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Grayling Brussels' Brexit Bulletin - 1 December 2016

1st December 2016


The Grayling view: Legal challenges risk putting more pressure on timing

The legal uncertainty around Brexit - specifically, who gets to decide over triggering Article 50 - is well-documented.

But now another possible legal loophole has come to light.

Whether the UK needs to actively trigger Article 127 of the EEA Agreement to leave the Single Market - as well as Article 50 of the EU Treaty - is now being discussed in legal circles.

If so, this could enable the UK Government to both leave the EU and stay in the Single Market, thereby taking out the latter issue from the entire Brexit negotiation process.

This could be beneficial, given the fact that the 2-year negotiation period is likely to be squeezed even more when one factors in the need for the EU to officially respond to the triggering of Article 50, and the ratification process - each of which could last as long as six months.

More is explained below, but needless to say, both the EU and UK have their work cut out to "achieve Brexit" before the 2019 EU Elections - and that's assuming there are no legal challenges in the meantime.

Don't forget to check out our #Brexitpapers including the 'Great Repeal Bill'Guy Verhofstadt, the European Parliament's lead negotiator on Brexit, Sir Julian King - the UK's last Commissioner. Shadow Brexit Minister Sir Keir StarmerArticle 50, the UK's "Minister for Brexit" David Davis, Chief Brexit Negotiator for the Commission, Michel Barnier, his deputy Sabine Weyand, and what Brexit means for Brits working in the EU institutions.

If you have any suggestions about the Brexit Bulletin or want to find out more about a specific aspect of Brexit, please do let us know.

Please visit the Grayling Brussels website and follow us on Twitter @TheEULobby.

 

 Grayling Brexit Unit

Our Grayling Brexit Unit brings together the very best consultants from across the Grayling network and includes those who have direct experience of working alongside the leading political figures charged with negotiating Brexit in London and Brussels.

The Grayling Brexit Unit is here to support, guide and inform the success of your business and identify how the political dynamics will change as a result of Brexit in both London and Brussels.
We are your Brexit experts.

No task is too big, too complex, or too ambitious - please contact Robert Francis (robert.francis@grayling.com) in our Brussels team for more information or Jonathan Curtis (Jonathan.Curtis@grayling.com) in London, and check out our brochure.


The highlights from the UK

Court case over EEA membership could leave UK out of EU but inside Single Market
To date it has been taken as read that when the UK leaves the EU, it will also automatically lose membership of the Single Market.

But what if this wasn't the case? What if actually leaving the Single Market entailed a whole other process altogether?

It all hangs on a potential legal challenge which is set to decide whether Brexit means leaving the European Economic Area (EEA), and - if it doesn't - whether the UK Parliament should decide if the country should leave the Single Market. The Government is sticking to its guns and saying that Brexit also means an end to EEA membership, but this undoubtedly strengthens the possibility of MPs in Westminster giving the Government a negotiating mandate to leave the EU but remain in the Single Market.

Some lawyers argue that the UK can only leave the EEA if it triggers Article 127 of the EEA agreement with the main question being - is the UK a member of the EEA because it is a member of the EU, or in its own right?

(Article 127 of the EEA agreement states: "Each Contracting Party may withdraw from this Agreement provided it gives at least twelve months' notice in writing to the other Contracting Parties. Immediately after the notification of the intended withdrawal, the other Contracting Parties shall convene a diplomatic conference in order to envisage the necessary modifications to bring to the Agreement").

It could take a long time for a decision to be made - possibly even after the UK triggers Article 50 - and the European Court of Justice could get involved. If nothing else, it adds additional legal uncertainty to what is already a complex and uncertain process.

Tusk fight back as Brussels wins the Brexit blame game
President of the European Council Donald Tusk has made it clear that the Brexit vote is the root of “anxiety and uncertainty” for millions of British and EU citizens living abroad. Tusk’s comments on 29 November came in response to a letter from around 80 mainly Conservative MPs which says that the issue of reciprocal rights for EU-UK citizens is too important to wait until Article 50 is triggered. 
 
Tusk was very frank in his response, stating that the only problem with the MPs’ argument is that it "has nothing to do with reality", referring to the fact that negotiations cannot start before Article 50 is triggered. However, such a direct, unambiguous dismissal exposes the weaknesses of the UK when playing the Brexit blame game with the EU.
 
The EU is no stranger to undermining rules of procedure when doing so is in its interest. However, with Brexit, the EU’s insistence of sticking to the procedure is a mechanism to prolong the uncertainty and speculation which in turn feeds coverage about the negative implications of leaving the EU in general. 
 
Memo photographed at No.10 sets up clash with the French
According to a memo photographed outside Downing Street this week and belonging to Mark Field, Conservative Party Vice-Chairman, Britain’s strategy for the upcoming Brexit negotiations is to “have its cake and eat it”.
 
However, according to the memo, the quest for advantageous trade deals with the EU, without all the responsibilities and commitments this normally entails, may very well be complicated by a "very French negotiating team" in the Commission which is "likely to be difficult", especially in the financial services sector in which France has expressed interest. Of course, we at the Brexit Bulletin could have told you that a few months ago...

UK agrees to ratify Unified Patent Court Agreement
In a surprise move, the UK announced on 28 November that it will ratify the Unified Patent Court Agreement, a key step needed to establish the EU unitary patent and Unified Patent Court (UPC). The Unitary Patent Agreement is an agreement that will facilitate applying and enforcing patents across EU Member States. The agreement was finalised in 2013 but has not yet entered into force as some key signatories including Germany and the UK have not yet signed off on the deal.
 
The unitary patent system can only come into effect when at least 13 Member States have ratified the agreement, including France, Germany, and the UK. 

Now a decision will have to be taken on where the Court devoted to disputes in chemicals and metallurgy will be based. It was supposed to be located in the UK upon entry into force of the agreement. 

It is interesting to note that - despite setting a course to leave the EU - the UK is still ratifying EU agreements, with the patent agreement following on from the UK's interest in opting into Europol.

UK tries to mirror EU trade agreements
Far from going out and making brand new trade agreements with third countries, it has emerged that the UK Government is aiming for continuity and wants to stick with as many existing EU trade agreements as possible. According to the Director General of the International Trade Ministry, the UK is exploring whether the UK can remain in the Customs Union or the Common Commercial Policy, as well as trying to "push the trade agenda" whilst it remains in the EU. Whilst this approach may make sense from a UK perspective, it is hard to see why third countries would essentially copy and paste their EU trade agreement and apply it to the UK, which is a much smaller market specialising in different areas. Wishful thinking, so it would appear.

Let's ignore Article 50 and just leave - UKIP Leader
Who needs Article 50 anyway? That's what new UKIP Leader Paul Nuttall is asking now, saying that Theresa May should take the UK out of the EU and reject the entire Article 50 process. Suspecting a plot, Nuttall says that the Government will continue to "delay and delay the whole process in order to fudge it." It's not clear how he thinks this can be done within the law - indeed, he may not care. More generally, the Government will now be under greater scrutiny on both sides, now that UKIP appears to finally have a leader who has the public profile and combativeness to give May a headache. 
 

The highlights from Brussels

EU side reluctant to grant cosy transition period to UK
In a meeting with representatives from the EU Member States - but not from the UK, for obvious reasons - the lead negotiator for the European Commission Michel Barnier laid out his plans for the negotiations, which included a reluctance to offer the UK a "soft transitional deal" - such as allowing it to retain access to the Single Market but not freedom of movement. During the meeting he listed the issues which would be discussed within the Brexit negotiations, namely -  dates and timing of Brexit, the rights of EU citizens living in another Member State, EU officials’ pensions, borders and the impact on international treaties. Notable by its absence is a future UK-EU trade agreement, which the EU wants discussed separately and not as part of the Brexit negotiations. Much of course depends on what the UK wants from the negotiations - with not much known at the current time, the EU cannot do much more than sketch out key principles. However, once again, it is sending a clear message to the UK - you cannot have your cake and eat it!

Actual negotiations may be condensed into 15 month period
More news is coming out about the actual process for the negotiations once Article 50 is triggered. After the UK takes this step, the EU side has to officially respond. This comes in two parts - "guidelines", which will be agreed by EU leaders, and a more detailed negotiating mandate from the Commission - all of which could take as long as six months - bringing us to September 2017, but three months is an absolute minimum (so, June 2017 remains possible). 

Once there is a Brexit agreement, this must then be ratified - a process which can also take as long as six months. This means that an agreement must be reached by December 2018 if Brexit is to take place before the May 2019 European Elections.

If you've been paying attention up to now, you can see that, from being a straightforward 2-year process, negotiations could actually be condensed into as little as 15 months - all of which means there is even less time for business to make decisions about possibly relocating out of the UK, and increases the uncertainty over what a final agreement may look like.

Dijsselbloem insists passporting is dependent on Single Market membership 
President of the Eurogroup Jeroen Dijsselbloem is not willing to let the UK "have its cake and eat it" either, at least when it comes to financial passporting. The Dutch Finance Minister has insisted that full passporting rights can only be allowed if the UK remains in the Single Market, and therefore bound by EU rules governing financial services. "We cannot allow a third country to have full passporting rights to the financial services market in Europe, if at the same time we allow them to deviate on capital requirements, consumer protection standards, whatever,” he said.
 

What's happening in Asia 

Conclusions of the APEC Summit present UK with double edged sword
With anti-globalisation sentiment playing a key role in the recent election of Donald Trump and Brexit, Asia’s relationship with globalisation was high on the agenda at the 2016 Asia-Pacific Economic Cooperation (APEC) summit which took place in Lima, Peru from 17-19 November.
 
Alan Bollard, Executive Director of APEC, said that the de-globalisation movement has not spread to East Asia, and that Asia Pacific countries are pressing ahead with many other regional plans including the Asia and Pacific FTA (known as FTAAP).
 
This is largely because Asian countries are not experiencing the two main phenomena felt and feared by globalised EU Member States, namely a loss of national sovereignty to the EU and long-term migration.
 
Leaving the EU could, therefore, enable the UK to independently pursue liberal trade deals with a receptive Asia, but without the added baggage of EU membership.
 
However, the fact that East Asian APEC members are prioritising internal talks and FTAAP - probably even more so after Trump’s rejection of the TPP -  could complicate the UK’s plans. For one, the UK may have to wait its turn, and if negotiations get underway, the UK may pay the price for isolating itself in an era when most states are working in coalitions, wielding the collective economic power of their bloc as a bargaining chip.
 

What's happening in North America

US Tech Giants: Advantages of staying in London outweigh the uncertainties of Brexit
Could Brexit challenge London’s position as Europe’s tech hub? While the outcome of last June’s vote cast doubts about whether US tech giants would pursue their investment plans in the UK, the past few weeks showed that Apple, Google, Facebook and IBM are sticking with their expansion plans.
 
The Economist reports that back in September, Apple announced that it will consolidate eight UK sites and move the 1,400 employees into one new half-million square feet office in south-west London. On 15 November, Google confirmed plans to build new headquarters alongside King’s Cross station, claiming it would create 3,000 new jobs in the UK by 2020. Last week, Facebook announced the opening of a new London office in 2017. IBM then said it would unveil four new data centres in Britain, “tripling its capacity for cloud services and creating hundreds of jobs in the country”.
 
US tech giants believe that the talent in the UK’s capital and the country’s “openness and connectedness” are good reasons to keep to their investment plans. They do however acknowledge that retaining the ability to hire foreign workers, especially from continental Europe, is key to their success. US tech giants are already actively lobbying the UK Government to secure free movement of people. One of their fallback plans is to extend the “Exceptional Talent” visa scheme, which despite high costs would enable them to obtain special visas for the best engineers and designers to work in the UK.    
 

News from our European Network 

UK-Poland Summit highlights plight of foreign workers in UK
The Polish Prime Minister Beata Szydlo was in London this week for talks with Theresa May, the latter saying that Brexit would not prevent closer bilateral cooperation on issues such as defence, cybersecurity, and enterprise. May also told her counterpart she wanted an early resolution to the legal status of the 900,000 Poles currently residing in the UK, with Szydlo emphasising the need for certainty over the issue. May said that she was "determined that Brexit will not weaken our relationship with Poland - rather it will serve as a catalyst to strengthen it." The rights of Poles in the UK is a key issue for Poland, but one which will depend on reciprocity, namely how UK citizens will be treated in the EU. As such, it is hard to argue with the fact that citizens from both sides have now become bargaining chips within the wider Brexit negotiations.

Ireland particularly vulnerable to "Brexit shocks"
To no-one's great suprrise, Ireland's Fiscal Advisory Council has warned that the country's economy is very vulnerable to "Brexit aftershocks". The country's dependence on the UK's economy remains great, not to mention the porous border with Northern Ireland which could once more be subject to controls after Brexit. The Northern Ireland Troubles may be a distant memory for some in the UK, but there is a very real fear that a change in circumstances could revive a conflict which was only brought to an end in the mid 1990s. This being the case, whilst it is true that few EU Member States want to give the UK a cushy deal, there is more at stake for some than others, once the negotiations begin.
 

Dates for your diary:
December - Judgement on the appeal launched by the Government regarding Article 50 due
15 December - EU Leaders to discuss Brexit without the UK present
End March 2017 - UK expected to trigger Article 50
April/May 2017 - French Presidential elections
September 2017 - German Federal elections


Grayling Team

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