European Union: What A Week

Last Updated: 22 December 2017
Article by David Noon

The last week has been particularly eventful in Brexit terms. On Wednesday, the government lost a vote in the Commons on the EU Withdrawal Bill, with MPs backing an amendment which gives them legal guarantee of a vote on the final Brexit deal struck with Brussels.

On Friday, the EU formally agreed that sufficient progress has been made in the 'divorce' negotiations and that talks can move to next phase of transition and trade. But what do these developments mean for business? And as the sun sets on 2017, we look ahead to 2018 and beyond in what will be a defining period in determining the UK's position as global trading nation.

From a business perspective, last week's vote in the Commons changes little in terms of planning and preparation activity that needs to take place and the timeframe for this. The final Brexit deal has to be ratified by the 38 national and regional parliaments across the 27 member states and so October 2018 is the deadline set to wrap up negotiations to allow the necessary time for this process. The vote by UK parliament on the final deal now also needs to be factored in to the timeframe and so whilst it is politically important, it will have little impact on how business should prepare.

The EU guidelines for the second phase of talks, published last week, state that the future trading relationship can only be finalised and concluded once the UK has become a third country. Given the complexity and length of time usually required for negotiating trade deals, it is likely that only a framework for future arrangements will have been agreed by October and therefore the immediate priority needs to be on transitional arrangements. A report by the Parliament's Treasury Committee released last week reiterated the view widely held by business that a transition deal was 'now urgent' and that the UK and EU should seek to retain the 'status quo' during that time. The report also said that arrangements must 'be straightforward enough to negotiate in a matter of weeks.' With second phase talks not expected to begin until March, this would be the approach strongly favoured by business, with many organisations looking to trigger contingency plans for a 'no deal' scenario in the first half of 2018.

The Prime Minister asserted in her Florence speech that the transitional period would take place under 'the existing structure of EU rules and regulations' but would be 'strictly time limited' to the proposed two years, which may be enough to make such a 'status quo' transition politically palatable to those strongly on the leave side of the debate. So whilst agreement that Brexit talks can proceed to the second phase is a very welcome development, swift progress on the UK's transition is critical to provide the greater clarity businesses need. The UK and the EU seem to be in broad agreement on the urgency of this issue and so I am hopeful that arrangements for the proposed two-year period will be as early as possible next year.

Beyond the transitional arrangements, in 2018 we should get a clearer picture as to what our future relationship with the EU could look like and where the sticking points will be. Whilst the UK government has been clear in its vision for a bespoke, comprehensive and ambitious free trade agreement, the EU has also been clear that the UK cannot be better off outside of the EU, with European Chief Negotiator Michel Barnier saying over the weekend that the UK must ' face the consequences' of Brexit. The EU is a crucially important trading partner for the UK - 43% of all UK exports in 2016 were to the EU and the future relationship will be a determining factor in other deals the UK may seek to reach. Given that 80% of the UK economy comes from providing services (according to ONS data), negotiations in this area will be particularly important.

Looking beyond Brexit - the UK, as one on the world's largest economies has the opportunity to play a key role in defining and executing comprehensive and liberal unilateral and multilateral trade policy. Doing so will be key in order to retain and enhance the UK's position as a globally competitive economy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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