What comes after Theresa May starts Brexit: Q&A

Britain's Prime Minister Theresa May delivers a speech at the Department for International Development's office at Abercrombie House in East Kilbride, south-west Scotland, on March 27, 2017.
Britain's Prime Minister Theresa May delivers a speech at the Department for International Development's office at Abercrombie House in East Kilbride, south-west Scotland, on March 27, 2017.PHOTO: AFP

LONDON (BLOOMBERG) - Nine months after Britain voted to leave the European Union, Prime Minister Theresa May will open divorce proceedings on Wednesday (March 29).

The negotiations could turn "vicious," according to Irish Prime Minister Enda Kenny. European Commission President Jean-Claude Juncker says they will be "very, very, very difficult". Both the EU and the UK will have to determine what is and isn't negotiable.

Here are some key questions and answers on what is next:

1. Didn't Brexit already happen?

No. The June 2016 referendum, in which 52 per cent of British voters chose to leave the European Union, was just the start of a lengthy proceeding. If Mrs May has her way, the actual split will occur around April 2019. Its contours are about to be negotiated.

2. What does Brexit actually mean?

 

Britain is exiting the 28-country EU bloc, which it joined in 1973. Initially envisaged as a free-trade zone that now includes 500 million consumers, the EU is, in the eyes of many Britons, too bureaucratic, out of touch, expensive and an obstacle to clamping down on immigration. Free movement of citizens is a basic tenet of EU law.

3. How does the exit process work?

Article 50 of the Lisbon Treaty, the EU's guiding document, details how a country leaves the bloc. It's never been activated and is only about 260 words long. It gives the departing country up to two years to negotiate "its future relationship with the Union".

4. When did the two-year clock start ticking?

It hasn't yet. After the UK Supreme Court ruled she didn't have the authority to trigger Article 50 by herself, Mrs May filed a short (137 words) bill to obtain permission from Parliament. Some parliamentary wrangling was needed before the bill became law because although the House of Commons passed it, the unelected upper House of Lords rewrote it to demand guarantees for EU citizens already living in Britain and a "meaningful vote" on the final deal.

It finally became law on March 16 after Mrs May got the amendments overturned by the lower house and the Queen signed the legislation. On March 20, the government said its envoy to the EU, Tim Barrow, had informed EU President Donald Tusk that Article 50 will be activated on March 29.

5. How quickly would talks start?

Mr Tusk has said the EU will respond within 48 hours and then EU leaders will convene a summit to sign off on the guidelines for Michel Barnier, the European Commission's chief negotiator. Officials have said the bloc may wait until June to fully engage although September elections in Germany will also serve as a distraction.

6. What will Mrs May push for?

She intends to pull the UK out of the single market for goods and services - a "hard" or "clean" Brexit that prioritises securing control of immigration, laws and her budget over economic concerns. Mrs May wants the "best possible deal" for trading with the bloc although she wants the liberty she now lacks to land trade deals with non-EU countries such as the US.

7. What will Europe want?

Remaining EU members don't want the UK to "cherry pick" the benefits of membership with none of the responsibilities (like agreeing to freedom of labour movement), lest others be encouraged to leave as well. Many European countries are going to seek a guarantee of the rights of their citizens living in the UK. Mrs May wants the same for Britons living abroad and says this is an issue to resolve early on.

The Republic of Ireland, an EU member, says it will fight any attempt to restore a so-called hard border with Northern Ireland, which is part of the UK. Then there's the question of the bill the UK will be asked to pay.

8. Wait - there's a bill?

Europe says there is. Mr Barnier has indicated he wants the British to cover budget commitments they agreed to, pension payments promised to EU officials from the UK, guarantees on loans such as the bailout of Ireland, and pending infrastructure projects. The sum is said to be around €60 billion (S$90.8 billion) and officials say that until this matter is settled they won't discuss a trade deal.

British Trade Secretary Liam Fox rejected the notion of a bill as "absurd" and The Times reported government lawyers believe there is no legal obligation to pay anything.

Mrs May has said she won't fund any project initiated after November 2016. She still may be willing to contribute something to win some continued access to the single market although too big an amount will draw ire domestically.

9. How will the talks be structured?

Mr Barnier wants to focus first on the separation - settling the bill, resolving citizenship rights and establishing borders.

Only after that would he turn to trade. The British would prefer to discuss the split and the new future trade arrangement at the same time to win trade-offs and grant certainty to businesses.

10. How long will the talks take?

Article 50 allows two years, which could be extended if all members of the EU, including the UK, agree. Both sides estimate that they really have until the end of 2018 to reach an accord, because the resulting deal would need to obtain the consent of the European and British parliaments. EU officials have said even in the best case it will take until early 2018 to work out the financial side of the split.

11. What happens if no deal is reached?

Britain would leave the EU in two years regardless of whether it's secured a new trade deal. In that case, disagreements may end up in the courts and UK-EU commerce will be exposed to World Trade Organisation tariffs, following decades of duty-free trade. That could mean taxes of about 10 per cent on cars alone.

UK Brexit Secretary David Davis says this is an "unlikely scenario" and not "frightening" but one Britain must prepare for although he conceded in March that the government hasn't yet analysed the economic fallout.

Businesses worry about a "cliff edge" in which the UK falls or walks out of the EU with tariffs and without certainty over the future. Mrs May says no deal is better than a bad deal.

12. What could help avert a 'cliff edge'?

The UK and EU could agree to a transitional phase in which the existing relationship remains in effect. Businesses would get time to adjust to any new rules, which Mrs May says should be phased in. The question is whether the two sides can agree to a transitional phase before businesses, especially banks based in the UK, shift jobs and services to elsewhere in the EU.

Another bugbear for Mrs May is if the EU tried to force the UK to remain under the oversight of the European Court of Justice.

13. Does Mrs May have any leverage?

The UK loses some power after invoking Article 50 because it starts the countdown clock, limiting the time available to strike a deal. Mrs May has argued it would be "economically rational" for the EU to sign up to a free-trade accord since Britons buy so much of its goods. She has warned that the UK could provide less security to the region or transform Britain into a low-tax, light-regulation haven for business. She could also try to exploit differences between European capitals.

14. What about Scotland?

Scottish First Minister Nicola Sturgeon has used Brexit to declare she'll start the legal process of preparing for a second independence referendum. Scottish voters chose to remain in the EU and Sturgeon says they should have a chance to break with England in a vote sometime between the fall of 2018 and the spring of 2019. Mrs May says "now is not the time" for another referendum.

But on Tuesday (March 28), the Scottish Parliament will vote whether to authorise Ms Sturgeon to ask London for a referendum on independence.

15. Is Article 50 irrevocable?

Former diplomat John Kerr, who helped write the treaty, said a country can change its mind "while the process is going on." Article 50 does not spell out whether a member state could change its mind during the two-year period, so Britain could possibly still reverse its decision while the negotiations are going on. However, the government's position is that the decision is irreversible as David Cameron had promised to act on the will of voters and respect the outcome of last year's referendum, The Telegraph reported on March 28 (Tuesday). 

16. Why does all this matter for the rest of the world?

French presidential candidate Marine Le Pen is running on a Brexit-like platform of euro-skepticism. In the US, President Donald Trump's administration has registered its dislike of multilateral organisations like the EU and may be tempted to offer the UK a generous free-trade deal. Russian President Vladimir Putin will likely welcome anything that divides and distracts the EU. Finally, China will be following closely to see if the UK remains an attractive investment partner as it raises barriers with the rest of the EU.