The withdrawal procedure
The withdrawal rules are laid down in Article 50 of the Treaty on European Union (TEU). A Member State which wishes to withdraw from the European Union must notify the European Council of its intention to do so. The communication of the intention to leave the EU by the British Government to the European Council on 29 March 2018 marked the commencement of negotiations on the Withdrawal Agreement. The heads of state and government of the EU 27 adopted guidelines in the European Council (Art. 50 TEU) on 29 April 2017 setting out the main principles for the negotiations; the European Council (Art. 50 TEU) adopted further guidelines on 15 December 2017 and 23 March 2018.
Following intensive negotiations, the European Commission and the British Government agreed in November 2018 on a Withdrawal Agreement and a political declaration setting out the framework for the future relationship. At a special meeting of the European Council (Article 50 TEU) on 25 November 2018, the Heads of State and Government endorsed the Withdrawal Agreement and adopted the Political Declaration on the framework for the future relationship. The next steps for the entry into force of the withdrawal agreement by 30 March 2019 are its approval or formal ratification by the European Parliament and the British Parliament. Britain’s Parliament has been considering the overall package of the Withdrawal Agreement and the Political Declaration and rejected the Withdrawal Agreement by a majority on 15 January. The next procedural steps in the UK are a matter for the British Government.
The negotiations may last up to two years pursuant to Article 50 TEU. If no withdrawal agreement enters into force within the two years, the European Treaties cease to apply to the United Kingdom (until 30 March 2019 at the latest). However, the European Council can, in agreement with the United Kingdom, unanimously decide to extend the two-year period.
During the withdrawal negotiations, the United Kingdom will remain a full member of the EU. Its rights and obligations as a Member State of the EU will continue to apply, and it will participate and have voting rights in the discussions in the Council – except for discussions on its withdrawal. The United Kingdom must continue to observe EU law and must not adopt any legal provisions that are not in line with EU law.
3. Will the United Kingdom have to observe EU law during the withdrawal negotiations (no cherry picking)?
During the withdrawal negotiations, the United Kingdom will remain a full member of the EU. The United Kingdom will maintain its voting rights in the Council except for the voting rights regarding the withdrawal agreement.
Furthermore, the United Kingdom must continue to observe EU law and cannot repeal it unilaterally.
In view of the precedence of EU law, the United Kingdom must not adopt any rules that are not in line with EU law.
The United Kingdom must continue to pay its financial contributions to the EU budget until its withdrawal. The United Kingdom will remain a member of the EU until the conclusion of a withdrawal agreement or two years after it has notified the European Council of its intention to withdraw. The European Council can, in agreement with the United Kingdom, unanimously decide to extend the two-year period.
Impact on businesses and citizens during the negotiation period
No direct impact on German citizens is expected during the negotiation period. The United Kingdom will remain a full member of the EU (except for discussions on its withdrawal) and part of the European internal market until it officially leaves the EU.
This means, for instance, that the fundamental freedoms of the European internal market (feedom of movement, freedom of establishment, free movement of services and capital) will continue to apply during the withdrawal negotiations. The United Kingdom must observe EU law (e.g. the EU Treaties, Directives and Regulations) and the jurisdiction of the European Court of Justice. Furthermore, it must not adopt any rules that are not in line with EU law during this period.
- What does the outcome of the Brexit referendum mean for German employees in the United Kingdom and for UK employees in Germany?
During the withdrawal negotiations, German citizens can make further use of the freedom of movement in the EU and live and work in the United Kingdom. The relevant EU provisions continue to apply. The same applies accordingly to UK citizens in Germany.
- What happens to deposits on accounts in the UK?
German citizens can still transfer their savings to UK accounts and transfer them back again. The EU rules on a national deposit guarantees system are not affected by the outcome of the Brexit referendum for the time being.
- How will the outcome of the Brexit referendum impact on German tourists in the United Kingdom?
Freedom of movement of EU citizens will continue to apply in the United Kingdom during the withdrawal negotiations. German citizens can travel to the United Kingdom for their holidays (and vice versa) just like before. They do not need visas or anything else.
- Are new labelling obligations, tariffs or longer delivery periods to be expected?
During the withdrawal negotiations, the United Kingdom will remain a full member of the EU (except for discussions on the withdrawal) that must observe applicable law. The fundamental freedoms of the European internal market, including freedom of establishment and the free movement of services and capital, will continue to apply during the withdrawal negotiations. And during that period, the United Kingdom must not adopt any rules that are not in line with EU law. Thus there must be no tariffs or any new labelling obligations. As regards border controls, the United Kingdom is not a member of the Schengen Agreement on the abolition of checks at common borders. Therefore, it has never abolished border controls.
Will Brexit impact on trade with the United Kingdom? What will be the consequences for companies exporting products to the United Kingdom?
During the negotiation period, EU provisions will also continue to apply to the business activities of German companies. German firms can export their products to the United Kingdom and import goods from there just like before. The functioning of the internal market is not jeopardised. The United Kingdom currently ranks fifth in terms of Germany's trading partners; the main trading goods include motor vehicles and vehicle parts.
The long-term economic impact after Brexit will depend on what the future relationship between the United Kingdom and the EU will look like.
- What will change for companies that are located or have subsidiaries in the United Kingdom?
Subsidiaries of German companies can do business in the United Kingdom according to the same rules as before.
- Can UK investors still rely on the free movement of capital?
During the withdrawal negotiations, the principle of the free movement of capital continues to apply; this means that payments to and from the United Kingdom continue to be possible (e.g. SEPA transfers). As the United Kingdom is not a member of the eurozone, the exchange from euro to pound is nothing new. German businesses can still invest in the United Kingdom and vice versa. Investment that has already been made is not affected by the outcome of the Brexit referendum.
The long-term economic impact of the United Kingdom's withdrawal from the EU on German companies will depend on how the exit takes place, and what the future relationship between the United Kingdom and the EU looks like.
A study by the Ifo-Institute commissioned by the Economic Affairs Ministry is examining a total of eight different scenarios of what future relations between the EU and the United Kingdom could look like, and their impact on the German and European economy. The findings of the study show that Brexit will have economic repercussions for the EU Member States and especially for the United Kingdom. However, even in the most unfavourable scenario, the overall impact of Brexit on the EU economy and the German economy in particular, ought to be manageable.
Other arguments that can be cited in support of this view include the current economic situation, both in terms of economic policy and cyclical development. That said, there may well be some sectors that are hit harder by these developments. You can find the study (in German) .
Further long-term cooperation after Brexit
What will be the long-term impact on German companies? Will the United Kingdom no longer have access to the EU internal market?
The impact of the United Kingdom's withdrawal from the EU on German companies will largely depend on what the future relationship between the United Kingdom and the EU will look like. And this will depend on the outcome of the withdrawal negotiations and the objectives of the UK government and of the EU. This cannot yet be foreseen.
One thing, however, is clear: Germany and the United Kingdom have been close trading partners for decades. Their trade relations, which had already been good before the United Kingdom joined the EU, have become considerably closer over the last 40 years. Therefore, the United Kingdom is expected to remain an important trading partner of Germany after a possible withdrawal from the EU.