Post-Brexit: The Road Ahead for UK-EU Cooperation in Economic and Trade Policy

British Parliament approved Theresa May’s roadmap for Brexit negotiations on 7 December 2016. Under this roadmap, the UK will commence withdrawing from the EU on 31 March 2017. Article 50 TEU puts a cap of 24 months on the withdrawal process. If and how the UK and the EU will cooperate in the post-Brexit world has been the subject of much speculation.

In the following we assess these possible forms of cooperation. Further updates on Brexit’s implications on public procurement, international trade and competition law will follow.

While British Parliament has approved 31st March 2017 as a starting point for the withdrawal process, it seems that further delays must be expected in light of a recent judgment rendered by the London High Court. According to this decision, which the Supreme Court has upheld in its judgment of 24 January 2017, authorisation by the British Parliament is needed for government to notify the European Union of its intention to withdraw its membership in accordance with Art. 50 TEU. Although it seems unlikely that Parliament will eventually oppose the vote on the notification, it might well take the Supreme Court’s judgment as an opportunity to gain more leverage in the withdrawal process.

In light of a recent decision of the High Court of England and Wales, which the Supreme Court has upheld in its judgment of 24 January 2017, it is unlikely that the British Government will commence withdrawing from the EU as planned. As it currently stands, the Government must obtain authorisation from the Parliament to notify the EU of its intention to withdraw its membership pursuant to Article 50 TEU. Although it seems unlikely that Parliament will eventually oppose the vote on the notification. However, it might seek to exploit the judgment of the Supreme Court to gain more leverage in the withdrawal process.

There is no precedent for Brexit-style negotiations in European or Public International Law. This makes it difficult for legal experts to predict the outcome. However, it is likely that negotiations will be tough for at least two reasons. Firstly, the EU and its remaining Member States aim to send an unambiguous signal towards eurosceptical voices within the EU. Thus, the EU will not allow the UK to cherry-pick conditions such as access to the internal market if it does not also accept the free movement of workers.

Secondly, the pressure on the UK to negotiate under significant time constraints is compounded by the announcement by the EU’s chief Brexit negotiator, Michel Barnier, that he will execute negotiations in only 18 months.

“Hard Brexit”

Given the short time frame for negotiating its withdrawal from the EU, it is possible that the UK will be faced with a so-called “hard Brexit”. A hard Brexit will materialise if the UK does not make provisions to replace EU law prior to its withdrawal from the EU. Even in negotiations between the UK and the EU, a bilateral follow-up treaty needs to be agreed on and temporary arrangements be made before the 24-month negotiation period ends. If such an agreement is not found and the Member States cannot or do not want to agree on an extension to the negotiation period, the UK would be faced with a hard Brexit.

The Swiss Model and the Norwegian Model: Association Agreement

The UK could continue its cooperation with the EU in the form of an association agreement similar in substance to that concluded by Switzerland or Norway. Under the Swiss model, the UK would have membership of the European Free Trade Area (EFTA) and enter bilateral agreements with the EU in all areas not covered by the EFTA Convention.

Under the Norwegian model, the UK would have membership of the European Economic Area (EEA) in addition to EFTA membership. The status quo would largely be maintained in this scenario as the EEA Agreement mirrors the EU Treaties. Through the principle of coherence, EEA states are bound by the case law of the EU courts. The only main policy areas not covered by the EEA agreement, in which EEA states retain autonomy, are agricultural and fishery policy as well as economic and trade policy vis-à-vis third countries. Such close ties to Brussels are surely not what Brexiteers had envisaged. Thus, it seems unlikely that these solutions will be supported by the UK.

Furthermore, it is questionable whether the Member States of the EFTA and the EEA would accede to a request from the UK to join their respective associations. These Member States represent smaller national economies that may justifiably not wish to shift the balance of power in favour of the UK.

The Canadian Model: Free Trade Agreement

Another option, which was recently endorsed by Brexit Secretary David Davis in Parliament, is to commence negotiations for a UK-EU free trade agreement (FTA). Such an agreement would regulate cross-border trade by means of preferential tariff duty rates but also non-tariff trade barriers such as product standards.

In general, it is in line with the rules of Public International Law to shape a FTA as the parties see fit, especially in politically sensitive policy areas such as the free movement of workers. However, it seems likely that the EU will follow the principle “nothing is agreed until everything is agreed” in negotiations and will make no compromises as regards the UK’s recognition of the fundamental principles of the internal market.

The negotiations between the EU and Canada on the Comprehensive Economic and Trade Agreement (CETA) pose an example of how protracted treaty negotiations – and the subsequent ratification process – can become. Thus, it is questionable whether the Canadian model is feasible in the stipulated 24 months for negotiations. This is especially the case if the envisaged FTA were a mixed agreement, which necessitates ratification by the national parliament of each EU Member State next to ratification by the EU legislative organs.

The Turkish Model: Customs Union

Another way to maintain access to the internal market would be to remain in the customs union of the EU. Such an agreement is currently in place between the EU and Turkey. Within the customs union, all products circulate freely regardless of their country of origin. In this respect, common rules on the determination of the origin of goods are in place between the members of the customs union. Moreover, the UK would have to apply the common tariffs of the customs union vis-à-vis third countries. Again, the arrangement would entail a degree of dependence on Brussels which is probably not in line with the Brexit rationale.

Conclusion

Although almost half a year has passed since the Brexit referendum, the shape which the future cooperation between the UK and the EU will take remains unknown. In the past, the EU has proven to be a flexible negotiator in reaching agreements with neighbouring countries of the EU. Hence, the arrangements discussed above – each with their advantages and disadvantages – have developed and could serve as a guide for the withdrawal negotiations. While the association models deliver a good start for the commencement of negotiations by means of pre-existing treaties, more flexibility and a tailor-made solution can be offered through a free trade agreement. However, one needs to keep in mind that previous arrangements have been made with the aim to achieve more convergence between the EU and its partners – something that cannot be said about the upcoming Brexit negotiations. Thus, it remains to be seen how benevolent a negotiator the EU will be in the coming years.

BLOMSTEIN will continue to monitor these developments. If you have further questions on the implications of Brexit on your company, please do not hesitate to get in touch.

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