UK Prime Minister Theresa May has triggered Article 50, formally notifying the European Commission (EC) of the UK’s decision to leave the EU, and starting the exit process that will see it become the first country to leave the bloc and the single market.
“The UK is now leaving the EU. This is a historic moment from which there is no turning back,” May told the UK parliament, moments after the formal notification was received by EC president Donald Tusk.
Outlining the UK’s negotiating priorities, May said she wants the country to emerge stronger, fairer, more secure and prosperous from the change.
Meanwhile, on the EU side, Tusk was more solemn, telling a press conference that “there is no reason to pretend this is a happy day, neither in Brussels nor in London”.
He added that the process will be about “damage control” and that his mission would be to protect the member states and the EC, before concluding with the statement “what can I say, we already miss you, thank you and goodbye”.
May’s letter to Tusk emphasised the UK’s commitment to the continent as a close friend and ally but also highlighted the need for continued co-operation on security and agreements on a future trade partnership.
The mentioning of the two areas together has been translated by some as a veiled threat the UK would withdraw security co-operation if it does not receive a free trade agreement (FTA).
“May has identified the EU’s ‘Achilles’ heel’ – the UK will use security co-operation as its key bargaining chip in the negotiations with the EU. The indication is that as long as the EU co-operates on an economic level, the UK will continue to give security co-operation,” Sunny Mann, trade partner at law firm Baker McKenzie, tells GTR.
The UK has indicated that transitional and future trade agreements should be discussed in parallel to separation talks, but the EU has insisted that the latter must happen first. The government acknowledged that reverting to trade on World Trade Organisation (WTO) terms was a distinct possibility if no future relationship was agreed by the end of the two-year exit process.
“This express reference to WTO terms is a signal for businesses that what was previously an unthinkable cliff-edge is now a very real possibility,” says Mann.
This particular cliff-edge will mean that the UK will not exit only the EU single market, but also the preferential trade agreements that the bloc has negotiated with a further 55 countries. Compared to trade terms on offer through WTO membership, a free trade agreement (FTA) normally secures broader and deeper market access for goods and services, indicating a significant gap in market access when compared to trading under the umbrella of the EU single market.
Departure from the bloc also means a departure from the EU customs union, and businesses will need a new customs agreement between the UK and EU-27 to ease the associated burden and bureaucracy of hard borders.
“The changes involved will require significant additional bureaucratic mechanisms and will add cost to businesses – particularly those who move goods between the UK and EU 27. This is a particular issue for complex supply chains in areas like technology and car manufacturing,” says Mann.
While much speculation on what today’s letter ‘really’ means has been offered, more clarity will come when the UK government formally submits its Brexit priorities and after the EU member states provide the EC with a formal mandate to lead negotiations, scheduled to take place on April 29.
“The first round of negotiations is likely to focus on defining the remaining UK budget contributions to the EU, clarifying the rights of EU citizens in the UK and vice-versa, finding a solution for the border between Northern Ireland and the Republic of Ireland, and defining the timeline for a phased implementation of Brexit,” senior analyst Jan Gerhard at IHS Markit tells GTR.
“At present, we expect the UK and the EU eventually to agree on a free trade deal similar to that recently concluded between the bloc and Canada with additional co-operation on defence, fighting international terrorism, and other issues.”