Brexit Negotiations Have Already Started

Both Sides Begin from Positions of Weakness

By James McCormack

July 2016

Britain’s exit from the EU appears almost certain. Less clear are its timing, the eventual impact on the UK and any existential implications for the EU.

Timing is a critical question. For the UK, it will determine how long the uncertainty affecting the economy will last, and whether the benefits of exit can be delivered by those who promised them. For the EU, a lengthy period of combative negotiations would not support a continuation of the built-in momentum toward greater integration that is at the core of Project Europe.

The UK referendum result swept away the recognised political landscape with astonishing speed, as the leadership of both major parties disintegrated. It is wrong to assume, however, that the pending change of prime minister and the unexpected pause in triggering Article 50, the withdrawal clause of the Treaty on European Union, have meaningfully delayed the start of exit negotiations. The UK and the EU are, in fact, already negotiating.

From the moment the referendum result was clear, the UK and the EU were positioned on opposite sides of the negotiating table, as evidenced by Prime Minister Cameron’s early departure from the EU Summit on 28–29 June. While European leaders insist there can be no preliminary negotiations prior to formal engagement under Article 50, the staking-out of positions is obviously under way. In the nuanced world of diplomacy, any statements by EU leaders on the UK’s exit, many of which may seem innocuous (others definitely not), are intended to establish or reinforce official positions, or to draw lines beyond which their negotiating flexibility will not be extended.

While negotiations started quickly, they will be protracted and contentious. They are likely to be subject to setbacks and outright reversals, potentially side-tracked and possibly stalled for periods.

The next delay — after Prime Minister Cameron’s pushback of Article 50 — could be to accommodate a general election called by the new Conservative prime minister, who may feel she or he needs an electoral mandate to flesh out the details of a negotiating stance on something as central to the country’s future as its relationship with Europe. It is also possible that an election might award a different incoming government a mandate other than that implied by the referendum, though it is difficult to envisage how this would happen even in the context of what is now a rather fluid political scene.

Taking a longer view, the timing of an eventual agreement on exit will be influenced by the fact that both the UK and the EU are entering negotiations from positions of weakness, albeit for different reasons. These weaknesses can be readily exploited, slowing negotiating progress as each side faces unpleasant choices.

Based on the referendum debate and result, the UK approaches the negotiations with two overriding aims: to control immigration and to maintain preferential access to European markets, including for financial services. There isn’t anything inherently wrong with the UK’s intentions, although there have already been objections expressed by European leaders to “cherry picking” elements of European integration.

The real problem for the UK is that its two biggest priorities are known to the other side. It is a considerable disadvantage for one party to negotiate on a wide range of issues with its bottom line on priority areas revealed in advance, even if they are as broad as immigration and market access. The EU can play these issues off against each other, and use their importance to the UK to extract major concessions elsewhere.

As weak as the UK’s negotiating position seems, the EU’s may be even worse. At times, it will likely appear disorganised, be subject to open disagreement and confirm shortcomings of European institutional arrangements.

Perhaps predictably, one of the biggest EU challenges will be co-ordination among the various parties involved, including the European Commission, the European Council, member states and the European Parliament. Procedurally, it will be the Commission that negotiates on the EU’s behalf, as instructed by the Council to represent the interests of member states. Any final agreement must obtain the consent of the European Parliament and will need to be ratified by member states, though it could be provisionally applied in advance of full ratification.

Clearly there is plenty of scope for disagreements on negotiating positions as well as strategy and tactics. Disagreements on the timing of negotiations are already apparent. More substantially, the 27 member states will not necessarily have shared interests on the issues being negotiated, but will need to agree a single position for the Commission to take, and how much negotiating flexibility should surround it.

It seems probable that the approach to negotiations will be “nothing is agreed until everything is agreed”, adding a degree of fragility to the discussions. An enormous obstacle to this being workable is the fact that many EU members will have elections during the two-year negotiating period. Talks may be effectively on hold during some elections, and others could result in incoming governments backtracking on previous agreements, opening them up to negotiation again.

The final EU challenge will be containing the desire of some parties to ensure a punitive outcome for the UK to discourage other countries from following suit. But clubs that dispense punishment to those who leave risk alienating remaining members, and calling into question whether staying is a choice or is being administered by threat or force. This may be difficult for the EU to avoid based on rhetoric already espoused, though it is an approach that, if followed, could backfire and weaken the Union.

It is impossible to know how Brexit negotiations will conclude, as protagonists on both sides will change midstream, and issues not even identified yet could be major stumbling blocks. What seems certain is negotiations will be long. This will provide an unfavourable backdrop for the UK economy, with consumption and investment spending affected by the uncertainties ahead. The longer the uncertainties persist, the greater the cumulative negative economic implications. Project Europe will fare no better. Attentions will be unaccustomedly focused on simple preservation, with “ever closer union” at risk of becoming an ever distant prospect.