Feature

Article 50 – a very sensitive question of timing

Deciding the optimum time to trigger the EU’s separation procedures is an important issue. It’s not a decision that the UK Government should want to rush. Moving too quickly may arguably not be in the EU’s interest either.

 

THE UK’S DECISION TO LEAVE THE EU APPEARS TO BE SET IN STONE. The new UK Prime Minister, Theresa May, made it clear as soon as she took office that “Brexit means Brexit”.

What remains unclear is how and when she will trigger Article 50 of the Lisbon Treaty, an article designed to start the formal two-year exit process.

Article 50 provides a framework for exit by a member state, but, as many now admit, it’s not a provision anyone ever seriously thought would be invoked. As a result, the framework it provides is a high-level one, clearly neither precise nor detailed enough to cater for the scale of the constitutional and political changes that will arise from Brexit.

However, one thing the Treaty does make absolutely clear is that it is for the country intending to leave the EU, and for that country alone, to decide when to invoke Article 50.

Once the Article 50 notice is served, the UK’s negotiating position is weakened. And whether the UK’s negotiating position is stronger up until the trigger of Article 50 will largely depend on whether it will be possible to pre-agree on certain models. So far, there are limited indications that this will be the case.

A QUESTION OF WHEN

At the end of the two-year period following the invocation of Article 50, if no exit deal has been reached (or no extension has been agreed by the remaining 27 member states) the UK will automatically leave the EU, through what we call the ‘trap door’ (or maybe the hangman’s drop).

Some EU leaders have called for the UK to invoke Article 50 as soon as possible – anxious to limit the uncertainty that inevitably comes from a prolonged period of limbo.

Mrs May has already indicated that she will not serve Article 50 before the end of 2016, leading many to presume that she will probably do so sometime next spring. That would indicate the UK being out of the EU in early 2019, if the two-year timetable is adhered to.

Our view is that the process of unwinding the UK’s 43-year relationship with the EU is something that may take between five and ten years to achieve, meaning it could take until 2026 for the UK and the remaining EU member states to learn the full implications of Brexit.

So the key question is: when in that continuum do you trigger the Article 50 process?

There are good arguments for the UK to take its time before  serving the notice. If an exit deal is agreed prior to the serving of Article 50, the two-year period that follows could be shortened.

If that timeline looks long, it’s useful to remember that it takes up to four years to plan and execute the demerger of a typical listed company. Imagine, then, how long it will take to  extract the world’s fifth largest economy from the world’s largest economic grouping – a demerger of staggering size and complexity.

NEGOTIATIONS

Economically, politically and constitutionally this is a very difficult undertaking. The Article 50 notice is a key milestone.

If the UK serves the Article 50 notice early on – and without securing a thorough agreement on the principles underlying its exit terms – it could find itself walking away from the EU on terms that are largely unfavourable to the UK.

Once served, its EU partners may feel little compulsion to negotiate very much at all in the following two years – at which point the trap door would open, leaving the UK to drop out of the EU with little certainty about the way ahead. But whether there will be much enthusiasm within the 27 EU member states to negotiate ahead of the Article 50 notice is open to question.

Some EU leaders, notably French President François Hollande, have said there can be no negotiations before Article 50 is served. But German Chancellor Angela Merkel has taken a notably more conciliatory line, asking the UK to spell out what it wants to achieve.

PASSPORT RIGHTS?

One reason why the City of London hopes the UK would have a detailed final deal in place before serving an Article 50 notice is that many financial services businesses rely on the single market ‘passport’, which allows them to sell services and products across the EU.

If the UK serves the notice without having retained the passport, those businesses are likely, at that point, to prepare for the worst-case scenario – no passport. That, in turn, would mean moving some or all of their UK operations to another EU27 member state – a process that could easily take two years or more.

They will have done the preparation (in fact we know they are doing contingency planning now). If the notice is served with no clarity regarding the passport, then – given the lead times involved – they are likely to push the button to move at that point. The assumption is that they will be gone, even if it ultimately transpires there was no need to move.

CONSTITUTIONAL COMPLEXITY

We believe that the UK Government will want to begin the process of negotiating in the weeks and months ahead and, likewise, will want to avoid triggering Article 50 before a deal is agreed in principle. Whether that is a realistic expectation remains to be seen as it would depend on the UK and other EU member states being willing to begin early negotiations and reach an early agreement.

It is important that the UK and its EU partners do  not underestimate the constitutional complexity of the process nowconfronting the UK and the EU and the inadequacy of Article 50 to  address that complexity. That ought to be a point of consensus.

WHAT ROLE FOR THE UK PARLIAMENT?

One important question in the debate about timing is whether the UK Government can serve Article 50 unilaterally, using Royal Prerogative, or whether it will need to have the assent of Parliament. That issue is ultimately likely to be decided by the  Supreme Court on appeal from hearings that will begin in October.

If the UK Parliament, which before the referendum had a strong majority in favour of remaining in the EU, is given the right to decide on when Article 50 is triggered, we would expect many members of parliament (MPs) to insist on it being done only when the UK has a clear view of the exit terms.

We expect that the UK Parliament is unlikely to block the exit process – even though, technically, the referendum result is only advisory. Neither the ruling Conservatives nor the Labour opposition appear to see any mileage in trying to reverse the referendum result, judging that it would be seen as a betrayal by ‘leave’ voters and anti-democratic.

But, equally, if Mrs May asks MPs to give her a free hand in the negotiations with the EU, she may well find they say no. She has only a slender overall majority in the House of Commons.

How long it will take to negotiate an agreement, and to subsequently win Parliamentary support for it, remains unclear.

But it is entirely possible to see a situation where Article 50 is not triggered until just before the next UK general election in, say, 2019, with Brexit taking place no earlier than 2021.

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