How businesses can make sense of the post-Brexit uncertainty

Amidst everything else, the UK government is taking the views of industry on the priorities for exit negotiations. This has started in a haphazard fashion. We understand that civil servants in the UK are collating a list of the most important business sectors and their red lines – beyond the unequivocal call for continued access to the single market – to inform their negotiating position, looking at the key features that single market access entails, the assurances international investors and trading partners are looking for, the EU rules that should be maintained and those that domestic replacements should alter, the international and free trade agreements that matter most, and opportunities for UK innovation that life outside the EU offers.

The negotiating position of the UK government will depend at a pragmatic level upon that consultation with the private and public sector, but at a political level on the result of the Conservative leadership race. The views and instincts of the next Prime Minister will be critical.

The approach of the EU depends on the battle for supremacy in the negotiations between the European Commission and the European Council (member states). Simplified to the binary, the Commission seeks to defend the principles of the treaties and ensure that the UK has a tough deal forced upon it to prevent “contagion” encouraging other member states to seek their own deal. The Council prefers a more pragmatic approach based on defending the member states’ interests ahead of defending the project.

The Commission and the Council have been clear that there can be no negotiations before the UK has given notice of its intention to leave the European Union under Article 50 TEU. But, these statements clearly apply at the institutional level. There is nothing stopping back channel conversations between the UK and member states, or informal discussions between UK officials and the Commission services. It would be bizarre to think that this would not happen. Not for the first time, care is needed to distinguish the rhetoric from the reality.

Equally important, not all member states are in the same position, and their pragmatic or economic interests are varied. Expect splits between net contributors to and net beneficiaries of the EU budget; between those sympathetic to controlling the free flow of EU citizens, and those who see it as a key success factor for their economies; and between those who see the EU as an economic club of nations and those who see it as a more integrated political entity. Overall, however, we expect the Council to exert control over the Commission. Any multinational organisation should be feeding its views to the governments of all member states where active, not just to the Commission or UK government.

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Amid all this uncertainty, however, we can begin to discern how the negotiating process might work. Many in the UK, including those on the Leave side of the referendum campaign, are talking about the importance of trade and its primacy over issues of immigration. There have been references in the UK and elsewhere to having a series of bilateral agreements once the UK has left. Some UK politicians, on both sides, are beginning to refer to “EEA Plus”. The German Chancellor, Angela Merkel, has stressed that the four pillars – freedom of movement of people, capital, goods and services – are fundamental; and, along with many in the UK, emphasised that everything can be on the table when negotiations start (this is normal in any bilateral negotiations and does not speak at all to either side’s willingness to concede points, contrary to the views expressed by some commentators).

These statements, and the UK Government’s method of preparing for the negotiations by consulting specific business sectors, are all consistent with the EU and UK negotiating separate agreements, or chapters in a single agreement, reflecting the four pillars. The parties could approach this in either of two ways.

They could view the acquis – the body of EU law – under each pillar and negotiate on the basis that any concession sought on any specific piece of legislation must be balanced by a concession or change in another pillar. So, for example, the position of the EU could be that, if the UK wished to agree an arrangement with more restrictive provisions on free movement of people, then the UK would have to accept restrictions on, for example, the free movement of capital. Or they could begin with the EEA provisions and negotiate from there. In each case, the process would be very similar, bartering rights and freedoms, respecting the status quo ante in terms of balance between the pillars.

Of course, this is just speculation: other scenarios might be consistent with the rhetoric and the facts, and traditional bilateral negotiating techniques. But this is a realistic scenario, which points to the importance of business sectors making their case clearly and widely now.

Warwick Smith is head of global public policy at Instinctif Partners. He has 16 years’ experience working for the UK government, working as a Policy Adviser, Ministerial Aide and International Negotiator for the UK government. Currently, he advises a range of clients on domestic and international legislative, regulatory and public policy issues.

Meanwhile, Britain’s vote to leave the EU may have substantial impact on the new European Unitary Patent Court. In fact, the system is likely to collapse.

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