers think about how the UK's from the EU will impact on future trade (69% of small exporters are also importers). This what they found:

The forthcoming report will focus on the ease, cost and importance of doing business with EU and other countries. TradePeers is looking forward to the final report, as there is little known so far about the effect of the UK’s EU exit on smaller firms and their access to markets.

Preview of FSB’s Brexit Research Series

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