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Business view on the Article 50 letter

Today, the Prime Minister triggered Article 50 of the Lisbon Treaty with a letter to European Council President Donald Tusk. This act was the formal step required to begin the UK’s exit from the European Union. This note should help businesses understand the key issues of economic interest in the letter.

The CBI believes that the tone of the letter was positive, as the Prime Minister was sincere on values we share with Europe, and on the importance of a deal that works for both sides. It lays out a number of principles for the negotiation which business supports – including on Ireland, parallel negotiations, and the need for the agreement to be deep and comprehensive. However, businesses will see there is still some way to go on a number of crucial details, including on citizens’ rights, the mechanisms for securing a smooth exit and on the rules which companies will be operating under.

A constructive tone at the start of the negotiations

The CBI has been working closely with our sister federations in Europe to understand their views. Since the Prime Minister’s first speech on the UK’s negotiating position at Lancaster House, many European business leaders and policymakers have emphasised the importance of tone in these negotiations. Brexit is an emotional issue, as well as an economic one, for businesses and policy makers in Europe. The language in the Article 50 letter that expressed the UK’s desire to “remain committed partners and allies to our friends across the continent”, and that the decision on June 23rd “was no rejection of the values we share as fellow Europeans” will therefore be appreciated.

Additionally, while the Prime Minister’s first speech on the UK’s negotiating position at Lancaster House tried to deliver messages to three audiences – Leave voters and the devolved nation governments, as well as our European partners – this letter was much more focused on the other side of the negotiating table. Instead of focusing on the consequences of a “no deal” scenario for European countries or the opportunities for trade deals with countries outside Europe, the Article 50 letter spoke about the objectives that the UK and the EU share. This is a constructive and positive approach, which should set us on the right foot. The CBI will continue to remind policymakers on both sides of the Channel that this trade deal is about more than tariffs and quotas, but about the framework for our long-term relationship with our closest partner. 

Much for business to welcome in the UK’s proposed principles for our new relationship

One of the 7 principles set out in the Article 50 letter focused exclusively on the relationship between Britain, Northern Ireland and the Republic of Ireland. The CBI has been working hard to highlight that barriers to integration between Britain, Northern Ireland and the Republic of Ireland must be avoided. The UK and the EU will need to work closely together to follow through on this now, but its inclusion in the letter is a positive step.

It is also welcome that the letter made clear the UK wants to see negotiation on “terms of our future partnership alongside those of our withdrawal from the EU”. This is one of the areas that the CBI has highlighted - as one of the “early wins” that would give business confidence that the negotiation will progress well. The sooner discussions move onto economic issues, the better for all businesses in Europe, so it is right that it is one of the UK’s top principles.

The letter rightly acknowledges that, when negotiations focus on economic solutions, they will have to be deep, detailed and technical. In her Lancaster House speech, the Prime Minister set out her wish to seek a “bold and ambitious” free trade agreement. This language has developed, and the Article 50 letter states the UK is seeking a deal “of greater scope and ambition than any such agreement before”. This is pragmatic. It recognises that there is no existing free trade agreement which would deliver the “frictionless” trade between the UK and the EU which is the ambition of both business and the Government. The CBI is working to provide that input which government needs to help design such an agreement.  

But there is still work to be done on a variety of areas

One of the “early wins” that CBI set out as an ambition for the negotiation was for certainty for EU citizens living in the UK. Business believes this certainty should be offered within weeks not months. While the Article 50 letter states “we should aim to strike an early agreement about their rights”, some additional urgency would have been welcome. There are 3.3million EU nationals in the UK who contribute to the UK’s economy daily, and providing them with certainty doesn’t just make business sense, it’s the right thing to do. Of course, the same assurances should be given to UK citizens in the EU.

Falling into WTO rules would open a Pandora’s box of consequences for businesses on both sides of the Channel – and that has been recognised in many of the responses to the Article 50 letter by European business organisations. While the letter does highlight that “businesses in both the UK and the EU would benefit from implementation periods to adjust in a smooth and orderly way to new arrangements”, it does not state what action the UK Government proposes in order to avoid the UK dropping out of the EU without a deal. The CBI will continue to explain to both the UK and the EU the need for early agreement to the principle of a temporary interim arrangement should no deal be struck within the Article 50 timeline.

The Article 50 letter also recognised that, practically, UK businesses trading with the EU will need to operate under the EU’s rules going forward. However, it is important to recognise the significance of the European Union as our biggest, closest and most important trading partner. Businesses will be concerned about becoming rule takers with our biggest market. Therefore, the CBI will be working to encourage the Government to explore how it can continue to influence those rules, how harmonisation can be maintained to make trade flows easier, and how the EU can continue to benefit from the UK’s expertise. This is a difficult balance to strike and the business community’s work to explain complex regulatory issues to policy makers must continue.