October 2016

The direction of travel under Brexit is becoming clearer

That the Government will trigger the Article 50 EU withdrawal process by March 2017 understandably took the headlines but arguably the most significant aspect of Theresa May’s speech was when she said, “Let me be clear, we are not leaving the EU today to give up control of immigration again and we are not leaving only to return to the jurisdiction of the European Court of Justice.” This, along with May’s insistence that Brexit means being “a country that is no longer part of a political union with supranational institutions that can override national parliaments and courts,” is the clearest signal yet that Britain will not seek to remain within the single market or the European Economic Area a la Norway – for reasons we set out here.

As we’ve noted before, the direction of travel appears to be that Britain will leave the EU’s customs union (Liam Fox talked of May’s decision to “put trade back at the heart of government.”). May’s stance on regaining sovereign independence outside supranational institutions also suggests that, rather than seeking to remain members of the single market with a few tweaks, the objective is likely to be to negotiate a bilateral and as comprehensive a free trade agreement with the EU as possible, although the Government is still yet to make this explicit. The message is that the UK wants an arms length political relationship with the EU institutions but what exactly this means for trade is as yet unclear.

The ‘Great Repeal Bill’ might have been better named the ‘Great Repatriation Bill’ but was a clever political move nonetheless. Some have pointed out that it amounts to a mostly technical exercise of transferring all EU law into UK law and repealing the 1972 European Communities Act. While this is true, it doesn’t mean it is not an important and necessary step. It helps to provide clarity and assurances for business (and, perhaps, the EU) that there will be no sudden shift in how EU rules and regulations apply in the UK. Similarly, voters have been promised that workers’ rights will not be eroded. These steps add certainty in an uncertain time. Nevertheless, the UK is saying that it will give itself the legislative tools to deviate from EU rules as soon as it leaves, a clear sign to Leavers that Brexit will provide greater policy freedom where required.

There was also a strong message to Scotland and First Minister Nicola Sturgeon. “There is no opt-out from Brexit,” May said. Fall all the talk of consultation and inclusivity in her speech, May effectively challenged Sturgeon to ‘put up or shut up’ on Scottish independence.

What we don’t (or cannot) yet know

On timing, the Government was under increasing pressure to set out when the process would start but we do not yet know when it will end. We now know that Article 50 talks will be under way by the end of the first quarter next year, but it could yet be premature to say that Britain will be completely independent of the EU by March 2019. Indeed, Fox has said that, “What we want is the best exit for the United Kingdom, not the quickest. I wouldn’t put a timescale on it.” Negotiating a bespoke UK deal could well take longer than the allotted two years under Article 50 and there may yet be a need for an interim arrangement.

Beyond that noted above, there was little further detail about exactly what type of economic relationship the UK might seek. May says she wants “maximum freedom” for British and European companies to trade but we will have to wait to see what offer the UK will put on the table and how much will be made public before Article 50 is triggered remains unclear.

May’s desire for talks with the EU pre-notification of Article 50 is sensible but may not get support from the rest of the EU. It would make sense to discuss the structure of the talks: who will lead on either side, a timetable and broad content for different meetings and so on. However, EU states could be tempted to see the two-year ticking Article 50 clock as leverage and will want more detail from Britain before they respond. May triggering Article 50 before the German, and particularly the French, elections next year was a big call. Both of these events will eat into negotiating time, so perhaps the UK is confident that the timetable won’t be a major issue. And, on the other hand, if we assume talks may need longer than two years, why not start as soon as possible?

Meanwhile, the Great Repeal/Repatriation Bill might not be quite as simple as presented. Many EU laws and regulations make reference to other EU laws and EU institutions. Before being adopted into UK law, some of the rules will therefore have to be altered to ensure they refer back to UK law or UK institutions – some of which do not yet exist. One issue to consider is will there be a cut-off point for the body of EU law that will be transposed into UK law – will it apply to all EU laws decided while Article 50 talks are underway or will the Government give itself some leeway here? The UK’s flexibility under any future repeal process will also depend to some extent on the future deal with the EU.

There are also issues regarding previous ECJ case law and how this will be interpreted in the UK. One would assume that, after withdrawal, the UK courts will be free to interpret this body of law independently but in the meantime the ECJ will be the point of reference. And exactly what role Parliament will have vis-à-vis the Executive when it comes to reviewing, amending and repealing the body of EU law post-Brexit also needs to be set out.

Negotiating parameters taking shape but still lots to play for

Given the above, we can start to see the parameters of the forthcoming negotiation. Membership of the customs union and wholesale adoption of the single market both look to be coming slowly off the table, which leaves a bilateral free trade agreement as the most obvious route to implementing the referendum result. As we’ve noted, this still leaves open a spectrum of different possible outcomes, depending on how comprehensive such a deal ends up being – and this still leaves plenty of room for creative thinking about what would constitute the best deal for the UK and for the EU.