What Comes Next After U.K. Triggers Brexit Talks: QuickTake Q&ABy
Nine months after Britain voted to leave the European Union, Prime Minister Theresa May plans to open divorce proceedings on March 29. The negotiations could turn “vicious,” according to Irish Prime Minister Enda Kenny. European Commission President Jean-Claude Juncker says they will be “very, very, very difficult.” Both the EU and the U.K. will have to determine what is and isn’t negotiable.
1. Didn’t Brexit already happen?
No. The June 2016 referendum, in which 52 percent of British voters chose to leave the EU, was just the start of a lengthy process. If May has her way, the actual split will occur in the first half of 2019. Its contours are about to be negotiated.
2. What does Brexit actually mean?
Britain is exiting the 28-country bloc, which it joined in 1973. Initially envisaged as a free-trade zone that now includes 500 million consumers, the EU is, in the eyes of many Britons, too bureaucratic, out of touch, expensive and an obstacle to clamping down on immigration. Free movement of citizens is a basic tenet of EU law.
3. How does the exit process work?
Article 50 of the Lisbon Treaty, the EU’s guiding document, details how a country leaves the bloc. It’s never been activated and is only about 260 words long. It gives the departing country up to two years to negotiate “its future relationship with the Union.” So Britain will be out of the bloc by April 2019.
4. When did the two-year clock start ticking?
It starts on Wednesday afternoon when the U.K.’s envoy to the EU, Tim Barrow, hands EU President Donald Tusk a letter from May formally invoking Article 50. May will address the U.K. Parliament about the same time. The delay since the referendum was caused by May, who insisted she needed time to form a negotiating team and take a position. Then the U.K. Supreme Court ruled that she didn’t have the authority to trigger Article 50 by herself, forcing her to obtain permission from Parliament. A law was then passed on March 16 to allow the prime minister to act.
5. How quickly will talks start?
Tusk will read out a statement at 1:45 p.m. in Brussels on Wednesday, a move that may give some clarity. He has indicated the EU will respond within 48 hours by publishing draft guidelines for Michel Barnier, the European Commission’s chief negotiator. EU leaders will convene a summit on April 29 to sign off on those. Officials have said the bloc may wait until June to fully engage although September elections in Germany will be a distraction.
6. What will May push for?
She intends to pull the U.K. out of the single market for goods and services -- a “hard” Brexit that prioritizes securing control of immigration, laws and her budget over economic concerns. May wants the “best possible deal” for trading with the bloc although she seeks the liberty she now lacks to negotiate trade deals with non-EU countries such as the U.S.
7. What will Europe demand?
The remaining EU members don’t want the U.K. to “cherry pick” the benefits of membership with none of the responsibilities (like agreeing to the free movement of people) for fear it will encourage others to leave as well. Many European countries are going to seek a guarantee of the rights of their citizens already living in Britain. May wants the same for Britons living abroad and says this is an issue to resolve early on. Ireland, an EU member, says it will fight any attempt to restore a so-called hard border with Northern Ireland, which is part of the U.K. Then there’s the question of the bill the U.K. will be asked to pay.
8. Wait -- there’s a bill?
The EU says there is. Barnier has indicated he wants the British to cover budget commitments they agreed to, pensions promised to EU officials from the U.K., guarantees on loans such as the bailout of Ireland and pending infrastructure projects. Juncker says the sum in question is about 50 billion pounds ($63 billion). British Trade Secretary Liam Fox rejected the notion of a bill as “absurd” and Brexit Secretary David Davis said the amount will be "nothing like" the sums floated. A House of Lords panel also questioned whether the U.K. is under any legal obligation to pay. Still, EU officials say they won’t discuss the trade deal May is after until the issue is resolved. They may also be willing to force the issue in front of the International Court of Justice. Such threats mean May might agree to contribute something, although a big check would draw ire domestically.
9. How will the talks be structured?
Barnier wants to focus first on the separation -- settling the bill, resolving citizenship rights and establishing borders. The arrangement for that needs to be endorsed by a "super qualified majority" or at least 72 percent of the member states. Only after that would the EU turn to trade, and any trade deal will require the support of every member. The British would prefer to discuss the split and the future arrangement at the same time to win trade-offs, grant certainty to businesses and maintain support back home for Brexit.
10. How long will the talks take?
Article 50 allows two years, which could be extended if all members of the EU, including the U.K., agree. Both sides estimate that they really have until the end of 2018 to reach an accord, because the resulting deal would need to obtain the consent of the European and British parliaments. EU officials have said even in the best-case scenario it will take until early 2018 to work out the financial side of the split.
11. What happens if no deal is reached?
Britain will leave the EU in two years regardless of whether it’s secured a new trade deal. In that case, disagreements may end up in the courts and U.K.-EU commerce will be exposed to World Trade Organization tariffs, following decades of duty-free trade. That could mean a levy of about 10 percent on cars alone. Davis says this is an “unlikely scenario” and not “frightening.” But it’s one Britain must prepare for, he says, although he conceded in March that the government hasn’t yet analyzed the economic fallout. John Kerr, the diplomat who wrote Article 50, says the chance of a breakdown in talks is more than 30 percent. Businesses worry about a “cliff edge” in which the U.K. falls or walks out of the EU with tariffs and without certainty over the future. May repeats no deal is better than a bad deal.
12. What could help avert a ‘cliff edge’?
Without a trade deal, there is unlikely to be anything to break the fall over the cliff. However, the U.K. and EU could agree to a transitional phase in which the existing relationship remains in effect. Businesses would get time to adjust to any new rules, which May says should be phased in, or leaders would have more time to craft a fresh relationship. Barnier wants to wait to discuss the stopgap until the outlook is clearer. The question is whether the two sides can agree before businesses, especially banks based in the U.K., shift jobs and services to elsewhere in the EU. Another concern for May is whether the EU might try to force the U.K. to remain under the oversight of the European Court of Justice.
13. How will the U.K. untangle the EU’s laws?
The government plans to introduce the "Great Repeal Bill," misnamed legislation given that it won’t repeal anything and is instead a cut and paste of EU law onto the British statute book. The aim is to give businesses and investors certainty. Future governments will be able to “amend, repeal and improve any law it chooses,” according to May. The House of Commons library estimates there are 899 EU directives and 5,155 regulations among almost 19,000 pieces of EU-related legislation currently in force. Ministers will also have to find appropriate U.K. bodies to take on regulatory roles currently held by EU agencies. A potential obstacle to all this is that the bill will include powers for ministers to change regulations as they’re transferred, something opposition Labour Party leader Jeremy Corbyn said he’ll challenge.
14. How has the economy fared since the referendum?
The economy has performed much better than anticipated by the likes of the U.K. Treasury and the International Monetary Fund, both of which warned ahead of the referendum that a vote for Brexit could trigger a recession. The economy has been helped by a slump in the pound and strong consumer spending. But most economists still predict economic growth will slow in time as the parameters of Brexit take shape.
Read more: How the U.K. Beat Predictions of a Brexit Crunch So Far
Read more: The Bloomberg Brexit Barometer
15. Does May have any leverage?
The U.K. loses some power after invoking Article 50 because it starts the countdown clock, limiting the time available to strike a deal. May has argued it would be “economically rational” for the EU to sign up to a free-trade accord since Britons buy so many of its goods. She has warned that the U.K. could provide less security to the region or transform Britain into a low-tax, light-regulation haven for business. She could also try to exploit differences between European capitals.
16. What about Scotland?
Scottish First Minister Nicola Sturgeon has used Brexit to declare she wants a second independence referendum to make Scotland an independent country and lawmakers in Edinburgh have backed her. In the 2016 Brexit referendum, Scottish voters chose overwhelmingly to remain in the EU and Sturgeon says they should have a chance to break with England sometime between the fall of 2018 and the spring of 2019. But May says “now is not the time” for another referendum and Sturgeon still needs permission from lawmakers in London to move forward.
17. Is Article 50 irrevocable?
Once Article 50 is triggered, there’s no chance of Britain staying in the EU, according to Justice Secretary Liz Truss. But Kerr said a country can change its mind “while the process is going on.” A court case is starting soon that may inform the debate.
18. Why does all this matter for the rest of the world?
French presidential candidate Marine Le Pen is running on a Brexit-like platform of euro-skepticism. In the U.S., President Donald Trump’s administration has registered its dislike of multilateral organizations like the EU and may be tempted to offer the U.K. a generous free-trade deal. Russian President Vladimir Putin will likely welcome anything that divides and distracts the EU. Finally, China will be following closely to see if the U.K. remains an attractive investment partner as it raises barriers with the rest of the EU.
The Reference Shelf
- The case for Brexit talks being tense and difficult and a timeline of events.
- Q&As on May’s vision for Brexit, what makes a "hard Brexit" and Brexit’s detour through the U.K. Parliament.
- How the U.K. might maximize its negotiating position.
- Britain’s bar tab shouldn’t delay Brexit talks, Bloomberg View’s Mark Gilbert writes.
- A QuickTake explainer of why the U.K. voted for Brexit.
- Europe is getting tired of Brexit "chaos."
- Sign up for Bloomberg’s Brexit Bulletin newsletter.
- Follow @Brexit on Twitter for full coverage of Britain’s exit from the EU.