Brexit is now marching on and negotiations are ongoing, with all eyes on the UK and the EU to see how talks will keep evolving and what the outcome may be. Currently, discussions are still in the early stages, and there are countless elements still to be determined.
“So far the EU has emphasised the need to settle two main questions before anything else,” explains Dr Peter Agius, a senior European official and former Head of the European Parliament Office in Malta. “Namely, citizen rights and the financial settlement of pending UK obligations with the Union. These factors are set to dominate the first phase of the negotiations on the withdrawal Treaty. The future relationship between the EU and the UK will be left to a second phase.”
Dr Agius explains that, more recently, terminology used in the earlier stages has been softened and toned down. “Both sides are more cautious and open to discussion,” he believes. “Their positions on citizens’ rights are getting closer, even though more efforts will be required.”
However, he stresses that what’s next is one of the most delicate issues of a consensual separation: money. “We need to come to a commonly-agreed account of the pending financial obligations undertaken by the UK during its EU membership and find a way to liquidate these obligations,” he explains. “The EU has presented its negotiating position on this together with a method to calculate the related financial settlement. The UK government has not yet detailed its position on the matter and unofficial settlement figures vary from €20 billion to €100 billion.
“It is needless to say that, apart from the financial brunt on the British exchequer, this question has a significant political dimension. With the leave vote resting largely on claims of the British taxpayer saving his pound to the Union to put on the NHS, UK Prime Minister Theresa May faces a very delicate job of securing a fair deal with the Union while being able to present it as such to the British voters. That might be a contradiction in itself.”
Dr Peter Agius, senior European official, and Daniel Debono, EU Affairs Manager and Head of Brussels Operations of the Malta Business Bureau
Speaking about how the business community is reacting to all this, Daniel Debono, EU Affairs Manager and Head of Brussels Operations of the Malta Business Bureau (MBB), explains that the MBB is following proceedings very closely. “As a rule, the business world obviously prefers to operate in a stable environment and with no political or economic uncertainty, so the speculative environment over the past year was not an ideal one,” he says. “Matters could have been dealt with in a better way for the sake of businesses on both sides of the channel trading with each other, as well as those that form part of an integrated value chain.”
“The UK ultimately indicated it would opt for a comprehensive trade agreement, similar to the one that the EU just concluded with Canada (CETA), and at most going further to cover areas such as security cooperation,” Mr Debono explains. “It has taken a long time to reach this conclusion but, while it’s not the best solution preferred by businesses accustomed to the current level of integration between the EU and UK economies, it now allows us to analyse what challenges lie ahead.”
When it comes to the business-centric chapters of the Brexit agreement, these will largely be determined in the final stages of negotiations. As Dr Agius explains, this is giving rise to some medium-term uncertainty for businesses.
“Falling short of free movement, we will need to explore a variety of possible arrangements,” he says. “I am convinced that there will be goodwill on both sides to guarantee the best possible access to markets, however, no arrangement can be better than the single market and full membership. The reason for this is that, whatever arrangement agreed upon with the UK, there will be new costs and hurdles to face as a result of the lack of automatic mutual recognition and the lack of regulatory convergence that was guaranteed with Union membership.” There will no longer be one law applicable to businesses on both sides, but instead two laws with possible differences to take into account. Plus, businesses in the UK (in particular) will lose influence in amending EU laws prior to their adoption, as the UK will no longer be part of the Union machinery.
Nevertheless, it’s important to look positively on what the outcome of Brexit could be for business, and how to face it. “Business is, in its very nature, geared to face crisis mode situations,” Mr Debono asserts. “This is part of a business lifecycle – even in times of prosperity, companies need to keep developing, innovating and remaining agile so they can respond to circumstances around them that could have negative implications. This does not mean it will be an easy ride but, despite the uncertainty and many challenges Brexit will create, I have faith that businesses will be able to find solutions and adapt to this new reality.”
That said, businesses should prepare for any outcome. “Negotiating a comprehensive trade agreement is extremely complex and takes many years; more than the time left before the two-year period allowed by the Treaty for the UK withdrawal to take place expires,” Mr Debono says. “Considering these circumstances, an understanding by businesses of the implications of a non-agreement and a cost-analysis for that eventuality should be made in advance.”
Mr Debono believes that “it is in the interest of both the EU and the UK to pursue mutually-beneficial relations and to create a level playing field. The UK withdrawal from the EU must be smooth, and negotiations should be led in a true spirit of partnership and mutual commitment.”
This article originally appeared in the July edition of Business Agenda