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Chemicals: Article 50 Notice has been given – what happens next?

  • United Kingdom
  • Brexit
  • Diversified industrials - Chemicals

12-05-2017

On 29 March 2017, Theresa May, the British Prime Minister, gave notice to the European Council of the UK’s intention to leave the EU triggering the two-year withdrawal process. Article 50 of the Treaty on European Union sets out the steps to be taken for the UK and the EU to try and agree a withdrawal agreement “taking into account the framework for their future relationship”. In this briefing, we set out what has happened since notice was given and the next steps in the withdrawal process focussing on possible implications for the chemicals sector, such as the imposition of import tariffs. 

Article 50 process?

UK Government triggers Article 50 – 29 March 2017

European Council publishes negotiating guidelines – 29 April 2017

European Commission prepares draft mandate – 3 May 2017

Council of the EU approves draft mandate – 22 May 2017

European Commission begins negotiations – June 2017

Article 50 Notice Letter

In her letter to Donald Tusk, the President of the European Council, Mrs May set out the Government’s proposed approach to the Article 50 negotiations. She stressed that she is seeking a “deep and special partnership” with the EU post-Brexit, which takes in both economic and security cooperation. The letter contained the Government’s proposed principles for the negotiations. These included: putting EU citizens first by aiming to “strike an early agreement about their rights”; agreeing implementation periods to avoid any cliff-edge when the UK leaves the EU, and paying attention to the UK’s unique relationship with the Republic of Ireland and the importance of the Northern Ireland peace process.

Negotiating Guidelines

On 29 April 2017, the European Council, which is composed of the leaders of each EU Member State, adopted guidelines for the withdrawal negotiations setting out the European Council’s overall position and principles for the negotiations. The EU’s key priorities are: safeguarding the status and rights derived from EU law of EU citizens; settling the amount that the UK should pay to the EU to “honour its share of the financing of all the obligations undertaken whilst it was an EU Member State”, protecting the Northern Ireland peace process and avoiding a hard border between Northern Ireland and the Republic of Ireland.

Negotiating Mandate

On 3 May 2017, the European Commission published its draft negotiating mandate (also referred to as directives), which fleshed out the details of the EU’s negotiating strategy. The Council of the European Union (“Council”), which represents the governments of each Member State of the EU, will need to approve the mandate (excluding the UK) by a majority representing at least 65% of the combined population of those Member States. This is expected to happen at a Council meeting scheduled for 22 May 2017.

Once the Council agrees the mandate, the Commission will be able to commence the negotiations with the UK. The Commission will report back to the European Council and to the Council throughout the negotiations, and will keep the European Parliament regularly informed.

Who are the EU’s lead negotiators?

The Commission, the Council and the European Parliament have each appointed their lead Brexit negotiators.

The Commission has appointed Michel Barnier, a former Vice-President of the Commission and former French Europe Minister. Mr Barnier’s team will prepare the draft negotiating mandate and will lead the talks with the UK negotiating representatives.

The Council has appointed Didier Seeuws, a Belgian diplomat, to lead its Brexit taskforce. He will have a key role in co-ordinating the positions of each of the Member States, agreeing the European Council’s negotiating guidelines and in overseeing the work of the Commission during the negotiations.

The European Parliament has elected Guy Verhofstadt, a former Belgian Prime Minister and MEP, to represent it during the Brexit negotiations.

When will the negotiations begin?

The negotiations were expected to begin once the Council approved the Commission’s negotiating mandate. However, they will now be delayed until after the UK general election which will take place on 8 June 2017.

Timeline

The UK and the EU will have two years to negotiate a withdrawal agreement (unless this timeframe is extended with the unanimous consent of the European Council and the UK). However, this timeframe will, in practice, be considerably shorter.

Firstly, although Article 50 was triggered in March 2017, the negotiations will not commence before June 2017 and they are likely to be affected by the German federal elections which will take place in September 2017.

Secondly, Mr Barnier has said that the deal will need to be agreed by October 2018 to allow enough time for it to be ratified. Once the draft text of the withdrawal agreement is agreed by the Council, it will be sent to the UK Parliament for its consideration which will either approve or reject it. If it is approved, the withdrawal agreement will be considered by the European Parliament, which will need to approve it by simple majority to proceed. The draft agreement will then return to the Council and will be passed if 72% of the remaining 27 Member States, representing 65% of the population vote in favour of the agreement.

Furthermore, the process will be affected by the European Parliament elections which will take place in May 2019. This means that in order to ensure that Parliamentarians focus on the Brexit deal rather than their re-election, the draft agreement will need to be before the European Parliament by early 2019.

Scope of the withdrawal agreement

The Article 50 negotiations will focus on the separation of the UK’s rights and obligations from the EU, which have been acquired over the past 40 years. This will include issues such as the separation of the UK’s financial obligations from the EU’s finances; the UK/Irish border; securing rights for EU nationals living in the UK and UK nationals living in the EU; the relocation of EU bodies currently located in the UK, for example, the European Banking Authority and European Medicines Agency; the UK’s future involvement in international treaties signed by the EU on the UK’s behalf including more than 50 trade agreements; the future of British civil servants working in the EU institutions and the status of EU cases which will no longer be under the EU’s jurisdiction post-Brexit.

Parallel Trade Negotiations?

In her letter to Mr Tusk, Mrs May made clear that during the Article 50 process, the UK Government wants to agree the terms of the UK’s “deep and special partnership” with the EU, taking in both economic and security cooperation “alongside” the withdrawal negotiations. The negotiating guidelines and draft mandate make clear that the withdrawal agreement, in particular a consensus on the EU finances and the status of EU/UK nationals’ rights, would need to be resolved before any substantive trade discussions can take place.

Although Article 50 states that the withdrawal agreement will take account of the framework for a Member State’s future relationship with the EU, this does not mean that the Article 50 negotiations have to cover the details of a comprehensive free trade agreement between the UK and the EU. That is not to say, however, that parallel trade negotiations between the parties cannot take place alongside the Article 50 negotiations.

As the UK’s law is already aligned with EU law, it should take less time for the UK to agree a free trade agreement with the EU than for the EU to reach such an agreement with third countries with different legal systems. Moreover, in her letter to Mr Tusk, Mrs May states that the UK Government is looking towards a future where the UK’s and the EU’s regulatory frameworks are developed in tandem. She states that the management of “the evolution of our regulatory frameworks to maintain a fair and open trading environment, and how we resolve disputes" should be prioritised. Furthermore, Mrs May highlights that the UK starts from a unique position in the trade discussions with “trust in one another's institutions and a spirit of cooperation stretching back decades”.

Unlike the withdrawal agreement, any trade agreement would need to be approved by the parliaments of each Member State including some regional parliaments.

What will the UK’s trading relationship with the EU be post-Brexit?

In a speech given by Mrs May on 17 January 2017, she outlined the UK Government’s Brexit plan. She stated that the UK will seek a “new, comprehensive bold and ambitious free trade agreement” with the EU and that the UK:

  • will leave the Single Market
  • will take back control of its laws and end the jurisdiction of the Court of Justice of the EU (“CJEU”) in the UK
  • will ensure that it can control immigration to Britain from Europe
  • will seek a comprehensive free trade agreement with the EU allowing for the freest possible trade in goods and services between Britain and the EU’s Member States
  • aims to enter into a customs agreement with the EU, but wants the ability to enter into its own free trade agreements with other countries and fix its own external tariffs on imports into the UK
  • will seek a phased implementation of the changes to the UK’s and EU’s relationship but not an “unlimited transitional status”
  • wants to guarantee the rights of EU citizens who are already living in the UK, and the rights of British nationals living in other EU Member States, as early as possible

Our briefing on the UK Government’s Brexit plan and what it means for businesses is available here.

What will happen if no trade deal is agreed between the UK and the EU?

If no trade deal is agreed, the UK and the EU will trade under the terms of the World Trade Organisation ("WTO"). This would mean that the EU would be obliged to impose its Common External Tariff on UK imports and the UK would be free to impose import tariffs on goods entering the UK (from the EU and elsewhere). Goods would also be subject to customs checks. The EU’s Common External Tariff varies from 0% on cotton, 11.5% on clothing, 26% on sugar and confectionery, to 45% on certain dairy products. Goods exported to the EU would still need to comply with EU standards.

The imposition on tariffs could have a significant effect on the chemicals sector. According to the European Chemical Industry Council, more than 40% of Britain’s chemicals are sold in other EU countries. In 2015, such imports totaled €19.8 billion. Furthermore, many chemicals in manufactured goods cross between the UK and the rest of the EU more than once during the production process. Marco Mensink, Director General of the European Chemical Industry Council, recently gave the example of soap. He said that the raw material for soap is produced in France, reworked in the UK, shipped to Germany, returned for packaging in the UK and then distributed throughout the EU.

Lawyers in our EU and International Trade Law team have been advising clients on the impact of Brexit on tariffs for their particular business, and has a Trade Risk Analysis tool. In addition, our Commercial team has a Contractual Risk Analysis and Brexit Proofing tool which provides a review of your current trading relationships and contracts to identify the potential areas of risk arising out of Brexit and ways in which that risk can be mitigated.

Transitional Arrangements?

The UK Government wants to avoid a cliff-edge whereby the EU Treaties cease to apply to the UK once it leaves the EU. Instead it is seeking a smooth, orderly exit from the EU by having a phased implementation of the new relationship between the UK and the EU. In Mrs May’s letter to Mr Tusk, she asks that such a principle is agreed early in the process in order to minimise disruption and give as much certainty to individuals and businesses as possible.

The EU is also open to the possibility of entering into transitional arrangements with the UK. Mr Barnier has stated that the UK and the EU would need to agree the framework for their new partnership before it will be possible to identify the transitional arrangements needed to cover the time to finalise the EU’s new relationship with the UK.

Conclusion

According to our report, ‘Preparing for Brexit – the views of UK business’, 80 per cent of the respondents are still taking no action on Brexit planning and are instead opting a “wait and see” approach. Now that the countdown has begun, businesses should consider what Brexit could mean for them – the time to plan is now. If you have any queries regarding the content of this briefing or any legal query on Brexit, our team of legal experts would be happy to assist you.

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