Our office in London focuses on core corporate practice areas, adapted to the cross-border context: mergers and acquisitions, capital markets transactions and financing transactions. Our London office handles private equity acquisitions and disposals, acquisition financing, high yield bond offerings, IPOs and other equity and debt capital markets transactions, and strategic, multi-jurisdictional M&A transactions and financings for our corporate clients.
August 30, 2018 Download PDF
As the Brexit negotiations between the UK and the EU27 (not to mention the internecine battles among factions in the Conservative Party, the cabinet and Parliament) continue, keeping track of the players and their positions, and where the process seems to be heading, is made more difficult by the sometimes arcane and ambiguous terminology that has evolved since the Brexit referendum. As an aid to those trying to keep track of the moving pieces, we set out below the key concepts and players in a slightly different format.
Acquis: the body of common rights and obligations that are binding on all EU member states based on EU treaties, EU legislation, ECJ case law, declarations and resolutions adopted by the EU; measures relating to the common foreign and security policy; measures relating to justice and home affairs and international agreements concluded by the EU and third countries.
Alignment: the Joint Report states that “[i]n the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all-island economy and the protection of the [Good Friday Agreement].” There continues to be significant disagreement over what this means. It appears to be a unilateral commitment by the UK if there is no agreement on the future of the border between Ireland and Northern Ireland, either because any withdrawal agreement fails to address the issue or there is no agreement. The commitment appears to be consistent with some aspects of the single market, though it raises the prospect that the commitment would apply to the entire UK and not just to Northern Ireland; the agreement with the DUP is that in no case would alignment apply only to Northern Ireland. Ultimately, the ambiguity leads to the obvious question: how can the UK avoid a hard border and maintain alignment while exiting the single market and the customs union, and yet maintain the integrity of the UK?
Article 50: Article 50 of the Treaty of the European Union, which sets forth the basis on which a member state of the EU can withdraw from the EU. The provision is short on details, though it does set out a two-year process triggered by notice. That notice was provided by the British on March 29, 2017, setting in motion a two-year clock, though in practice the deadline for reaching a deal is earlier due to the need to obtain approvals on both sides of the Channel. Underlying some of the potential scenarios as to how the Brexit process plays out is the question of whether the Article 50 notice is revocable. Ultimately a question, ironically, of EU law, the ability to revoke the notice has yet to be formally addressed by the British government. Incidentally, as part of the lawsuit brought to compel the government to provide Parliament with a formal vote on Brexit, both the plaintiffs and the government conceded for purposes of the action that the notice was irrevocable.
Backstop: the fall-back position on the Irish border question if no agreement has been reached to avoid the re-imposition of the hard border between Ireland and Northern Ireland. The backstop, in theory, was agreed in December 2017, but underscoring the risks presented when broad principles are enunciated with the details left for another day, both the British and the EU27 have different interpretations. For the British, the backstop means the entire UK would be aligned within a customs union. Brussels interprets the backstop to mean that Northern Ireland remains in the customs union (as opposed to the entire UK), with customs checks at Irish sea ports for goods moving between Northern Ireland and the UK. Brussels worries that alignment is a subterfuge to allow Britain to have access to the single market without accepting the four freedoms, and is disinclined to be willing to consider any proposal that is not focused solely on Northern Ireland. The backstop is one of three proposals to deal with the border issue, the more hard-line being maximum facilitation and the most recent being the facilitated customs arrangement.
Blind Brexit: an exit without clarity on the future relationship between the UK and the EU post-Brexit (and the transition period). When the withdrawal agreement is voted upon by Parliament, the framework for the future relationship (intended to be a political declaration) would at best be an outline of general principles.
BRINO: Brexit in name only, an outcome the Brexiters are increasingly fearing.
Cambridge Econometrics Report: an assessment of Brexit across key indicators and sectors at a sub-national level assuming five different scenarios, ranging from a status quo outcome (where the UK remains in the single market and customs union) to an extreme no-deal outcome (and the UK defaults to World Trade Organization rules). The assessment, commissioned by the mayor of London and released on January 11, 2018, suggests that London will emerge relatively better than the rest of the UK following Brexit, due to its resilience to economic shocks. However, the results show that Brexit will not only reduce the size of the UK economy (compared to what may have happened if the UK remained in the single market and customs union), but will also put it on a slower long-term growth trajectory (the economy is still expected to grow, but at a slower rate than if Brexit did not occur). The worst case scenario projects 87,000 lost jobs in London and 482,000 lost jobs across the UK, and lost investment of close to £50 billion, by 2030. The mayor explained that he had commissioned and released the assessment because the government had failed to conduct its own assessment, or had but was keeping it a secret – a statement prompted presumably by the admission by David Davis regarding the missing impact statements.
Canada plus: an FTA based on the CETA, but also addressing matters such as aviation and fisheries.
Canada plus plus plus (also known as Canada dry): a phrase first used by David Davis following the release of the Joint Report that refers to an FTA based on key elements of CETA (as well as other FTAs already agreed with countries such as Japan and South Korea), but also addressing services (which incidentally represent close to 80% of Britain’s economic activity). On December 19, 2017, Michel Barnier ruled out such a deal for financial services. He conceded that such an agreement could include judicial cooperation, defense and security, and aviation (so, perhaps Canada plus plus), but would exclude financial services. Davis responded that the European Commission cannot “cherry-pick some sectors” meaning that goods and services should not be treated differently. The British were reported to have pressed their case in various capitals on the continent, particularly those with significant trade in services with the UK.
CETA: the EU-Canada Comprehensive Economic and Trade Agreement, an FTA that took over seven years to negotiate and finally entered into force in September 2017.
Chequers agreement: on July 6, the Prime Minister gathered her entire cabinet to secure a common negotiating position ahead of the release of the July White Paper. The Prime Minister secured approval to negotiate a soft Brexit. The position, as set forth in a government statement, envisions:
- the establishment of a free trade area for goods;
- a “common rulebook for all goods” including agricultural products. The British will commit to ongoing harmonization. Parliament would have oversight over these rules, and could discontinue the harmonization at any time;
- a “joint institutional framework” for interpreting agreements between the UK and the EU. UK courts would “have due regard” for EU case law to the extent the UK continues to apply the “common rulebook”;
- a “facilitated customs arrangement” whereby the UK would apply domestic tariffs and trade policies for goods intended for the UK and their equivalents for goods heading to the EU;
- an independent trade policy with the ability to set its own non-EU tariffs and agree to separate FTAs; and
- an end to free movement of EU citizens into the UK, but would include a “mobility framework” to facilitate movement for work and study.
The proposal does not provide a solution for services. The British seek to retain “regulatory flexibility” and recognize there will be less market access as a result. Within 48 hours of the release of the government statement, first David Davis, then the following day junior minister Steve Baker and Foreign Secretary Boris Johnson, resigned.
Cherry-picking: EU27 negotiators have consistently maintained that Britain cannot “cherry-pick” parts of the single market, while failing to honor the four freedoms. There is a growing public recognition that failure to reach agreement on access to the EU markets for aviation, chemicals and medicines, among others, could cause serious disruptions, including disruption to supply chains. Certain government officials, as well as industry representatives, have called for these sectors to continue to be regulated by EU agencies, such as the European Aviation Safety Agency, the European Medicines Agency and the European Chemicals Agency (and subjecting them to EU regulatory regimes and standards, as well as ECJ jurisdiction). (In her March 2018 Mansion House speech, the Prime Minister floated the idea that the UK would seek “associate membership” in these agencies, in return for “an appropriate contribution.”) Continued ECJ jurisdiction would cross one of the Prime Minister’s red lines. From an EU27 perspective, a hard line taken by EU negotiators and EU spokespersons against cherry-picking makes sense, as cherry-picking raises the prospect of separate deals among different member states, which is fundamentally inconsistent with EU principles and could create political dysfunction. As the EU27 member states continue to contemplate the potential benefits if business contingency plans are triggered, the unity of purpose among the EU27 could begin to fray.
Chuck Chequers: Jacob-Rees Mogg’s response to the Prime Minister regarding the positions announced at Chequers and outlined in the White Paper.
Council Supplementary Directives: on January 29, the Council released a supplement to its negotiating directives (first issued in May 2017). The supplement sets forth negotiating guidelines for the second phase of negotiations, including governance of the withdrawal agreement, intellectual property rights, ongoing public procurement procedures, customs-related matters needed for an orderly withdrawal from the EU, protection of personal data and use of information. The supplement also noted that the second phase must set out in unambiguous legal terms the results of the first phase of the negotiations. (This appears, in effect, to mean that there would be no transition period if the issues addressed in the first phase, particularly the thorny Irish border question, were not reflected in the withdrawal agreement.) The supplement laid out the following negotiating guidelines:
- the transitional arrangements should cover the full range of acquis and apply during the transition period as if the UK were still an EU member state;
- any changes to the acquis should apply to and in the UK during the transition period;
- EU law should continue to apply during the transition period;
- the UK remains a member of the single market and the customs union during the transition period;
- the UK may not become bound during the transition period by FTAs entered into in its own capacity;
- existing EU regulatory, budgetary, supervisory, judicial and enforcement instruments continue to apply and be subject to ECJ jurisdiction during the transition period; and
- the transition period should not extend beyond December 31, 2020.
Crashing out of the EU: failure to reach agreement by the Article 50 deadline. At this point, the UK will have left the EU, the single market and the customs union, and in respect of trade will have defaulted to the rules of the World Trade Organization. There will be no transition period. Until earlier this year, the Prime Minister’s principal view on Brexit, first articulated in her Lancaster House speech in January 2017, was that “no deal is better than a bad deal.” While the sentiment seemed to have receded somewhat, as recently as late August, the Prime Minister was reiterating (this time in South Africa, apparently in response to pessimistic Treasury forecasts highlighted by Philip Hammond) a variation on the theme: no deal would not be “the end of the world.” “No deal” remains a very real prospect, and the threat of “no deal” continues to figure prominently in the concerns voiced by those opposed to Brexit. No deal could occur if either the British walk away (including if there is a negative vote in Parliament) or the EU negotiators walk away, or if the clock runs out and there is no appetite or time to extend the Article 50 deadline.
In an odd twist, David Davis, in a December 2017 letter to the Prime Minister that was leaked in January, stated that he had evaluated legal action against the European Commission for preparing for a “no deal” outcome and for suggesting to British businesses that the UK would be treated as a “third country” notwithstanding the prospect that alternative arrangements might be negotiated. Davis made specific reference to the concern that the EU “has adopted a number of measures that put agreements or contracts at risk of being terminated in the event of a ‘no deal’ scenario and/or would require UK companies to relocate to another member state.” The EU Commission reminded the British that it was the Prime Minister who, in her Lancaster House speech in early 2017, had first raised the prospect of “no deal.”
Customs partnership: one of three temporary arrangements proposed to date by the British as a means of breaking the deadlock over the Irish border question. The other arrangements proposed by the British are the maximum facilitation (or “max fac”) approach and the FCA. The customs partnership would entail collection by the UK of customs duties, on behalf of the EU, on goods arriving in the UK and destined for the EU. In fact, all goods arriving in the UK would initially be subject to the same EU tariff, with goods remaining in the UK qualifying for rebates should the UK impose lower tariffs. The system would require the UK to track goods electronically to determine who would be entitled to rebates. The UK would be able to negotiate trade deals with third parties but could not enter into them so long as the customs partnership is in effect.
Customs Bill: officially known as the Taxation (Cross-border Trade) Bill, lays the regulatory framework for cross-border customs, VAT and excise regimes in connection with the UK’s withdrawal from the EU. The Bill was subject to controversial amendments that were adopted by the government leading to a barrage of criticism from pro-EU Tory MPs and several cabinet resignations. The adopted Customs Bill amendments state that: (i) it will be illegal for the UK to collect duties on behalf of the EU without reciprocal arrangements; (ii) there will no customs border in the Irish Sea between Northern Ireland and the rest of the UK; (iii) the UK will not take part in the EU's VAT regime and (iv) new legislation will be required if the government opts to form a customs union with the EU. A separate soft Brexit amendment calling for the UK to remain in the EU customs union was withdrawn. In the end, the Customs Bill narrowly passed report stage and third reading.
Customs union: members of the customs union abolish restrictions on trade in goods (but not services) within the union and apply the same tariffs to goods from outside the union, known as a common external tariff. A customs union is to be distinguished from a free trade area; the latter allows members to set their own tariffs on trade in goods with other countries. The EU is both a single market and a customs union, and it is possible to be a member of the EU customs union and not the EU single market. Were the UK to remain a member of the EU customs union, it would mitigate the impact on the Irish border; it would, however, absent special arrangements, also restrict the UK’s ability to negotiate its own trade deals with third countries. At the end of January 2018, it was reported that supporters of soft Brexit were considering a customs union arrangement with the EU that would cover trade in goods only. In July 2018, the Customs Bill and Trade Bill narrowly passed.
Divorce bill: the EU27 have demanded that the UK honor a range of financial commitments as the price of leaving the EU. The obligations include contributions to the EU budget for 2019 and 2020 as well as the UK’s share of projects the EU has undertaken to fund but has not yet paid for, known as reste à liquider. Pension obligations for EU officials and various other items are also included. While a range of figures have been posited by the media, the parties have yet to publicly agree on an amount and it is expected that the figure will more likely be set in the final days of the negotiations over the withdrawal agreement. The Joint Report outlines a methodology for negotiating the amount. Whatever the amount, payments will be spread over a number of years.
ECJ: the European Court of Justice. The European Court of Justice is one of two courts (the other being the General Court) that comprise the Court of Justice of the European Union (CJEU).
EEA: the European Economic Area, which was established by the EEA Agreement in 1994 and includes the EU member states plus Norway, Liechtenstein and Iceland. The EEA extends the EU single market to the three participating EFTA members.
EFTA: the European Free Trade Association, which is an intergovernmental organization of Norway, Liechtenstein and Iceland as well as Switzerland. EFTA is tasked with managing the EFTA Convention (which regulates trade and economic relations among the four EFTA members), the EEA Agreement (which allows three EFTA states to participate in the EU’s single market in exchange for financial contributions) and EFTA’s network of FTAs with various non-EU countries. EFTA countries that are part of the EEA are exempt from the EU agriculture and fisheries regimes, and have control over their own trade policy.
End state: refers to the ultimate objective the UK government will seek to achieve in the second phase of talks and, in particular, the ultimate trading relationship between the UK and the EU. David Davis conceded in late 2017 that the cabinet was only then beginning to formally discuss this topic; the first formal meeting of the cabinet (in fact, the so-called “inner cabinet” of nine ministers plus the Prime Minister, dubbed by some as the “war cabinet”) on this matter took place on December 18, 2017. This topic is also tied to discussions over the transition period. EU negotiators are reported to believe that by March 29, 2019 the parties will only be able to come to political agreement on the “end state,” the myriad of details of which will be negotiated and agreed during the transition period.
EU approval thresholds: Michel Barnier, on December 19, 2017, indicated that he expects the required threshold for approval of any future trade relationship will be more than 35 legislative bodies (including lower houses of parliament in each member state, regional assemblies and various upper chambers – 38 in total). Under EU law, certain treaties are subject to ratification only by national governments, acting through the European Council, and by the European Parliament, while those that affect national competences (so-called “mixed agreements”) require the approval of national and regional parliaments. (In a May 2017 decision, the ECJ ruled that the EU had exclusive competence in all but two aspects of an FTA with Singapore – portfolio investments (i.e., non-direct foreign investment) and investor-state dispute settlement mechanisms in respect of investor protection. Bifurcating an FTA and leaving the investment provisions out, as was contemplated in September 2017 for FTAs with Australia and New Zealand, could avoid approval by national and regional parliaments.)
The withdrawal agreement will need to be “adopted” by the European Council by a qualified majority, which must represent 72% of the 27 remaining member states and 65% of the population, and will also need to be approved by the European Parliament, voting by simple majority.
European Commission: brings together 28 EU member states-appointed commissioners who formally initiate legislation for the EU.
European Council: the EU institution comprised of the heads of state or government of the EU member states, together with the President of the Council (currently Donald Tusk) and the President of the European Commission (currently Jean-Claude Juncker).
European Parliament: the directly elected legislative body of the EU, comprised of 751 members. Article 50 provides that the European Council must obtain the consent of the European Parliament, voting by a simple majority, with respect to any withdrawal agreement. The European Parliament appointed Guy Verhofstadt as its lead representative on Brexit matters. The European Parliament has acted on various aspects of the Brexit negotiations, for example, demanding in December 2017, after what it perceived was backpedalling by the British following the release of the Joint Report, that negotiations be carried out in good faith by the UK and stating that progress will depend on the UK fully respecting its commitments in the Joint Report and translating them into the withdrawal agreement.
EU27: the member states of the EU, other than the UK.
Fearmongering: during the campaign leading up to the referendum, the Leave camp accused those citing potentially disastrous economic consequences of a vote to leave the EU (and the inevitable departure) of fearmongering. More recently, efforts to characterize a hard Brexit as leading to disastrous consequences in the medium- to long-term (Brexiters will concede short-term pain) have been labelled as part of Project Fear.
Following the referendum, while sterling did plummet relative to the dollar in particular (and remains well below pre-referendum levels to this day), the dire economic consequences have not been felt. In fact, the relative value of sterling, together with more positive global growth, has supported overall positive growth in Britain since the referendum. The Financial Times cites a range of estimates (as of June 2018) highlighting that growth has slowed between 1% and 2% of gross domestic product due to Brexit (representing a hit of between £20 and £40 billion). In terms of stock price movements, British businesses that generate significant revenues outside the UK have benefitted since the referendum, while companies with a substantial domestic focus have not. The disparity between the two is reported at an all-time high. Looking forward, however, prospects may be less certain, in that while sterling is expected to remain under pressure, the companies benefitting most from the devaluation in sterling terms may be more exposed to threats to their supply chains, whether in the form of trade wars or from a hard Brexit.
First phase: the EU27 insisted that negotiations over any transition period and the trade relationship (the second phase) would only begin once “substantial progress” had been made on three issues: the rights of EU citizens in the UK and the rights of British citizens in the EU27, the divorce bill and the border between Ireland and Northern Ireland. On December 15, 2017, EU27 leaders determined, based on the Joint Report, that substantial progress had been made to move the Brexit negotiations on to trade and the post-Brexit relationship. As of the end of August, the Irish border issue remains very much in contention.
Four freedoms: free movement of goods, services, capital and people, which is the cornerstone of the single market. Of these, the target of the Leave campaign was the freedom of movement of people – unrestricted entry by EU citizens into the UK. While early proponents of what ultimately became the Leave campaign focused more on taking back control over laws and regulations (referred to as “regaining sovereignty”), for many supporters of the Leave campaign it was all about immigration.
Forty-eight letters: the submission of letters from 48 Conservative MPs (15% of the parliamentary party) to the chairman of the backbench 1922 committee (Sir Graham Brady) would trigger a vote of no confidence, which in turn would lead to a leadership contest in the Conservative Party, if the Prime Minister failed to win the confidence vote or won it by a narrow margin. In the hours following the resignation of Boris Johnson, attention quickly turned to the prospect of a vote of no confidence as the Prime Minister prepared to address the 1922 committee. The 1922 committee would oversee any resulting leadership contest, in which any Conservative MP could stand; party members would choose between the final two. The 48-letter process can only be triggered once in a rolling 12-month period.
FCA: shorthand for a facilitated customs arrangement, which is the Prime Minister’s compromise proposal set out in the White Paper for post-Brexit customs arrangements. The arrangement would seek to avoid a hard border between Ireland and Northern Ireland while keeping the UK outside the single market. The UK and EU would become a “combined customs territory” for goods, in which the UK would apply the EU’s tariffs and trade policies for goods destined for the bloc, with domestic tariffs imposed for goods remaining in the UK. When goods reach the UK border, if the destination can be “robustly demonstrated by a trusted trader,” it will pay the UK tariff if destined for the UK and the EU tariff if destined for the EU. If the destination cannot be so demonstrated, it will pay the higher tariff and, when the destination is later determined, if the tariff would have been lower, the UK will repay the difference.
FTA: a free trade agreement. Free trade agreements determine the terms of trade between or among contracting parties, and in particular are intended to reduce barriers to free trade, such as tariffs and quotas. These agreements also cover topics such as intellectual property rights, competition policy and government procurement.
Hard border: the Republic of Ireland is a member of the EU and transporting goods across its border with Northern Ireland currently requires no customs checks. Brexit raises the spectre of border checks on the frontier between Ireland and Northern Ireland. Doing so, however, raises a range of highly charged issues that harken back to the violence between republicans and unionists that ultimately abated following the signature of the Good Friday Agreement. The establishment of a hard border is viewed by many as potentially imperilling the peace process. It is difficult to see how the hard border issue can be resolved until there is agreement on the future trade relationship. See “Backstop.”
Hard Brexit: there is no clear definition of a hard Brexit or a soft Brexit, and the context in which the terms are used matters. It is best to think of these two terms as the extreme ends of a continuum on which can be plotted varying degrees of closeness of the relationship between the UK and the EU following Brexit. The more doctrinaire of the supporters of the Leave campaign (led by the former Foreign Secretary Boris Johnson and the Environment Secretary Michael Gove – the Brexiteers) call for a complete break from the EU in terms of regulation and governance. For them “take back control” means control over borders and full sovereignty over legal and regulatory matters. A hard Brexit, at the very least, means leaving the single market (to avoid freedom of movement into Britain) and can also mean leaving the customs union (to allow Britain to negotiate its own FTAs). A hard Brexit also excludes committing to any form of alignment with the EU. A hard Brexit could also result in the UK leaving the EU without any deal at all. With the developments between May and July 2018, the hard Brexit camp appears to have splintered, between those willing to agree to any deal that delivers Brexit, with the expectation of ironing out details after the fact, and those wanting to nail down all the terms before departure.
In the words of Boris Johnson, “What we need to do is something new and ambitious, which allows zero tariffs and frictionless trade, but still gives us that important freedom to decide our own regulatory framework, our own laws ...” This at the moment flies in the face of the EU27 position, in the words of Michel Barnier, that “there won’t be any cherry-picking. We won’t mix up the various scenarios to create a specific one and accommodate [the wishes of the British], mixing for instance the advantages of the Norwegian model, member of the single market, with the simple requirements of the Canadian one.”
HMRC testimony: in the midst of the debate over options to address the Irish border issue, the chief executive of the UK’s tax authority advised the Commons Treasury Committee that the “max-fac” option preferred by Brexiters could cost UK businesses between £17-20 billion per year, the principal driver of which would be the cumulative cost of customs declarations. While HMRC views the alternative customs partnership approach as having a far lower cost, shortly after the HMRC testimony, the operator of the Channel Tunnel, Eurotunnel, weighed into the public debate by warning that either approach would result in severe disruptions for businesses and consumers that rely on timely delivery of goods. Others have followed suit and made similar arguments.
Joint Report: the Joint Report from the Negotiators of the European Union and the United Kingdom Government on Progress during Phase 1 of Negotiations under Article 50 TEU on the United Kingdom’s Orderly Withdrawal from the European Union. The issuance of the Joint Report was the basis on which the parties moved at the end of 2017 to the second phase of the negotiations.
June 2017 elections: the Prime Minister called a snap election, which was held in June 2017. The Prime Minister had expected to augment her slim majority to 100 to compel pro-European Conservatives to vote in line with the Conservative Party manifesto and deliver a hard Brexit. Instead, the Prime Minister lost her majority and was forced to enter into a “supply and confidence” arrangement with the DUP. Much of what has happened since June 2017 has been affected by the unexpected outcome of the election. While technically not a coalition government, the current Conservative government functions, at least on the dominant issue of the day, Brexit, as an uneasy coalition between the supporters of a hard Brexit and the supporters of a soft Brexit.
Leaving the EU: the choice presented in the June 2016 referendum was between remaining in the EU or leaving the EU. There was very little appreciation of the implications of leaving the EU and very little discussion of the details of any such exit. The referendum was not legally binding, and those opposed to leaving have long maintained that there was no reason why Theresa May, who was named Prime Minister following the resignation of David Cameron, should have interpreted the outcome as a mandate to also leave the single market and the customs union. Supporters of leaving the EU generally are referred to as being in the Leave camp, while supporters of remaining in the EU are referred to as being in the Remain camp.
Maximum facilitation or “max-fac”: an arrangement proposed by the Brexiters that envisions a streamlined customs arrangement and a frictionless border between Ireland and Northern Ireland that would operate based on as yet unspecified technology, whereby goods would be traced and pre-cleared electronically with tax authorities. The UK would remain in a customs union until the technology could be developed and deployed. Many are sceptical that this arrangement is feasible in the next five to ten years (in part because of the complexity of rules of origin that would need to be catered for), and there appears to be little appetite for this proposal among the EU27.
Meaningful vote: an amendment to the Withdrawal Bill gives Parliament a “meaningful vote” on the terms of the exit, which in practice gives MPs the ability to approve the final Brexit deal before it becomes effective. The amendment specifically provides that the government cannot issue new regulations to implement Brexit without Parliament passing a new law to authorize them. The amendment does not give MPs the right to change the deal (as the deal can only be changed by negotiation between the UK and the EU27), to force the government to change the deal or to veto Brexit. The amendment does not eliminate the prospect of the UK crashing out of the EU and, in fact, may slightly increase the likelihood since a negative vote in effect means “no deal,” as it is likely that there will be insufficient time for negotiators and the European Parliament to accept any changes prior to the Article 50 deadline. See Withdrawal Bill, below. The amendment was approved by a vote of 309-305, which represented the Prime Minister’s first defeat in the House of Commons.
Missing impact statements: following statements made to the House of Commons by David Davis that the government had prepared 58 detailed impact statements of Brexit on various sectors of the British economy, a motion in Parliament was passed to compel the government to turn over these impact statements to the House of Commons Brexit select committee. After a lengthy delay, the government ultimately turned over a fraction of the impact statements, with heavy redactions, and conceded that the rest did not exist. The lack of what appears to be a meaningful assessment of the impact of Brexit on Britain had been severely criticized by supporters of a soft Brexit or no Brexit. In late August, the government began releasing its technical notes.
MP: member of Parliament.
Net migration: the difference between the number of immigrants to a country and the number of citizens emigrating from that country. In May 2017, the Prime Minister indicated that she wished to reduce net migration to the tens of thousands. In early December 2017, figures released show that net migration from the EU fell by the largest amount since records were first compiled. Figures published in late August indicate that net migration from the EU during the 12 months ended December 2017 fell to its lowest level in five years.
New election: the Fixed-Term Parliamentary Act makes it harder to call an early election. To do so requires a vote of two-thirds of the House of Commons or, in the case of a successful vote of no confidence, no alternative government is agreed within 14 days. Otherwise the next election is in 2022.
No deal: see Crashing out of the EU.
Norway option: refers to a trading relationship along the lines of that enjoyed by Norway, which would entail membership in both the EEA and EFTA. Norway is one of four members of EFTA. The UK, which left EFTA in 1972, could become part of the EEA as a member of EFTA, though becoming a member of EFTA would require the approval of the other states of EFTA (triggering approval of the parliaments of each of these states). Were the UK to join EFTA and re-join the EEA (leaving the EU means the UK also leaves the EEA), it would not automatically become part of the various FTAs EFTA has with other countries. Non-EU members of the EEA, such as Norway, have nearly full access (without having a vote or a role in setting any of the rules) to the single market (only EU member states are members of the single market), but are not members of the customs union. Norway makes financial contributions to the EU and accepts a significant proportion of EU laws and regulations as well as free movement of people. By being outside the customs union, Norway can enter into trade deals with other countries. The Norway model does not sit well with the Prime Minister’s commitment to take the UK out of the single market and the customs union.
October deadline: October 2018, which the EU27 has set out as the deadline for the withdrawal agreement to be submitted to the European Council in order to provide sufficient time for the approvals to be obtained in each of the EU member states. That date is likely to slip.
Passporting rights: the basis on which services today are provided across the EU. These so-called passporting rights are enshrined in a series of agreements that allow service providers licensed, and complying with rules, in one (the home) member state to be able to provide services throughout the EU without complying with further obligations that might otherwise be imposed by the host member state.
Red lines: from the early days of the Brexit process (when the Prime Minister’s principal slogan was “Brexit means Brexit”), policy positions have been set forth as immutable and non-negotiable, many of which now appear to have been crossed. The Prime Minister set forth her red lines in her acceptance speech in 2016 and with greater precision in her Lancaster House speech (in January 2017), in which she committed the UK to a hard Brexit in order to achieve her view of the mandate of the 52% of the voters who voted to leave the EU – to “take back control” of borders and the law. This would mean leaving the single market and the customs union, and leaving the jurisdiction of the ECJ. There was also an implied threat to turn the UK into a low tax, lightly regulated jurisdiction.
In early December 2017, Brexiters set out new red lines, including that the ECJ have no jurisdiction in the UK after March 29, 2019, that the UK be free to sign and implement FTAs during the transition period, that free movement of people into the UK end on March 29, 2019, and that the UK be exempt from new EU regulations during the transition period.
Reshuffle: in early January 2018, the Prime Minister reshuffled her cabinet. While some expected more drastic changes, the Brexiteers retained their portfolios. Many viewed the reshuffle as underscoring the Prime Minister’s difficult political position, and some lamented the missed opportunity for the Prime Minister to use cabinet changes as a means of communicating her preferred Brexit outcome. Essentially the balance between those in favor of Brexit and those against remained unchanged, and the failure to enhance one side or the other has raised questions about whether the Prime Minister had decided, even at this late date, on the preferred outcome or, if she had, whether she feels she has the authority to push it through. The political calculus has been further complicated by various resignations of senior ministers since the reshuffle.
Rules of origin: in order to benefit from preferential trade terms in an FTA, exporters must establish that the goods being exported originate in the exporting country or had substantial work done to assemble them in the exporting country. In short, if the UK and the EU were to enter into an FTA, to obtain preferential access to the EU, UK exporters would have to show their goods were made in the UK (unless the goods are exempt). With global supply chains being what they are, rules of origin are tremendously complex, reflecting how products are assembled (and where). It is estimated (by the Society of Motor Manufacturers and Traders), for example, that approximately 44% of the components in a car assembled in the UK are sourced from UK suppliers; however, only between 20-25% of these components actually are manufactured in the UK. Approximately at least 50-55% by value of the goods must be locally sourced for preferential treatment. These rules create various challenges: the need to meet local content requirements and also the costs associated with obtaining certificates of origin and related administrative and audit costs. The UK can avoid these rules if it remains in a customs union with the EU (since there would be no tariffs imposed on goods traded between the UK and the EU and, in fact, such goods would be deemed “EU content” relative to third countries; tariffs are imposed only once goods cross the common external border).
Second phase: negotiations over the transition period and the future (e., trade) relationship with the EU, as well as any unresolved issues from the first phase.
Second referendum: some critics of the entire Brexit project have called for a second referendum as the only realistic means of preventing Brexit. The government has steadfastly rejected the idea of a second referendum (most recently following the resignations of David Davis and Boris Johnson following the Chequers agreement). Supporters point to recent polling data that show a growing margin of the electorate in favor of remaining in the EU, when undecided voters are excluded. The increase in the numbers of those opposing Brexit is attributable to those who did not vote in the 2016 referendum (particularly younger voters), many of whom voted for Labour in the 2017 snap election. At present, there is no clear choice available to British voters as between Labour and Conservatives on the question of Brexit.
In mid-January 2018, former UKIP leader Nigel Farage, in a surprise move, said he was coming round to the view that a second referendum may be necessary to put the issue of Brexit firmly behind the country. Shortly thereafter, he announced that he was concerned that the Leave camp might lose that second referendum, reversing his earlier view that the Leave camp would win the second referendum by an even larger margin than the 52-48 win in 2016.
Beginning in May 2018, a coordinated effort among the disparate Remain groups appears to be coalescing around the idea of a People’s Vote – one form of which contemplates the vote of Parliament on the withdrawal agreement as an advisory one, to be followed by a referendum on the withdrawal agreement.
Services: the UK is reported to be the second largest exporter of services, after the United States. Services account for 45% of total exports from the UK, the largest component of which is financial services (though by no means even the majority). The UK maintains a trade surplus in services. The challenge is that, in contrast to goods, there is no single regime for services, and the FTA models being considered do not adequately address the services that matter most to the UK. Frictionless trade in services depends on accommodations in respect of non-tariff barriers, including licensing and regulation. The House of Lords Europe Committee called the EU single market the “most integrated regime for services trade in the world”. The UK had a surplus in financial service exports in excess of £20 billion last year, though digital services are also becoming more significant. See generally, “Services: the ‘dark matter that matters’ in trade with the EU,” Financial Times (December 18, 2017). As possible solutions for trade move in the direction of a single market for goods, commentators note that many goods also have service components.
Single market: also known as the internal market, and formerly known as the common market, stands at the center of the EU. Membership in the single market implies accepting the four freedoms. The single market removes barriers to trade (both goods and services) and harmonizes national laws at the EU level. The single market should not be confused with the customs union.
Soft Brexit: if Brexit cannot be avoided, the fall-back position for the proponents of a soft Brexit in the cabinet (the Chancellor, Philip Hammond, and the Business Secretary, Greg Clark) is an arrangement that could include remaining in the customs union and the single market, or perhaps only in the customs union. A soft Brexit envisions providing some accommodation on free movement into the UK. The soft Brexit faction worries that further intransience on the part of the EU negotiators could result in no deal. At Davos earlier this year, in an effort to assuage the fears of the business community in Britain that the country would lose frictionless access to the EU, as well as the fears of the EU27 that Brexit would prompt Britain to become a loosely regulated, low-tax jurisdiction, the Chancellor stated that Britain wished to stay closely aligned with the EU and that material differences in regulation between the UK and the EU would be “modest.” This produced outrage on the part of the Brexiteers and earned a rebuke from the Prime Minister.
Special Relationship: the longstanding geopolitical relationship between the US and the UK has in diplomatic and academic circles been referred to as the “special relationship.” Eager to curry favor with the then new US President, the Prime Minister was the first foreign leader to visit Washington. A key objective of that meeting was to ensure that Britain would stand, not last in line (as former President Obama had threatened during the referendum campaign), but first in line for a new FTA. The deterioration in the public relationship between the two countries, as well as the prospect of a looming trade war, calls into question whether one of the proffered benefits of a hard Brexit (namely the ability to negotiate favorable trade agreements with key trading partners around the world) might in fact still be on the table. Uncertainty in respect of the ability to negotiate an arrangement that benefits the UK could prompt more ministers to favor remaining in the EU customs union.
Technical notes: in late August, the government began releasing the first of an expected 80 technical notes, outlining the consequences of a no-deal exit. The technical notes are being criticized from many quarters: Brexiters are complaining that the notes are scaring the population to push for a second referendum. Opponents of Brexit complain that the notes are too vague to be of any use to anyone should the UK crash out of the EU.
Third country status: when the UK leaves the EU, regardless of the nature of the trading relationship, the UK will be, and will be treated as, a third country, and there is little flexibility in the EU ecosystem to be more accommodative. As the former chief UK diplomat to the EU Sir Ivan Rogers has noted,
There is no legal status of ‘being a third country which used to be a member and therefore can be treated radically better than other third countries.’ There is no legal ‘half way in, half way out’ option for either the Single Market or the Customs Union. There is therefore an asymmetry. If you are in, you can, within constraints, negotiate bespoke arrangements, carve outs, opt-outs, opt back-ins, and so forth. But once you are out of the legal architecture of the EU, the scope for bespoke arrangements is massively diminished. … You simply cannot, with any honesty or coherence, make an argument for taking back control and full autonomy of decision-making on the UK side of the Channel, and simultaneously argue for the EU27 to restrict to a certain extent its own autonomous decision-making precisely in order to give you, a non-member of the club, a real say in the direction of its policy.
Top down/bottom up approaches: as businesses focus on the post-Brexit trade relationship with the EU, ministers are offering different solutions. The hard Brexit camp envisions a bottom up approach that starts with a clean slate of total regulatory divergence and adds sectors (via an opt in) as to which regulatory alignment with the single market would be acceptable, while the soft Brexit camp has the opposite view, favoring maximum regulatory alignment with the EU, with opt outs kept to a minimum. A variation on the theme has been attributed to Olly Robbins, namely a three-pronged approach: some sectors being fully converged, some sectors being fully exempt from EU regulation and a third group being aligned as to objective, achieved through divergent means. These all need to be viewed for the moment in light of the EU27 position against any cherry-picking.
Trade Bill: key Brexit legislation (along with the Customs Bill) that gives the government legal powers to negotiate and enter into international trade agreements with third countries post-Brexit. The Bill passed by 307 to 301 on July 17 after the Prime Minister averted defeat on a key amendment that would have kept the UK inside the customs union in the absence of a new trade arrangement by mid-January 2019, only two months shy of the formal March 2019 withdrawal date. Another amendment to the bill that requires the government to ensure that the UK take “all necessary steps” to participate in the regulatory network operated by the European Medicines Agency after it leaves the EU was, however, voted through by the MPs by 305 to 301, making it the second defeat for the government on Brexit related legislation.
Transition period or implementation period: a concept supported by the proponents of a soft Brexit to allow time to prepare for withdrawal. In fact, many have believed this period would also be needed to complete negotiations over the future trade relationship. Given the apparent lack of progress to date, that conclusion seems reasonable. The EU27 have stated that during this period the status quo (what Michel Barnier calls the “complete architecture” of the EU) should be maintained as a practical matter, with one critical exception. During this period, the UK technically would have ceased being a member state of the EU, would have left the customs union and the single market and would have no input into EU decision-making. However, all existing rules and regulations, as well as any new rules and regulations adopted in the EU, would continue to apply, as would ECJ jurisdiction. The period would end at the end of 2020. The transition arrangements are largely agreed and will form part of the withdrawal agreement, though the period will be binding only if the withdrawal agreement is signed and ratified. The parties both maintain that nothing is agreed until all is agreed, and so uncertainty remains.
As a reminder of the complexities ahead, Michel Barnier has reiterated that, while a trade agreement could be agreed during the transition period with the EU, it would still need to go through the full ratification process. According to Barnier, any FTAs agreed, during this period, by the UK with other countries could only enter into force at the end of the transition period. As for EU FTAs with other countries, Barnier has noted that, during the transition period, the UK would not automatically be covered by approximately 750 bilateral agreements currently in place with the EU.
White Paper: originally expected before the June 2018 European Council summit, the government’s blue print for the future relationship with the EU was published on July 12. The document, entitled “The Future Relationship between the United Kingdom and the European Union,” sets forth a detailed explanation of the government’s proposals for the UK’s future relationship with the EU and lays out many of the proposals agreed to at the cabinet’s meeting at Chequers held on July 6, in far greater detail. The White Paper sets out the government’s vision of “a principled and practical Brexit,” which includes:
- a free trade area for goods, giving frictionless border access. This would “protect the uniquely integrated supply chains and ‘just in time’ processes” with no “costly customs declarations”;
- a separate arrangement for services, based on “the principles of international trade and the precedents of existing EU trade agreements”;
- an end to free movement of people, with a new immigration system being set in place, support for farming and fisheries, and what is called a “shared prosperity fund”; and
- a facilitated customs arrangement (FCA) to avoid a hard border between Ireland and Northern Ireland, under which the UK would apply EU tariffs and trade policies for goods destined for the EU, with domestic tariffs applied to goods destined for the UK.
Withdrawal agreement: Article 50 calls for the negotiation of an agreement “setting out the arrangements for [the UK’s] withdrawal, taking account of the framework for its future relationship with the [EU].” This agreement is the subject of negotiations between the EU and UK, and is not expected to be finalized until all negotiations are complete. See “Blind Brexit.”
Withdrawal Agreement and Implementation Bill: enshrines the withdrawal agreement into domestic English law through primary legislation and will cover both the withdrawal arrangement and the transition period; it will be separate from the Withdrawal Bill.
Withdrawal Bill: colloquial reference to the European Union (Withdrawal) Bill 2017-19, formerly known as the Repeal Bill or Great Repeal Bill. The legislation repeals the 1972 European Communities Act and transposes into domestic UK law existing EU law. The Withdrawal Bill, which is one of eight pieces of legislation identified in the Queen’s Speech in June 2017 as necessary to implement Brexit, was approved on June 20, 2018. On the key question of the meaningful vote, both houses accepted the government’s amendment in lieu which sets out how Parliament will approve the withdrawal agreement and that, if it does not approve, a minister will make a statement setting out how the government “proposes to proceed” within 28 days. In addition, the government accepted that the House of Commons would have a vote on a motion “in neutral terms” (meaning it would not be subject to amendment) to consider this ministerial statement. It would also have a vote on a motion “in neutral terms” to consider a ministerial statement if no deal is reached with the EU by January 21, 2019.
Barnier, Michel: the lead negotiator for the EU27.
Brexiteers: current and former members of the cabinet that led the Leave Campaign and following the referendum became associated with the hard Brexit They include Michael Gove and Boris Johnson, as well as David Davis, Liam Fox and Garvin Williamson.
Corbyn, Jeremy: leader of the Labour Party.
Davis, David: until he resigned two days after the Prime Minister secured the Chequers agreement, the head of the Department for Exiting the European Union and the formal lead negotiator for the British on Brexit. Davis resigned because, in his words, he could not support the Chequers proposals in good faith in that it ties the UK too closely to EU regulation and the common rule book for trade gives only an illusory return of control.
DUP: the Democratic Unionist Party in Northern Ireland. The DUP has a support agreement with the Conservatives to provide the government with the votes necessary to achieve a narrow majority if all Conservatives vote with the government. The DUP supports Brexit but is steadfast against the imposition of a hard border between Northern Ireland and Ireland. Moreover, the DUP is opposed to any arrangement that applies only to Northern Ireland and not the entire country (that is, an agreement that, when the UK leaves the EU, Northern Ireland would have a separate, aligned set of arrangements). An eleventh hour deal with the DUP and Ireland rescued the first phase of the negotiations.
European Research Group or ERG: a single issue research group for the Conservative Party, led by Jacob Rees-Mogg. That single issue is the withdrawal of the UK from the EU.
Farage, Nigel: the former leader of UKIP.
Gove, Michael: the Environment Secretary and one of the Brexiteers.
Grieve, Dominic: a Conservative MP and the former Attorney General, who led the rebellion over the meaningful vote amendment, which saw 11 Conservatives defect to pass the amendment providing for the vote. However, as part of the final vote on the Withdrawal Bill, Grieve failed to support his own second amendment, which would have given Parliament the right to decide what happens if the House of Commons rejects the eventual Brexit deal.
Fox, Liam: the Secretary of International Trade and one of the Brexiteers.
Hammond, Philip: the Chancellor of the Exchequer and part of the soft Brexit faction.
Hunt, Jeremy: the Foreign Secretary, appointed following Boris Johnson’s resignation.
Johnson, Boris: until he resigned three days after the Prime Minister secured the Chequers agreement, the Foreign Secretary, and one of the Brexiteers. He had been the most visible public face of the Vote Leave campaign. Boris Johnson was the seventh member of Theresa May’s cabinet to resign. His two principal concerns about the Chequers agreement were, in his words, locking large parts of the economy into the EU system “with no control over that system” and the fear that by agreeing to the common rulebook for goods Britain would be unable to reach trade deals with non-EU countries.
Juncker, Jean-Claude: the President of the European Commission.
Labour Brexiters: the four Labour MPs who sided with the government on the Customs Bill and Trade Bill vote. These include: Frank Field, Kate Hoey, John Mann, and Graham Stringer.
Prime Minister: Theresa May.
Raab, Dominic: David Davis’ former Chief of Staff, who replaced Davis as Secretary of State for Exiting the European Union, when Davis resigned. Raab is viewed as an active supporter of the European Reform Group.
Rees-Mogg, Jacob: Conservative backbencher aligned with the Brexiteers. Rees-Mogg heads the Conservative’s hardline, pro-hard Brexit European Reform Group and is viewed as the most influential Conservative MP who is not a minister. He has said he intends to vote against the Brexit deal based on the Chequers agreement.
Robbins, Oliver (Olly): formerly David Davis’ principal deputy, reports directly to the Prime Minister as her Brexit advisor and is credited with taking the lead on the Joint Report and on subsequent key initiatives.
Rogers, Sir Ivan: formerly the UK Permanent Representative to the European Union who resigned in January 2017.
Rudd, Amber: a former Home Secretary and part of the soft Brexit faction. She was forced to resign over an immigration scandal.
Starmer, Sir Keir: a Labour MP, the shadow Brexit secretary and a leading voice in the Labour Party in support of a soft Brexit.
Tory rebel MPs: also known as Remainer Tories, the 12 Tory MPs who favour soft Brexit and voted against the government on the Customs Bill and Trade Bill. These include: Heidi Allan, Guto Bebb, Ken Clarke, Jonathan Djanogly, Dominic Grieve, Stephen Hammond, Philip Lee, Nicky Morgan, Bob Neill, Antoinette Sandbach, Anna Soubry and Sarah Wollaston.
Tusk, Donald: the President of the European Council.
UKIP: the UK Independence Party, which currently has no members in the Commons.
Verhofstadt, Guy: the lead Brexit representative for the European Parliament.
* * *