Brexit: updates on negotiations and possible scenarios

Three rounds of formal negotiations have taken place in Brussels since the UK government triggered Article 50 in March. These critical talks between the UK government have focused on the separation issues around citizens’ rights, the financial settlement, and the Northern Ireland border.

At the end of the third negotiation round on 31 August, the two negotiating teams presented somewhat different assessments of their progress. Financial settlement was one notable area of disagreement, and it’s expected to remain contentious.

Since formal negotiations began, both sides have published a series of position papers. The European Commission has focused on divorce proceedings, including the financial settlement. The UK government has largely focused on future relationship issues, including customs arrangements, dispute resolution, data protection, and scientific cooperation.

Key positions

The UK government

The UK government remains committed to the Prime Minister’s Lancaster House Speech and subsequent white paper. Those positions include leaving the single market and customs union, ending the jurisdiction of the Court of Justice of the European Union, ending freedom of movement and controlling immigration from EU into UK, and establishing free trade with the European market through an agreed comprehensive free trade deal.

Those positions have, however, been shifting. Most notably, it is now official UK policy to secure a transition period from March 2019 to ensure that investors, businesses, and citizens can adjust to future arrangements in a smooth and orderly way and avoid a cliff’s edge.

It is clearly in UK businesses’ interest that this transition deal is finalised with the EU sooner rather than later. The upcoming EU Council summit in October is likely to be an important step in achieving progress on this issue.

Yet Theresa May’s political position has weakened considerably since the general election. That raises questions about whether the UK government is stable enough to hold together throughout the negotiation and transition process and capable of finalizing a deal. An early election could take place at any moment.

UK Parliament and the Labour Party

By losing its majority in the general election, the Conservative Party has ensured that Parliament will play a far more prominent role in shaping the UK’s negotiations. To achieve its stated objectives, the UK government must pass through eight separate pieces of legislation through Parliament—and all eight pieces must remain intact.

More generally, the Prime Minister must command the support of the House of Commons to conclude a final deal. This would, for instance, bring into question the ability of the Prime Minister to push for a 'no deal option' in a parliamentary vote if a considerable number of Conservative MPs objected to the idea.

The Labour Party’s policy position is now incredibly important, both in terms of its ability to shape parliamentary legislation and the prospect of its being in power following a potential future snap general election. Its policy positions have notably evolved in the last few months, most notably a recent call that the UK should remain in a customs union with the EU and within the single market during any transition period—and possibly within a customs union indefinitely.

Position of European Commission, Council, and Parliament:

The European Commission has been fixed firmly on resolving “phase 1” divorce proceedings. It has indicated clearly that it will only move onto future trade issues once they achieve sufficient progress on phase 1. It has issued few comments on future trade because the UK hasn’t, in the EU’s view, offered sufficient clarity about what the UK wants.

The European Commission’s approach, however, is beginning to change with the publication of position papers. In a statement, European Chief Negotiator for Brexit Michel Barnier was clear that any agreement must preserve the balance of rights and obligations. He said that the UK could not enjoy Norway-style single market benefits for Canada-type obligations. It remains a central objective of the EU to preserve the integrity of the Single Market and the Customs Union. This position is likely to be a feature of future trade discussions.

The unity of the other 27 member states will be important for achieving a Brexit agreement because a qualified majority must agree on the final deal. That requires at least 260 votes out of a total of 352 by at least 15 member states to pass the agreement. The European Parliament also has to pass an agreement in a vote (via a simple majority).

Potential Brexit scenarios

Given the current high degree of political volatility and the number of factors involved, it is difficult to predict the endgame with any certainty.

Click here to read more about the five potential scenarios that may emerge, based on the current state of play. We note that these scenarios are illustrative and the outcome is likely to involve far more complexity:

1. A no-deal Brexit
2. The UK’s government “Lancaster House” Brexit
3. Bespoke deal and remain within customs union
4. Norway option (with or without the customs union)
5. UK remains in the EU

Important dates in upcoming negotiations

We will continue to track developments as negotiations between London and Brussels unfold. The key dates to watch out for are:

• Week 18 September 2017 – Fourth round of Brexit talks
• 24 September 2017 – German Federal Election
• Week 9 October 2017 – Fifth round of Brexit talks
• 19-20 October 2017 – European Council summit on Brexit
• Q4 2017/Q1 2018 – Phase two of negotiations to begin
• October 2018 – Tentative deadline set out by Michel Barnier for the conclusion of the negotiations

You can also view our first, second, and third articles on Brexit. As we reach key milestones, we will provide more insights into what these mean for both UK and global businesses.