Following the referendum held on 23rd June 2016, the UK Government formally notified the European Council on 30th March 2017 of its intention to withdraw from the European Union, officially triggering a two-year negotiating period as stipulated under the EU Treaties (Article 50 TEU).

More than two years later, evidently the UK has not yet left the EU. The process has been subject to considerable delay and there continues to be uncertainty over whether Brexit will still happen at all and if so, when and on what basis.

The Council of the European Union has provided at least an outline framework. At the European Summit on 10th April, EU leaders rejected the UK’s request to extend the Brexit deadline for a second time to 30th June 2019 and instead specified a new deadline of 31st October 2019. It was however agreed, that the UK could leave earlier once the Withdrawal Agreement, as previously negotiated, was formally approved by the UK Parliament and Government. The EU27 again stated that there could be no renegotiation of the Withdrawal Agreement but reiterated their willingness to reconsider the contents of the accompanying (and non-binding) Political Declaration on the future relationship between the EU and UK. While the UK remains an EU member, it will be required to participate in the European Parliament elections, but when participating in the EU’s decision-making progress will be expected to refrain from any measures which could jeopardise the EU’s wider objectives – with this to be reviewed at the next formal meeting of the EU Council in June 2019.

No immediate resolution is likely to take place following this agreement to a further delay. The UK Prime Minister continues to insist that she is aiming for as short a delay as possible to Brexit – and she has not ruled out attempting, for a fourth time, to pass the Withdrawal Agreement and accompanying Political Declaration through Parliament, after her previous attempts to do so were defeated. The present UK Government however, relies for its majority in the House of Commons on the Democratic Unionist Party (DUP) in Northern Ireland. As long as the Withdrawal Agreement contains ‘backstop’ provisions which would result in a new regulatory/trade border between Northern Ireland and the rest of the UK, in order to avoid the same between Northern Ireland and the Republic of Ireland, the DUP will not support it. With the main Opposition parties and a hard core of both pro-Brexit and anti-Brexit MPs in the governing Conservative party all still opposed, it is difficult to see the Withdrawal Agreement and Political Declaration as they stand, being approved.

There will be calls to try to break the current impasse either by electing a new Prime Minister or by holding a general election, with the former being more likely than the latter, at least in the short term. The Prime Minister has made clear her wish to remain in office until the Withdrawal Agreement is passed, but strong tensions within the governing party are likely to grow again, before and after any UK participation in the European Parliament elections – and there would be time to hold a Conservative leadership contest over the summer. Whether a new Prime Minister would resolve anything is another matter, it would not itself break the current Parliamentary deadlock and it is by no means certain any new leader would want to call a general election straightaway. Although not impossible, the new deadline set by the EU Council also leaves little time for a general election to be called by a new Prime Minister following a prior leadership contest, even if they want to.

Other alternative approaches are also unlikely to lead to a breakthrough, at least in the short term. The two main political parties have held discussions on trying to find some common ground – however, the Opposition Labour party is wary of being seen to help the Government finally deliver some form of Brexit, even if modified, while many in the Conservative Party remain opposed to Labour’s preference for the Political Declaration to commit the UK to a permanent Customs Union with the EU. The leaders of both of the main parties also remain reluctant to agree on a second referendum. In any case, one effect of the EU Council’s decision to allow an extension until no later than 31st October 2019 is that this almost certainly does not allow sufficient time for the necessary UK legislation and preparations for any such referendum to be completed.

It is, nonetheless, possible that some further progress could be made. Even if no formal agreement is reached between the governing Conservative and opposition Labour parties, the House of Commons has already come close to voting in favour of the UK seeking a permanent Customs Union with the EU, rather than only on a temporary, transitional period basis, as the UK Government has proposed. Suggestions from some EU Member States, notably Ireland, that despite being outside the EU, the UK could still have some consultative rights within the Customs Union, appear aimed at encouraging this route to be taken. It is likely that the EU27 would react favourably to any such change of direction: the lead European Commission negotiator, Michel Barnier, has said this could be re-negotiated in the Political Declaration in a “matter of days”, meaning Brexit could then be achieved quickly.

Any such agreement would however split the Governing Conservative party – and potentially could also split the Opposition Labour party if not accompanied by a commitment to hold a second referendum. Demands for a second referendum will not disappear, despite the difficulties in holding one before the end of October. There will be calls for any putative agreement with the EU27 at least to be put to a confirmatory referendum, even if this means asking for a further Brexit deadline extension. Some EU Member States, notably France, have agreed to the present timetable only with great reluctance and have indicated opposition to any further extension, but others may be more willing to countenance this if it could result in the UK ultimately not leaving the EU at all.

For now, the prospect of the UK leaving the EU on a no-deal basis has receded. But despite the EU Council President calling on the UK to use the extra time wisely, the Brexit debate is likely to continue in the deeply divided UK without a clear resolution for some time to come. This will also eat into the planned transition period from 2019 until the end of 2020 (and possibly until the end of 2021) which many businesses involved in UK-EU trade are counting on to provide at least some short-to-medium term continuity and stability. No transition period can be counted on until the Withdrawal Agreement is finally passed – and a no deal outcome cannot be ruled out if the UK has still not been able to reach an agreed position with the EU27 by October.

How Fipra can help

Fipra can help firms assess potential risks, plan for the different scenarios that may arise, and engage with policy makers to ensure that their concerns are heard and understood. Our Brexit practice draws on the expertise of our senior advisers, with experience of both the EU institutions and complex trade negotiations.

Fipra’s Brexit team in our Brussels office and in our wider network across the EU has extensive European Commission and European Parliament experience. Our Brexit team members include: Lucinda Creighton (former Minister of European Affairs in Ireland, including during the 2013 Irish EU Presidency), Juan Prat y Coll (a former Director-General for External Affairs within the European Commission and former Spanish Ambassador to Italy and the Netherlands), Peter Chase (former Vice President, Europe for the US Chamber of Commerce, with responsibility for negotiations on the Transatlantic Trade and Investment Partnership); Robert Madelin, a former Director-General within the European Commission; and Dirk Hudig, the Head of our Brussels office and formerly Secretary General of UNICE (now BusinessEurope).

With offices in Brussels, London and every EU Member State, Fipra is in a unique position to draw on political insight and analysis from across our network, providing up-to-date assessments of the direction in which negotiations are moving and advice on next steps. For more information please call Daniel Furby on +32 2 613 2828 or contact: brexit.team@fipra.com