Brexit: What should I do now?

Transcription

1 Brexit: What should I do now? Winter 2017 Update Winter 2017 Issue 2

2 Introduction This is a critical stage in the Brexit process. Since the start of Brexit negotiations in June, October s EU Summit was expected to be a major milestone in the negotiation process. It was hoped that negotiations on the critical areas of the financial settlement, citizens rights, the status of Northern Ireland and the border with the Republic would be advanced enough to allow the next phase of discussions to begin. That agreement has not been reached, although EU leaders have started internal discussions on their approach to the second phase, namely, the transition to Brexit and future trade arrangements. December 2017 is now the earliest date that joint EU-UK discussions on trade can possibly commence. What does this mean for the UK s future relationship with the EU and what are the implications for Ireland and Irish businesses? This document reviews the progress that has been made to date, highlights the critical issues still to be resolved and sets out PwC Ireland s view on the steps businesses should be taking to ensure that they are ready for Brexit - whatever form it ends up taking. 2 Brexit Update 2017 Brexit Update

3 Key moments since Article 50 was triggered 2017 May May 7 June 8 June 19 French Presidential Election - Emmanuel Macron elected President UK General Election - Theresa May re-elected as Prime Minister Brexit negotiations formally begin. EU-UK agree negotiations first centre on Exit Issues (citizens rights, financial matters & Irish issues) before consideration of future relationship (Phase II) Oct Sept 24 Sept 22 Five rounds of UK-EU Brexit negotiations conclude but certain issues around financial settlement, citizens rights and the border remain unresolved German Federal Election - Angela Merkel re-elected as Chancellor Theresa May delivers speech in Florence, Italy Dec Phase II talks on transition and future EU-UK relationship, including trade, could begin if sufficient progress is made on the basic principles of all three Phase I exit issues Jan Mar Spring March Phase II UK-EU negotiations continue October Phase I and II UK-EU negotiations continue UK deadline for agreeing transition deal and trade terms UK government s EU Withdrawal Bill (formerly Great Repeal Bill) to receive Royal Assent May Implementation of General Data Protection Regulation (GDPR) deadline for EU countries 2018 Italian General Election Oct 2019 Mar Apr Transition phase will commence if UK negotiates a transition deal. Negotiations to be completed by this date to allow for ratification of Exit/Withdrawal Agreement by UK and EU before March 2019 UK leaving the EU must be ratified by EU27, the European Council and the European Parliament Brexit is complete (or transition phase begins?) 4 Brexit Update 2017 Brexit Update

4 What is the current state of play? In focus - The three main issues At June s formal opening of Brexit negotiations the EU and UK committed to a further four rounds of negotiations to progress key exit issues. The fifth round of negotiations was completed in early October, in advance of the EU Summit. In tandem, over the past number of months, the UK Government published a number of position papers in an effort to provide greater insight into their thinking around Brexit. The papers were generally high-level and lacking in significant detail. The papers revealed efforts by the UK to blend future relationship issues with exit issues in an attempt to expedite future relationship talks. This tactic did not sit well in the EU given that both parties gave their commitment to dynamic sequencing in June. On 22 September, Theresa May delivered a speech in Florence, Italy. The speech saw a softening of the UK Government s position since her Lancaster House speech in January It was hoped that the speech would act as a catalyst for moving both sides closer to consensus during the fourth and fifth rounds of negotiations. This, however, did not happen. Despite the apparent lack of progress, there are positives that can be drawn. The need for a transition period has been recognised, albeit not agreed and the principle of a payment has been accepted but not agreed. In addition, there has been some good progress on citizens rights. 01 Citizen rights There has been good progress on citizens rights issues with convergence of understanding around a number of key issues: criteria for residence rights; rights to work and own a business; rights for current family members; rights of frontier workers; and reciprocal health care rights. A number of outstanding issues still remain, including: ensuring the direct effect of the Withdrawal Agreement; interpretation of the Withdrawal Agreement before the ECJ and UK courts; administrative procedures for claiming UK settled status; local election voting rights; social security benefit export; family reunification; voting rights; onward free movement for UK citizens; professional qualifications recognition. 02 Irish issues (including both jurisdictions) To date agreement has been reached on: The criteria for residence rights; The right to work and own a business; Social security rights; Rights for current family members; Reciprocal health care rights; The rights of frontier workers; The process for securing settled status in the UK will be streamlined and low cost. Issues outstanding for both sides: Citizen s rights; The future of Northern Ireland; Border with the republic; The financial settlement. Separation issues still outstanding: The right: To continue to enjoy the recognition of professional qualifications; To vote in local elections; To onward movement move as a UK citizen already resident in the EU27; To return; To bring in future family members; To export a range of benefits. 03 Some progress has been achieved on advancing the joint principles and objectives as regards protection of the Good Friday Agreement and maintenance of the Common Travel Area. Further work is required to develop means by which to give direct effect to agreed joint principles. Pressure is on UK negotiators to put forward viable solutions to avoid a hard border, a policy previously committed to by the Prime Minister. Financial settlement Progress on the financial settlement is proving very difficult. Although the EU is currently not asking the UK to provide it with a settlement figure, its requests for clarifications as to what financial commitments the UK will honour have been rebuffed. The Prime Minister has previously stated that the UK would honour its financial commitments. 6 Brexit Update 2017 Brexit Update

5 If we have no deal and we trade on current WTO terms, that s the basis not only that Britain trades with countries like the United States, but that the EU trades with the rest of the world in most circumstances...it s not exactly a nightmare scenario. What happens now? - UK Trade Secretary, Liam Fox EU leaders stated on October 20 that insufficient progress was achieved on separation issues. Negotiators now find themselves under pressure. They are expected to increase their efforts and outputs between now and December 14/15th when the European Council will next meet to reassess progress. Three additional rounds of negotiations have been offered by the EU to the UK in advance of December s summit meeting. While the EU and Irish Government recognise that good progress is being made on citizens rights and the Irish issues, both acknowledge that more work and clarification is needed. However, An Taoiseach Leo Varadkar has indicated he expects a breakthrough in the negotiations between the EU and the UK in the coming weeks, enabling EU leaders to give the go-ahead for the next phase of talks. Delivering progress around the financial settlement is proving more difficult. 8 Brexit Update 2017 This current impasse may be indicative of the political tightrope the PM finds herself walking. Convincing hard-line Brexiteers to write a significant cheque to the EU in order to expedite future relationship talks is a challenging task. As previously mentioned, EU members have voted to commence internal discussions on their approach to the second phase of negotiations. While the majority of references to Phase II of the negotiations centre on the future EU-UK trading relationship, Phase II will also see discussions on trade, aviation, fisheries, energy, justice & security, and research. Before negotiators can develop a framework for these future relationships, negotiations must first focus on a number of key issues (the so called horizontal issues ). These are critical to determining Brexit s economic impact and need to be reflected in any future relationship (e.g. single market access, regulatory divergence, UK state aid use, dispute resolution mechanism development, data protection). Brexit Update

6 What does this mean for you and your business? Ireland is the country that has the most to lose from Brexit, apart from the UK itself. The UK is our closest neighbour and largest trading partner. Equally, Ireland is a committed EU member that must ensure it stands with the remaining EU member states. Although negotiation of all Brexit issues is subject to European Chief Negotiator for Brexit, Michel Barnier s ticking clock, from a business perspective discussion on transition is the most time-critical issue. The value of a transition period for business decision makers, and the near term certainty it can potentially provide, diminishes the longer it takes to reach agreement. Early to mid-2018 could see business models force some companies to activate contingency Brexit plans due to a lack of appropriate policy certainty. Time is marching on and Ireland is still grappling with uncertainty. It is our view that given the current disarray and the fact that first significant milestone in the Brexit process was missed in October, having a plan to implement Brexit by March 2019 will be very challenging. Given this, the hard Brexit that PwC Ireland recommended companies plan for in March, remains a prudent planning assumption. While there is uncertainty around Brexit and the final outcome of the process, it is good practice for businesses to perform ongoing health checks. It is prudent to continue to perform those health checks using the assumption of a hard Brexit. In recent months, key organisations and business groups have issued similar advice, including; The CBI (Confederation of British Industry), the largest business representative body in the UK, issued the following advice to its members: While all effort and goodwill must go into securing the new partnership, firms across the EU have no choice but to prepare for all outcomes, including no deal. The Central Bank of Ireland has echoed this view, warning that it is entirely possible that Britain will leave the European Union without a transition agreement, and urging companies to do more to prepare for an abrupt departure. BaFin, the German financial regulator, recently wrote to UK-based insurers to demand details of how they plan to deal with a hard Brexit. Managing Director Feargal O Rourke feargal.orourke@ie.pwc.com Industry specialists Get in touch with any memeber of our Brexit team or your usual PwC Contact to find out more about how we can help you and your business prepare for Brexit. Financial Services Damian Neylin damian.neylin@ie.pwc.com Technology, Communications & Media Damian Byrne damian.byrne@ie.pwc.com Brexit Task Force Leader David McGee david.a.mcgee@ie.pwc.com Aviation Finance Yvonne Thompson yvonne.thompson@ie.pwc.com Pharmaceuticals & Life Sciences Jean Delaney jean.delaney@ie.pwc.com What do you need to do now? Retail, Consumer and Agri-food John Dillon Real Estate Joanne Kelly Regardless of what outcome is achieved, we recommend all companies conduct a fitness test of their current business model. Leaving Brexit aside, taking some time to review your current business strategy is time well spent and will pay dividends to your organisation. Reviewing your operating model, your supply chains, your labour force and locations should identify if there are any blind spots in your organisation, and whether there is anything you should be doing differently. Whatever the outcome you should start building flexibility into your operating model for the choppy waters ahead. john.p.dillon@ie.pwc.com Public Sector, Local Government & Healthcare Michael McDaid michael.j.mcdaid@ie.pwc.com joanne.p.kelly@ie.pwc.com FinTech Ronan Fitzpatrick ronan.fitzpatrick@ie.pwc.com Step 01 Step 02 Step 03 Energy & Utilities Ger O Mahoney Small & Mid-size Businesses John Dunne Create baseline assumptions Analyse your business Define your Brexit action plan ger.omahoney@ie.pwc.com john.a.dunne@ie.pwc.com 10 Brexit Update 2017 Brexit Update

7 At PwC, our purpose is to build trust in society and solve important problems. We re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PwC. All rights reserved. PwC refers to the PwC network and/or one of more of its member firms, each of which is a separate legal entity. Please see for further details _1117