The time has come for Theresa May to trigger Article 50 and officially begin the Brexit process. To some, this is the beginning of the end. The truth is, it’s actually just the end of the beginning.
The activation of the Article 50 divorce clause doesn’t mean we’re out, it just means we’ve begun the formal process of leaving. If last year’s referendum was the UK sending a “we need to talk” text, Article 50 is us getting together over a sad coffee to talk about how we’re going to end it. It’s the official “point of no return”; though we were aware of this due to the countless times we heard the phrase “Brexit means Brexit” in the last few months.
Today marks a turning point in British history; but what follows is a two-year time period in which the UK must complete negotiations with the EU. Unless all member states agree to extend this time frame, the aim of the UK government is to secure a fair deal for Britain by March 2019.
A few weeks ago, we talked about the possible effects Brexit would have on UK businesses. Now, on the occasion of Article 50 Day, we thought we’d share our advice on the key considerations businesses should be making in the next few months while negotiations take place.
(You’re right. ‘Article 50 Day’ definitely does not have a ring to it.)
What is Article 50?
Introduced in 2009, Article 50 of the Treaty on European Union provides a plan for any country planning to leave the EU. Drafted by Lord Kerr of Kinlochard, it was originally created to be used in the event of a coup in a member state. Apparently, he never imagined it would be used for Brexit. Well, it is now!
So, what does Article 50 say?
Article 50 is a 5-point clause which states that any EU member state wishing to quit the EU must notify the European Council and negotiate its withdrawal with the EU within a strict time limit of two years, unless all other member states vote to extend this period of time.
It also states that any proposed exit deal must be approved by a “qualified majority” (72% of the remaining 27 EU states, representing 65% of the population) as well as receiving backing of MEPs.
Will a deal be reached within two years?
Michel Barnier, the European Chief Negotiator has said that once Article 50 is triggered, negotiations will start a few weeks later and an agreement will be reached by October 2018.
First on the Brexit menu will be the terms of the separation: our “divorce settlement.” This is the exit agreement mentioned in Article 50 itself; and initial talks are expected to mainly focus on the technical issues of how negotiations should take place. Yes, you read that right: before we can talk about how we will exit from the EU, we have to talk about how we will talk about our exit.
According to Michel Barnier, issues of the Irish border, citizens’ rights and any outstanding payments owed by the UK must be resolved before any other Brexit matters can even be discussed.
Next on the menu will be a trade agreement, something which a large percentage of UK industries will be relying on to conduct business. Theresa May has already made it clear that we will not be retaining our membership of the single market and will look to secure a new, comprehensive free trade agreement. However, EU representatives have stated that this new trade agreement may need separate negotiations altogether. As well as this, the UK government wants to ensure a smooth transition agreement is put in place to allow for a phased implementation of our independence.
The question on everyone’s lips is whether all of this is achievable in 2 years.
Back in January, trigger-happy Theresa stated that no deal would be better than a bad deal. It sounds like a depressing, dystopian game show:
“I’m Noel Edmonds and welcome to Bad Deal or No Deal. Contestants will either leave with nothing or the 1p box.”
If we walked away without a deal, UK firms would most likely follow World Trade Organisation rules, which would mean paying increased tariffs on some goods and facing a lot more red tape. Following a warning from the Civil Service that this would cause havoc in the UK, it seems the Government have backed away from their threat to walk away without a deal if necessary.
However, with what seems like an endless list of complex issues to resolve, could we be facing a decade of economical uncertainty if the time frame is extended to reach a fair agreement?
Always the optimist, foreign secretary Boris Johnson maintains that 2 years is “ample time” for us to complete negotiations. However, BoJo has also said walking away without a deal would be “perfectly OK!”
So, either we trust Boris and wait patiently for negotiations to unfold or we run around like headless chickens fearing the worst. Neither of those will speed the process up nor change anything, so we may as well focus on planning ahead as much as we can.
A new dawn or dark day for UK businesses?
Depending on which newspaper you read and the links you click on through Facebook, Brexit is either apocalyptic or promising for UK businesses.
For instance, earlier this month, the Royal Institution of Chartered Surveyors claimed that they could face a loss of 200,000 jobs if Britain lost access to the single market. Similarly, the chief executive of the Society of Motor Manufacturers and Traders has stated that failure to negotiate an adequate trade deal with the EU could “damage UK automotive manufacturing beyond repair”.
On the other hand, Sir James Dyson said he was “enormously optimistic” about trading with the rest of the world post-Brexit. He claimed to be particularly excited about expansion in the Far East as well as the opportunity Brexit presents to reconnect with the Commonwealth. According to Dyson, UK business success lies beyond Europe because that is where the fastest growth lies. This comes after the recent announcement that Dyson would massively increase their UK workforce with the addition of a new site, despite political and economical uncertainty.
But Sir James is not the only one: in fact, Qatar has already stated that it will invest £5bn in Britain over the next three to five years. Speaking at the Qatar-UK Business and Investment Forum on Monday, Qatari finance minister Ali Sharif al-Emadi said that the UK was currently Qatar’s first and largest investment destination regardless of Brexit.
In fact, according to a PwC survey conducted earlier this year, the majority of British firms are remaining positive about their prospects ahead of Brexit negotiations. Conducted on over 1,300 executives, the survey found that 95 percent of British companies were optimistic about their opportunities in the next few years, with 63 percent of those surveyed expecting to grow their workforce during this time.
So, maybe it’s not all doom and gloom.
How can businesses prepare for Brexit?
Whether you’re an optimist or a pessimist, a little planning never hurt. With the end of this current financial year upon us, it’s a good time to reflect and start making plans for both the coming year and the future. As well as keeping on top of the changing political landscape, some of your key considerations should include:
While we still don’t know what kind of deal the UK will secure in regards to trade, it’s likely that there will be new – possibly increased – tariffs on goods being exported to the EU. Theresa May has stated that businesses will not be impacted by sudden or significant change to the rules, but it’s a good idea to consider how this could potentially affect your supply chain in respect of EU suppliers.
Another potential challenge could come in the shape of EU states imposing new regulations or “non-tariff barriers”, and keeping up to date with your legal requirements will be crucial in reducing risk.
With the Government’s promise to place stricter controls over the free movement of EU nationals, there is naturally some concern amongst businesses as to how this will affect their workforce, particularly EU natives. Preserving the rights of your employees to live and work in the UK – either through permanent residency, dual citizenship or a residence card – will ensure that your workforce is protected against any significant change to legislation.
How can we help?
To get started, simply get in touch with one of our business lawyers today on 0333 772 0826.