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Focus on Regulation

Brexit: a play in four acts?

The stage is set for the Euro-drama of our time. We know that giving effect to the UK’s vote for Brexit could require as many as four sets of distinct but closely linked negotiations, or “acts”, dealing with the terms of:

  1. the UK’s withdrawal from the EU;
  2. the UK’s future relationship with the EU after leaving;
  3. interim arrangements that may be needed to bridge the gap between the current position and the conclusion and coming into effect of such a future relationship; and
  4. trade agreements outside the EU, including to replace the 53 agreements between the EU and other non-EU countries, which will stop applying to the UK post-Brexit.

The plot is as yet unknown, but the cast list of players continues to grow.

Enter, Monsieur Barnier

On 27 July 2016, the European Commission appointed Michel Barnier, a former Vice-President of the Commission and a former French Foreign Minister, as its Chief Negotiator in charge of leading the Commission Taskforce for the Preparation and Conduct of the Negotiations with the UK under Article 50 TEU.

Mr Barnier’s previous experience also includes French Minister of State for European Affairs from 1995 to 1997, during which time he sat across the negotiating table from David Davis, who was the UK’s Minister of State for Europe between 1994 and 1997. With Mr Davis having recently been appointed the UK’s new Secretary of State for Exiting the EU, he and Mr Barnier will once again be locking horns on the issue of the EU.  As EU Commissioner for the Single Market and Services between 2009 and 2014, Mr Barnier was also responsible for financial services regulation immediately after the financial crisis, during which time the Commission proposed over 40 pieces of legislation concerning the financial regulation.

Due to start in his new role on 1 October 2016, Mr Barnier will report directly to the President of the Commission, Jean-Claude Juncker, and will have the best Commission experts at his disposal. He will be advised by a group of Directors-General dealing with the issues relevant to the negotiations.

The Commission press release announcing Mr Barnier’s appointment stated:

In line with the principle of ‘no negotiation without notification’, the task of the Chief Negotiator in the coming months will be to prepare the ground internally for the work ahead. Once the Article 50 process is triggered, he will take the necessary contacts with the UK authorities and all other EU and Member State interlocutors.

Mr Barnier is being billed by the Commission as the EU’s chief Brexit negotiator. However, the European Council had already appointed a head of its Brexit Special Task Force, Belgian diplomat Didier Seeuws, on 25 June 2016, only a day after the results of the UK’s EU referendum were announced.  Mr Seeuws was chief of staff to former European Council President Herman Van Rompuy and most recently director of transport, telecommunications and energy at the European Council.

At the time of Mr Seeuws’ appointment, it was reported that he would be responsible for the UK’s future relationship with the EU, while an “article 50 taskforce” set up by the Commission would be responsible for the withdrawal negotiations.  However, Politico, a newspaper that covers EU politics, also reported that the Commission was not happy with Mr Seeuws’ appointment, with Mr Juncker’s chief of staff, Martin Selmayr, reportedly characterising the appointment as a “power grab“.

This confusion derives from the wording of Article 50, which is unclear as to which of the EU institutions should lead the negotiations. Article 50 provides that the European Council, after having received a recommendation from the Commission, must adopt a decision authorising the opening of negotiations and nominating a head of the EU negotiating team.  Article 50 does not stipulate whether the negotiating team must be comprised of Commission or Council officials.  Generally, it is the Commission that negotiates agreements with third countries on behalf of the EU.  However, at the time of the negotiations, the UK will still be an EU Member State and, arguably, the wording of the EU Treaties leaves it open to the Council to nominate a Union negotiator other than from the Commission.

With the legal position unclear, both the European Council (made up of the heads of state and governments of the EU Member States) and the Commission (effectively the EU’s civil service) appear to be in the process of deciding who will be in the driving seat, with some Member States, who are reportedly worried about the Commission’s federalist tendencies, preferring for the European Council to lead.

The EU Parliament has passed a resolution that the Commission should do the negotiating. However, the UK Prime Minister is reportedly pushing for the European Council to take the lead, in the belief that it will be more open to compromise than the Commission.  Can Mr Barnier assert his authority to lead the negotiations from the EU side?  And what roles will the supporting cast of the members of the European Parliament (a majority of whom must consent to the final agreement) and individual Member States (who, subject to the terms of the agreement, may well need to consent as well)?

Domestic stagecraft

There is continued movement on the UK side of the negotiations too.

The Prime Minister has reportedly confirmed that Mr Davis will be taking the lead in negotiations on the UK’s future trade negotiations with the EU, not Liam Fox (Minister for International Trade).  This is in line with the Prime Minister’s Written Ministerial Statement on the structure of Government Departments, which stated that the Department for International Trade (the “DIT”) would be responsible for “preparing for and then negotiating free trade agreements and market access deals with non-EU countries“.

However, some have pointed out that the very existence of the DIT appears to be at odds with the Prime Minister’s claims that no decision has yet been made as to the UK’s Brexit negotiating position. Comments made by the Prime Minister and Dr Fox in the last week also highlight the conflict.

While visiting the United States of America last week, Dr Fox advocated for the UK leaving the EU customs union and the single market.  The EU customs union is, by definition, an agreement to share external relations with third countries.  It allows goods to move freely within the customs union with no tariffs, but imposes tariffs and administrative checks at its external borders.  It is a condition of membership of the EU customs union that only the EU negotiates trade deals with non-EU states and that it sets the same entry tariffs into all Member States.  Therefore, the UK would not be able to agree its own bilateral free trade agreements with non-EU states without leaving the EU customs union, hence Dr Fox’s position.

The EU customs union and single market are two aspects of the UK’s relationship that the Government needs to decide whether it wants to try to keep as part of its Brexit negotiations. At present, Turkey is part of the EU customs union but not the single market, while Norway is the opposite (not in the customs union, but part of the single market, except for fish and agriculture).

The Prime Minister has reportedly sought to distance herself from Dr Fox’s statements about leaving the EU customs union, reiterating that no decision has yet been made. However, there is a clear tension in the Government’s current position that needs to be resolved.

While in Northern Ireland and the Republic of Ireland last week, Mrs May stated that “no one wants a return to the borders of the past” and that there was a “strong will” to preserve the free movement of people between the UK and the Irish Republic.  It is difficult to see how the UK could leave the EU customs union without adopting some sort of a “border” between Northern Ireland and the Republic to prevent goods from third countries moving into the customs union without the requisite checks and tariffs.  Free movement could continue, but customs checks would need to be introduced so that goods are not smuggled across the border.

The Brexit scrutineers

What roles will the Members of the UK Parliament play?

The House of Lords EU Committee has published a report on Parliament’s role in scrutinising the negotiations.  The report is categorical about the need for Parliament to be involved in the process during the negotiations, which it states will have profound and lasting implications for the UK in terms of its economic prosperity, but does not comment on its role in relation to triggering Article 50, a matter which is the subject of high profile legal proceedings in the English courts.

The report states that the Committee:

  • believes that the two sets of negotiations in respect of the terms of the UK’s exit from the EU and its new relationship should be conducted in parallel; and
  • expects both houses of parliament to be involved, with regular debates, ministerial statements and answers to questions to allow for effective oversight; but
  • recognises the need for the degree of scrutiny to strike a balance between transparency and confidentiality so as to avoid undermining the UK’s negotiating position.

Nick Clegg has made an unexpected return to the stage. The former Deputy Prime Minister, Member of the European Parliament and trade negotiator in the Commission has laid low since he resigned as Liberal Democrat leader in the wake of the 2015 General Election.  Last week he re-emerged as the Liberal Democrat Brexit Spokesperson, announcing that he will be publishing a series of “Brexit challenge” papers that aim to explain and critique the Government’s negotiating options.  The first Brexit Challenge paper, on the single market, includes ten “questions that need to be answered” by the Government about its policy, including:

Will the government be up front about the fact that there is a fundamental trade-off between continued access to the Single Market and sovereignty over the rules?

Does the government distinguish between ‘access’ to the Single Market and ‘membership’ of the Single Market? If so, what is the distinction?

How will the government preserve the vital ‘passporting rights’ that allow UK banks and other businesses to offer their services across Europe from their base in the UK? Does the government accept that loss of ‘passporting rights’ (allowing banks and other businesses to offer services across Europe from a UK base) would drive business out of the UK?

The European Court of Justice is an essential part of the Single Market, resolving disputes and ensuring the fair application of European law to Member States. How will the government ensure that the UK can continue to benefit from the protection of the ECJ in upholding the law to guarantee our market access once it is no longer a member of the EU? How will the UK persuade the European Commission to bring actions against Member States who block the UK’s access to their markets?

In circumstances where Her Majesty’s Official Opposition are in the midst of a leadership election and the shadow Brexit Secretary, Emily Thornberry, is also the shadow Foreign Secretary (there is currently no shadow Minister for International Trade), Mr Clegg’s attempt to grapple with the detailed policy implications of Brexit could see him play an important oversight role in parliament over the coming months.

How Hogan Lovells can help

Hogan Lovells has its own Brexit team, offering impartial analysis on the implications of Brexit on the legal structures which currently underpin a variety of sectors. Visit www.hoganlovells.com/brexit to find out more.