CBI MEMBERS AND THE UK-EU NEGOTIATION

CBI MEMBERS AND THE UK-EU NEGOTIATION POST-REFERENDUM INFORMATION PACK 21 JULY 2016

Introduction The UK has voted to leave the European Union. Now there are important questions that must be answered on the future of the country s relationship with the European Union and the rest of the world. As the source of economic growth, jobs and opportunity in our communities, business has a vital role in maintaining stability and helping the Government to plot its course. Working together, we must make the most of the vote to leave identifying opportunities outside of the EU while safeguarding the benefits of a close relationship with the EU, to build a prosperous UK economy that works for everyone. This document aims to assist CBI members in understanding the Article 50 process and the models which are referred to as possible alternatives to full EU membership. The issues at play in the negotiation are complex and nuanced. This document identifies some of the balances that CBI members will need to consider. Building on feedback from consultation with over 500 CBI members, it outlines how Government can provide short-term clarity and reassurance for business and the initial principles the business community has laid out. It also provides recommendations to Government in their approach to the negotiations and stresses the need for a clear plan. 2

To navigate the next few years, businesses will need a clear understanding of the process for leaving the European Union, and the benefits and difficulties of the current alternative relationship models 3

Article 50 and negotiation of a new relationship The process for a member state to leave the European Union is set out in the Lisbon Treaty under Article 50. This provides a framework for withdrawal, laying down a two year timetable for a country to leave the European Union. Once Article 50 is triggered, formal negotiations between the UK and the EU can begin and the process cannot be stopped. The withdrawal negotiation laid out in Article 50 does not explicitly include the negotiation of a future relationship between the EU and the UK. Therefore, it is critical that the UK government takes time to set out a plan for negotiations before triggering the Article 50 process. Article 50 provides an overview of the process to be followed but it is untested and exact details will be need to be outlined in negotiations. Step 1: A decision by the UK and formal notification of this to the European Council Article 50 can only be invoked by the UK through a formal notification to the European Council. The UK government has indicated that it will seek informal discussions before triggering Article 50. The Prime Minister, Theresa May, has stated this will likely be early 2017, however, the new Secretary of State for Exiting the European Union, David Davis, has previously written that Article 50 should be invoked by the end of 2016. Other EU leaders have urged the UK to begin the process quickly, and made clear that they would not participate in any formal or informal talks with the UK before the official activation of the Article 50 process. If this holds true, the Prime Minister may feel compelled to trigger Article 50 sooner than planned in order to start negotiations. Step 2: Drawing up of guidelines by the European Council of their negotiating position to enable the European Commission to take forward negotiations The Commission will take forward the negotiations on behalf of the EU member states following the guidelines laid down by the European Council. These guidelines are likely to be broad. It may include top level red lines for member states but these will likely evolve throughout the negotiations with input from the national representatives in the Council of the European Union. 4

Step 3: Negotiations between the UK Government and the European Commission for the UK s withdrawal The negotiations with the Commission will be focused on the UK s withdrawal from the EU. The UK s future trading arrangement with the EU is not explicitly covered by Article 50 and the negotiations covering this may take place separately to withdrawal negotiations. The UK government ahead of the referendum set out that the withdrawal agreement would likely cover the untangling of 40 years of membership across the following issues: The status of UK citizens across the EU and reciprocity for those in the UK Disentanglement of regulatory frameworks Withdrawal from the Common Agricultural Policy Budgetary issues such as unspent EU funds to UK regions and farmers Cooperation on justice issues, foreign policy and security arrangements It is not impossible for the withdrawal agreement to also cover the UK s future trading arrangement but, if so, this is likely to be at a basic level, for example, agreeing removal of tariffs. Given the precedent of other EU relationship models, it is more likely that a detailed agreement will be negotiated alongside and beyond the withdrawal negotiations. Step 4: Agreement concluded by the Council, by qualified majority, after obtaining consent of the European Parliament The agreement will need to be approved by the European Parliament before it can be concluded. This makes the role of MEPs in the process critical. The Commission will need to establish a process for input from the Parliament during the negotiations. Step 5: If no agreement is reached within two years, and all parties do not agree to extend the negotiating period, EU treaties cease to apply to the UK It is possible to extend the two year negotiation period if the Council unanimously agrees to do so. While it is not in the interest of the UK or other EU countries to walk away with no agreement, there will be other high priority issues for the Council to consider, such as the stability of the Eurozone or further migration issues. Therefore, extending the negotiation period may not be desirable. 5

Existing EU relationship models There are countries around the world who have established economic and trading relationships with the European Union while remaining outside of it. The scope and depth of the relationship varies depending on the model adopted. While the UK is unlikely to replicate one of these models exactly, it is useful context to understand the benefits and limitations of each. European Economic Area (EEA) model The European Economic Area Agreement is between the 28 EU member states and Norway, Iceland and Liechtenstein. It covers free movement of persons, goods, services and capital within the internal market of the EU. The EEA model includes Tariff free trade in all goods and services, excluding certain fish and agricultural products Free movement of persons as a fundamental part of the relationship A contribution to the EU budget at a reduced rate Implementation of all EU regulations related to the internal market including employment, consumer protection, environmental, state aid, intellectual property and competition policy The EEA model excludes Access to the single market for agriculture and fisheries products Participation in current and future EU-third party trade deals Common Agricultural Policy participation and funding Trade in goods without non-tariff barriers such as export licences and rules of origin Participation in monetary union, common foreign and security policy, justice and home affairs policy (cooperation in these areas is possible) What would the implications of this model be for the UK? The UK would have close to full access to the EU single market in goods and services providing it implements all relevant EU regulation and continues free movement of people. This would be very politically challenging given immigration and regulation were prominent in the campaign to leave the EU. 6

The UK would have no influence over EU rules, but would be required to implement the majority of them Norway currently implements approximately 75% of EU legislation. The UK would need to ensure continual implementation of EU law. Any delays in this could lead to suspension of access to the EU market. Joining the EEA would put the UK outside of the EU Customs Union allowing to set its own external tariffs. This would provide the opportunity for the UK to strike deals with new countries across the world. Operating outside of the Customs Union would also mean the UK would be subject to non-tariff barriers when exporting to the EU and would have to pay VAT on these goods. European Free Trade Area/Swiss Bilateral Agreements The relationship between Switzerland and the EU is based on over 120 separate bilateral agreements negotiated over 16 years. Each treaty allows Switzerland to participate in a particular EU policy or programme (for example, there are treaties covering insurance, air traffic, pensions and fraud prevention). Switzerland is also a member of the European Free Trade Association (EFTA), along with EEA states Norway, Iceland and Liechtenstein. The EFTA/Swiss model includes Partial tariff-free trade with the EU (and EEA) on goods Free movement of persons as critical to the agreement (suspending this element would also suspend all the other treaties) Payment into specific EU funds in order to participate in a range of EU programmes (Erasmus, Horizon 2020, EU Framework Programme for Research) Application of EU legislation or equivalence of domestic regulation in sectors covered by bilateral agreements with the EU The EFTA/Swiss model excludes Comprehensive access to the single market, as access based on individual agreements that are negotiated over a long period of time Access to the single market for agricultural products Access in services, with only partial coverage in some sectors and agreement on financial services (meaning no passporting rights) Equivalence of UK and EU regulation as rules diverge over time Trade in goods without non-tariff barriers such as export licences and rules of origin 7

What would the implications of this model be for the UK? Under a Swiss relationship model, the UK s access to the single market would be complex and take a long time to negotiate, particularly in services. It would also require the continuation of free movement of people. The Swiss agreement does not cover financial services, a significant downside as UK banks would be required to establish subsidiaries inside EU countries in order to access passporting and the EU single market in financial services. As under the EEA model, the UK would be required to implement EU law in the areas covered by the agreement but would not have influence over its direction. The UK would also be able to sign its own trade deals with countries across the world. Customs Union (Turkey) model The members of the EU Customs Union are the EU28, Turkey, Andorra, Monaco and San Marino. The EEA countries and Switzerland are not in the Customs Union. The Customs Union covers all industrial and manufactured goods, which means there are no tariffs or other barriers to trade in these products. The Customs Union model includes Access to the single market for covered products No tariffs or non-tariff barriers on trade within the EU customs area for these products The Customs Union model excludes Access to the single market for many goods and services Payment to the EU budget Participation in the Common Agriculture Policy Participation in EU funding and research programmes Equivalence of UK and EU regulation Access to markets covered by EU trade deals Free movement of persons What would the implications of this model be for the UK? This model would provide a loose relationship with the EU with the benefit of removing tariffs. It is also currently the only way to remove non-tariff barriers on trade in goods between the UK and the EU. However, the Customs Union s scope is limited. For the UK, the most difficult element would be that it would not have access to the markets that the EU had agreed free trade deals with, but those countries would have access to the UK. For example, goods that entered the EU 8

through an FTA to which the UK was not a party could flood the UK market. While the UK could seek its own trade deals, the EU would have to give approval first. World Trade Organization model Under the World Trade Organization (WTO) rules, the UK would have to pay a tariff in order to export goods to EU countries and would be subject to quantity restrictions. All countries that are not in the EU single market, or that do not have a trade deal with the EU, pay the same tariff rate known as the Most Favoured Nation (MFN) tariff. The WTO model includes Trade with the EU paying the MFN tariffs The WTO model excludes Removal of tariffs on trade with the EU Trade in goods without non-tariff barriers such as export licences and rules of origin Trade in services Participation in the Common Agriculture Policy Equivalence of UK and EU regulation Participation in all EU programmes, trade deals and budgetary contributions Free movement of persons What would the implications of this model be for the UK? If the UK s relationship with the EU was governed by WTO rules only, the UK would not benefit from tariff and barrier free access to the EU single market in goods and services. The UK would be subject to MFN tariffs and certain sectors would face a significant impact, with tariffs as high as 20% on food, drink and tobacco exports or 10% on automotive exports. The UK would be able to focus efforts on securing comprehensive trade deals with countries around the world to mitigate the impact of tariffs and barriers to trade with the EU. The WTO model provides the loosest relationship with the EU, with the least access to the EU market but no obligations regarding free movement of people, implementation of EU rules or budgetary contributions. 9

Free Trade Agreement (FTA) Countries like South Korea and Canada have comprehensive Free Trade Agreements with the EU, providing third-party access. Due to the complexity of these deals, they take some years to negotiate South Korea s deal took 4 years and Canada is 7 years into the process. The FTA model includes Comprehensive but not complete tariff free trade in goods Limited access to trade in services, including in some cases - public procurement Partial regulatory equivalence, including product standards The FTA model excludes Payment to the EU budget Full participation in EU programmes Free movement of persons Removal of non-tariff barriers such as export licences and rules of origin on trade with EU countries Equivalence of UK and EU regulation in domestic areas What would the implications of this model be for the UK? Under a Free Trade Agreement, the UK would be able to undertake tariff-free trade in goods with the European Union, but it would experience non-tariff barriers to both goods and services trade. This model would exclude participation in free movement of people and fulfil the Government s aim to be able to control immigration. Over time, companies would be likely to find divergence between the UK s regulatory environment and the EU one, as Free Trade Agreements are not updated over time. However, this relationship also provides significantly more flexibility for the UK to determine its domestic regulatory environment. The only way to update Free Trade Agreements in response to changes in economies and technologies is through re-opening deals in their entirety, as is the case in the EU deal with Mexico at present. The UK would also have no formal or informal influence over the rules governing its closest neighbours. It would allow the UK to negotiate its own trade deals, as it would be outside the Customs Union and the common external tariff. 10

As the different models make clear, there are some areas where CBI members will have to carefully consider the right balances to strike 11

CBI members will have to consider what kind of deal is best for the UK s prosperity Understanding the situations of countries portrayed in alternative models is helpful but the UK is likely to seek a mixed, bespoke deal, taking into account aspects of each. This is because the situation of the UK is very different to other countries negotiating their relationships with the EU. Association and Free Trade Agreements are almost universally negotiated with the intention of bringing countries closer to the European Union. Additionally, the size and complexity of the UK economy means that the agreement that the UK seeks to secure is unlikely to strictly adhere to any of the established models. However, they are important to understand, in order to make comparisons and predict what the European Union may propose over the coming months. They can also help business start thinking about the right questions to ask. There will be balances that the Government will have to strike between the aspects of the country s relationship with the EU that we currently experience, as the Government seeks more control over some areas. 1. THE SINGLE MARKET For the European Union, full access to the single market requires free movement. These two aspects of EU membership come hand in hand. The Government will have to balance the level of access to the single market with their aim to control immigration. Full single market access No preferential market access No control of EU migration Full control of EU migration CBI members should be thinking about: Q. Which benefits of access to the single market are crucial to your business? Ability to sell goods into the EU market without tariffs Ability to buy goods from the EU market without tariffs Ability to establish in other EU member states Special access to provide services in other EU member states 12

Special access to tender for public procurement in other EU member states Special access to receive services from other EU member states 2. THE CUSTOMS UNION As part of the EU Customs Union, UK companies can trade goods with the EU without rules of origin declarations and other non-tariff barriers that cause delays. This requires accepting the EU s tariffs on imports from the rest of the world. Control of this external tariff is necessary for signing new trade deals, as it is key to negotiations. The Government will have to consider the binary choice between low non-tariff barriers on EU trade and control of free trade deals with the rest of the world. Access without non-tariff barriers Access with non-tariff barriers No control of free trade deals Control of free trade deals CBI members should be thinking about: Q. How significant would the impact on your business be if non-tariff barriers returned on goods trade between the UK and EU? Requirement to pay customs duties at borders Requirement to provide rules of origin declarations Requirement to declare VAT prior to sale Delays to imports from the EU Delays to exports to the EU 3. THE FUTURE OF REGULATION Outside the European Union, the UK will have reduced influence over EU regulations and standards but may wish to adopt equivalent regulation and standards to allow businesses access to EU markets. Alternatively, the Government may take the opportunity to be more flexible domestically. This would lead to some divergence. 13

The Government will have to consider the balance of equivalence with EU rules it has limited influence over, and flexibility in the domestic regulatory environment. Full access and equivalence Limited access and divergence Limited control of domestic rules Full control of domestic rules CBI members should be thinking about: Q. What is the right balance to strike for your sector? In what areas will regulatory equivalence with the EU be beneficial or negative for your business? In what areas could EU regulation be improved through domestic flexibility? Q. How should the UK aim to be involved in regulation and standards? What could future EU legislation look like without formal UK influence? How important are EU standards to your business compared with international standards? How important are EU regulations to your business compared with international regulation? Q. Do any pan-european authorities have influence over your sector? 4. THE FUTURE OF IMMIGRATION To take account of the public s concerns, changes will be made to the UK s immigration system. The Government will have to consider the balance between migration from outside the EU and inside the EU, as well as between skilled migration and unskilled migration. Access to EU migrants Access to non-eu migrants Access to skilled migrants Access to unskilled migrants 14

CBI members should be thinking about: Q. What skills does your organisation need to have access to? Q. Are the people your organisation needs from abroad inside or outside the EU? Q. Is the current immigration system for non-eu citizens sufficient for your organisation s needs? Q. How important is moving people around the EU for your organisation? 5. TRADE WITH THE REST OF THE WORLD A new Government department dedicated to international trade provides business with the opportunity to look at more preferential access to markets outside of the European Union. These will have to be carefully prioritised. Deals that cover services, public procurement and quotas on agricultural, food and drink products take longer to negotiate. The Government will have to consider the balance between speed and depth in trade deals with new markets. Comprehensive access to new markets Limited access to new markets Slow trade deals with priority markets Rapid trade deals with many markets CBI members should be thinking about: Q. How important to your business is preferential access to markets with which the EU already has trade deals? Q. Which new markets would you expect to provide most opportunity for your business? Q. Which benefits of trade deals are most important to your business? Ability to export goods without tariffs Ability to import goods without tariffs Ability to export agricultural, food & drink products without quotas Ability to import agricultural, food and drink products without the limit of quotas Ability to export services Ability to apply for public sector contracts 15

6. THE FUTURE OF FUNDING Currently, areas of the UK s regional development, research and innovation strategy, agriculture and the rural economy are funded by payments from the European Union. These payments are often as part of projects which include collaboration with partner organisations from other EU member states. The Government will have to consider the balance between payments to the EU, and a focus on new domestic strategy with full control over funding allocations. Access to EU funding No access to EU funding Limited control over payments Control over payments CBI members should be thinking about: Q. How important is EU funding for your organisation? Q. How important are collaborative EU projects for your organisation? Q. What is the status of domestic funding programmes your organisation could apply for? 16

From consultation with members, the CBI has established 5 initial principles for the EU negotiations 17

The CBI has established 5 initial principles to present to Government, based on consultation with over 500 members 1. RETAINING THE EASE OF UK-EU TRADE THAT BUSINESSES GET FROM THE SINGLE MARKET With 45% of the country s exports destined for the EU and 53% of imports drawn from it, continuing easy access to this market, with minimal barriers, is the business community s leading concern. Certain sectors of the economy would experience disproportionate consequences from tariffs on goods trade between the EU and UK. Exporting businesses in the manufacturing sector particularly the UK s agri-food, aerospace, automotive, textile and chemicals industries are likely to experience a reduction in their exports competitiveness if tariffs are applied. Keeping UK-EU trade tariff free should be one of the Government s highest priorities. Access to the single market also means access for the UK s services businesses, which account for 77% of the UK economy. EU membership has meant that UK companies have a right to establish themselves in other EU member states and provide and receive services across the EU. To take just one sector, the financial services passport has allowed international finance businesses to use the UK as a launch-pad to the rest of the EU. The whole UK economy benefits from a strong financial services sector, as it enables access to finance that supports growth. The right of UK services companies to establish and provide services in other EU countries should be maintained. Non-tariff barriers have the potential to impede trade as much as tariffs. Membership of the EU Customs Union with the agreement of a common external tariff that this entails currently allows UK businesses to export and import goods without rules of origin declarations, VAT payments and the delays these incur. The lack of these non-tariff barriers have had particularly significant benefits for small and supply chain businesses who do not possess the resource to overcome them. 18

It has also had other consequences: the current infrastructure of the UK s ports has been designed with a simplified process for half their trade. Business acknowledges that control of the UK s external tariff is important for future trade negotiations with third countries, but UK-EU trade must be open and easy particularly for small businesses. Nontariff barriers on UK-EU trade should be kept as low as possible. 2. BALANCING REGULATORY EQUIVALENCE WITH THE EU WITH FLEXIBILITY AND INFLUENCE OVER THE DOMESTIC ENVIRONMENT A certain level of regulatory equivalence between the UK and the EU is required for access to the single market, with particularly integrated arrangements in areas like financial services regulation, the Common Aviation Area, the digital single market from data flows to intellectual property and the internal energy market. This also includes areas which are regulated by pan-european authorities such as the European Medicines Agency which licenses pharmaceuticals across Europe. And there are some areas like climate change strategy which cannot be adequately handled by countries in isolation. Mechanisms for continued UK involvement in areas where the EU currently facilitates international collaboration will have to be negotiated. However, regulatory equivalence also requires influence. It could be detrimental to UK businesses if the UK is forced to implement EU rules without some say over their creation for example over employment rules. And while the extent to which the UK will implement some EU law in the future is unclear, UK policymakers must continue to engage on the EU legislative agenda. A long-term strategy for influencing new EU rules and standards that may still apply to UK businesses after exit will have to be established. Where there may be areas for domestic flexibility going forwards, a careful balance must be maintained between opportunities for new approaches and the regulatory equivalence required for access to the single market in highly tradable sectors. Close cooperation between Government and businesses of highly tradable sectors will be necessary when approaching complex regulatory issues. 19

3. ENSURING THE UK S MIGRATION SYSTEM ALLOWS COMPANIES TO ACCESS THE PEOPLE AND SKILLS THAT THEY NEED, WHILE RECOGNISING PUBLIC CONCERNS The UK s immigration system must be one that has the confidence of the public, and it must be open and outward-looking. Access to people from across the world is vital for companies which need talent for growth. That access must be at all levels of the labour market. It is vital to recognise how deeply integrated the UK has become after 40 years of close partnership, and the reciprocity of the relationship. Reassurances should be made for EU migrants already in the UK and UK citizen s resident in the EU. Clarity should also be given on their future status, once the UK has left the EU. The UK s labour market is supporting the highest employment rates ever recorded- including a record number of UK nationals in work. However, companies have been increasingly unable to fill the jobs that are least attractive to British workers. This is particularly apparent in the agricultural and hospitality sectors, where skills shortages are becoming more severe. While it is vital that the UK looks to upskill the domestic workforce, free movement from the EU has helped businesses overcome skills and labour shortages, and brought valuable talent to our workforces. Businesses also benefit from being able to move their employees around the EU to share knowledge and foster innovation. The UK benefits from attracting jobs that could be based in a number of countries, as they boost productivity and living standards. Business and Government should work closely together to build an immigration system that works for the economy and for society. International students contribute to the local economies in which they are based and provide vital income streams for our world-leading universities. Guaranteed protections for students should be considered. European students currently applying to study in the UK, and UK students currently applying to study in the EU, should be encouraged to continue. 20

4. DEVELOPING A CLEAR STRATEGY FOR INTERNATIONAL TRADE AND ECONOMIC AGREEMENTS Disruption should be avoided where UK businesses currently benefit from preferential access to world markets through EU trade deals. Existing trade agreements are of particular importance to sectors which face high tariffs and sectors which have experienced significant growth as a result of individual deals. For example, South Korea became the second largest export market for the UK s ceramic tableware sector after the EU deal was implemented, and the EU deal with Vietnam was set to cut a 45% tariff on Scotch whisky imports to zero. Securing access to EU-third party trade agreements that are currently in force, as well as those currently undergoing ratification, will provide UK businesses with new prospects for growth without the need for extensive negotiation. Preferential access to markets through EUthird party trade deals in force and close to completion and WTO deals should be protected. Agreements that the EU has made with third-countries on other policies that facilitate trade and investment are also important. Before the UK leaves the EU, new arrangements must also be in place for airspace agreements such as the Open Skies regime which manages Trans- Atlantic flights. Initial continuity on all international agreements currently managed through the EU should be established. The opportunities for new UK trade deals with established and growing markets are exciting. Although it may not be possible to launch formal negotiations or sign trade deals with new markets until the UK s relationship with the EU is clear, the UK government should identify priority markets and undertake necessary diplomatic action to lay the foundations for broadening future trade relationships. The most valuable trade deals for business are those which are deep and comprehensive, covering regulatory cooperation to reduce non-tariff barriers, as well as traditional market access commitments and cooperation on trade rules. Much has been made of the need for civil service resource to be focused in this area, complementary to the trade strategy. Where the skills for this lie in the private sector, business 21

should be willing to help. International markets should be carefully prioritized to make the most of new opportunities. 5. PROTECTING THE ECONOMIC AND SOCIAL BENEFITS OF EU FUNDED PROJECTS The status of current EU funding commitments and UK organisations ability to apply for funding in the future is currently uncertain. These projects often focused on areas of economic or social deprivation support investment in infrastructure, small and medium enterprises, research and innovation, and the rural economy. As there is a requirement for EU funds to be matched at the domestic level, private partners are seeking urgent assurances that transitional arrangements will be put in place and promises honoured. This is particularly true for private partners involved in long-term infrastructure investments. Where EU funding commitments have already been made, protection and reassurance is needed, with particular mind to projects scheduled for completion beyond the UK s expected date of exit from the EU. Uncertainty is also already affecting UK businesses and universities applying for EU funding. Many bids for funding are made with partners from other EU countries. Organisations are reporting that opportunities to participate in and coordinate such projects are shrinking. It may be necessary to continue to contribute funds to the EU budget for access to collaborative programmes like Horizon 2020. Clarification is urgently needed for funds that have not yet been allocated and the future of the UK s involvement in collaborative projects. In the long-term, work will have to take place at the domestic level to establish priorities for investment in the areas currently covered by EU funding. The future of agriculture, regional funding to spread prosperity across all regions of the UK, and a strategy for research and development will need to be established. To avoid pauses in vital areas of the UK s growth, the majority of this work will have to take place before the UK s departure from the EU, when the new economic landscape is clear. New strategies will be required for domestic investment in the areas currently covered by European funds. 22

The CBI has made it clear that Government must work closely with business to plan its approach to the negotiation 23

To deliver its principles, the CBI has outlined the need for Government to set out a clear process 1. LAYING OUT A CLEAR TIMETABLE AND PLAN TO PROVIDE BUSINESS WITH CERTAINTY Government must look to provide as much certainty for business and the UK economy as possible. For businesses to continue to have confidence to invest in the UK, Government should outline, as soon as possible, clear processes and a timetable for negotiating a new relationship with the EU. Business would welcome clarity on when Article 50 will be invoked, and how the Government will develop and communicate the principles to underpin the negotiation. Article 50 of the Lisbon Treaty provides a framework for withdrawal, and a two-year timetable. However, there is uncertainty over this, as the treaty says that the withdrawal agreement will take account of the framework for its future relationship with the Union but does not explicitly outline that the withdrawal agreement will include the future relationship. It is critical that the UK government takes time to set out a plan for the negotiation of a new relationship with the EU before triggering the Article 50 process. 2. MAINTAINING A PARTNERSHIP BETWEEN GOVERNMENT AND BUSINESS OF ALL SIZES ACROSS THE UK Close and deep collaboration between business and Government is vital to help shape the country s future economic relationships. There needs to be a new kind of partnership, reaching out more widely than ever before across the UK s business community. It should involve companies of all sizes, all sectors, and, vitally, from all parts of the UK. Never has there been a more important time to put the interests of the UK ahead of party politics. Leaders of all parties and First Ministers in all parts of the UK must work together to provide clear messages to business and to limit uncertainty. 24

Businesses have so far welcomed the efforts of Government to reach out to businesses across the country and understand how Britain s exit from the EU will impact them. Business would like to see this dialogue continuing. The business community is willing to help, and the CBI is ready to help Government work with representative across the economy on this important issue. Clear points of contact for business within relevant Government departments including the Department for Exiting the European Union would simplify this process. Ensuring that the needs of the devolved nations are represented in the discussions on the UK s future is of vital importance. The implications for all regions and nations of the UK must be understood by all who have a role in negotiations with the EU. The agri-food sector in Northern Ireland, for example, is three times bigger than in the UK as a whole, with disproportionate economic importance to the region. Leaving the EU will therefore have significant practical implications in the context of the border between the Republic of Ireland and Northern Ireland. The manufacturing sector is significant in the economies of both North and South Wales, responsible for 17% of GVA. There are over 19,000 EU students at Scottish Universities, and 23% of jobs in the UK energy sector are in Scotland. To ensure the nuances of the implications are understood and represented in the negotiations, representatives from each nation should be involved from the start. Devolved nation Governments should be able to nominate senior civil servants to work in the Department for Exiting the European Union and provide a liaison point for those business with operations in the devolved nations. 3. CONTINUING UK INFLUENCE OVER EU LEGISLATION DURING THE NEGOTIATION The UK has been, and must continue to be, an influential voice in Brussels helping to shape EU legislation to protect the competitiveness of business. EU legislation will continue to apply to the UK throughout the negotiations, and some possibly after, therefore the UK government must continue to engage in Brussels across all policy areas. In particular, in parallel to the negotiations, Government must continue to influence the EU legislative agenda across areas of vital importance to business, such as the digital single market, financial services and energy and climate change. This is a time for partnership, and the UK is at its best in Brussels when it builds alliances on the continent. While the result of the referendum makes this more difficult, the UK s voice is a respected one and now, more than ever, it will be important to proactively and constructively work with our EU partners on issues of mutual importance. 25

THE UK-EU NEGOTIATIONS ARE A NEW OPPORTUNITY TO SHAPE OUR FUTURE There are some areas where members will have to carefully consider the right balances to strike: The balance between the level of access to the single market and the Government s aim to control immigration The binary choice between low non-tariff barriers on EU trade and control of free trade deals with the rest of the world The balance of equivalence with EU rules the UK has limited influence over, and domestic regulatory flexibility The balance between migration from outside the EU and inside the EU, as well as between skilled migration and unskilled migration The balance between speed and depth in trade deals with new markets The balance between payments to the EU for access to collaborative programmes, and a focus on new domestic strategy with full control over funding. Business has begun to lay out the principles to guide the negotiations between the UK and the EU in a way that will best help the Government build a more prosperous society that works for everyone. Retaining the ease of UK-EU trade that businesses get from the single market Balancing regulatory equivalence with the EU with flexibility and influence over the domestic environment Ensuring the UK s migration system allows companies to access the people and skills that they need, while recognising public concerns Developing a clear strategy for international trade and economic agreements Protecting the economic and social benefits of EU funded projects 26

It is important that Government provides the best environment possible to enable partnership by: Laying out a clear timetable and plan to provide business with certainty Maintaining a partnership between Government and business of all sizes from across the United Kingdom Continuing UK influence over EU legislation during the negotiation Over the coming months, the CBI will be coordinating a response to the vote to leave which encompasses the whole business community: This response will evolve with events in both the UK Governments and EU institutions. At the moment, the business community is just beginning to come to terms with what the UK s vote to leave may mean. As the landscape becomes clearer, business will be able to provide detailed views and assistance to Government on the questions it now faces. Business will have to be flexible and adapt to a rapidly changing environment, and the CBI will help prepare them to do that. The CBI will also be an active partner in Brussels, supporting the UK Government s efforts to secure the best settlement through our relationships with the European business community and Governments in other member states. Throughout this process, it is vital that the aims are clear. Securing the best settlement possible between the UK and the EU is an important part of building a prosperous UK economy that works for everyone. The business view must be at the heart of the negotiation, as business is the source of economic growth, jobs and opportunity in our communities and regions. 27

For further information please contact: Jade Rickman, senior policy adviser, CBI T: 020 7395 8267 E: jade.rickman@cbi.org.uk Copyright CBI 2016 The content may not be copied, distributed, reported or dealt with in whole or in part without prior consent of the CBI. Nicole Sykes, policy adviser, CBI T: 020 7395 8293 E: Nicole.sykes@cbi.org.uk www.cbi.org.uk @cbitweets linkedin.com/company/cbi 28