How will Brexit affect India?

Brexit Poker - Who Has The Better Cards In The Exit Negotiations?

Great Britain has made a fateful decision. Although the prevailing opinion is that the referendum is only of an advisory nature, 1 the British government finds it difficult to ignore it, since it announced in advance that it would follow the result. Brexit means Brexit - as Theresa May, the new British Prime Minister and a former Remain supporter, proficiently explained. But what Brexit means was initially unclear. In her speech at the congress of the Conservative Party, Theresa May created clarity, both with regard to the time frame of the procedures and the content orientation. She wants to declare her intention to leave under Article 50 (2) TEU by the end of March 2017 without the consent of the British Parliament. She wants to transform Great Britain back into a "completely independent sovereign country" with a national parliament and exclusively national courts. And she wants to negotiate a treaty that regulates future relations between Great Britain and the EU. These cornerstones exclude a regulation like the one found with Norway or Switzerland.

British Parliament approval required?

The withdrawal procedure is regulated in Art. 50 of the Treaty on European Union. It states that any member state can leave the Union in accordance with its constitutional rules. It is unclear what this means for Britain, which has no written constitution, a curiosity of the British state order that is now proving to be a major disadvantage. The government believes that after the referendum it can start the exit process. The submission of a declaration of resignation in accordance with Art. 50 (2) TEU should therefore fall within the competence of the executive, as the so-called royal prerogative or prerogative power.2 That is probably still the prevailing opinion among constitutional lawyers in Great Britain (e.g. Mark Elliott from Cambridge University3 or Aris Georgopoulos from the University of Nottingham) 4 although it is increasingly being questioned, in a softer and a harder way. In the opinion of Adam Tucker (Liverpool Law School), the declaration of withdrawal remains a prerogative of the government according to Art. 50 (2) TEU, which is, however, subject to a review by Parliament.5 The opinion of Nick Barber (University of Oxford) goes further, Tom Hickman (UCL) and Jeff King (UCL) 6, who has also joined Lord Pannick.7 According to this, the approval of parliament should be required for the declaration of resignation. The lawyers from a renowned London law firm are now also demanding this through a judicial process.8 The request includes a court order, according to which the government would be prevented from submitting the resignation declaration independently, i.e. without the consent of parliament. The Prime Minister disregards these concerns and, after the democratic referendum, only considers the government to be entitled to bring about the decision on the will to leave. A court will now decide on this. Why can this be so important? About 70% supporters of EU membership sit in the lower house, who exercise a free mandate and could override the referendum. A decision of the House of Commons that rejects the vocem populi seems unlikely, even if the view prevails that the consent of parliament must be obtained.

The ongoing constitutional controversies that include debates on such fundamental questions of competence make it clear how incognita the terra is, on which the entire exit theater takes place. It is also unclear to what extent the ECJ is empowered to review the constitutionality of the British procedure, i.e. the steps leading to the withdrawal - Article 50 TEU is Union law after all. The competence of the judges from Luxembourg to interfere in the constitutional affairs of Great Britain is to be denied, 9 but there are voices that claim otherwise (e.g. Andrew Duff, former MEP) 10. There is also another question that is of great political and legal importance: the veto from Edinburgh. The question is: “Can Scotland prevent Brexit?” - which Cormac Mac Amhlaigh (University of Edinburgh) claims or at least considers plausible.11 On the political level, a rejection of Brexit by the Scottish regional parliament, which the British government does not follow, would be would, probably the first step towards a new referendum on the national independence of Scotland, whose citizens in all constituencies have voted to remain in the EU. In her speech in Birmingham, the Prime Minister made it clear her intention to bring all four parts of the United Kingdom to Brexit as one.

The exit procedure

The withdrawal procedure is triggered in accordance with Art. 50 (2) TEU when a member state informs the European Council of its intention to withdraw (declaration of withdrawal, notification). This is like pressing the red button and initiating a process that inevitably leads to the country's exit, no matter what happens afterwards. It is evident that the UK government is shy of taking this step. On the contrary, the former Prime Minister Cameron has announced that his successor should only initiate the proceedings in October. As is well known, however, he was replaced by Theresa May earlier than originally planned. The new Prime Minister recently held a series of bilateral meetings in selected European capitals to test the political sentiment ahead of the upcoming negotiations. A summit of the European Council without Great Britain, although held as an informal meeting12 out of legal caution, brought with it a request that Great Britain should submit its withdrawal declaration as soon as possible

Although the resulting uncertainty is poison for the European economic and monetary union, unsettles investors, can call currency speculators into action again and causes economic damage, the EU is powerless here. Only Great Britain itself can trigger the legally controlled process of Brexit, no matter how high the damage to third parties may be due to the ongoing uncertainty. On this point, there is now clarity about the intention of the British government, which intends to submit the exit application according to Art. 50 (2) TEU by the end of March 2017. Brussels cannot take legal action against London up to the point in time when the resignation declaration is submitted. Great Britain remains a de jure member of the Union but will in fact have to accept some restrictions up to a possible lame duck position.14 This is already happening on both sides: the resignation of the British EU Finance Commissioner Lord Hill and the aforementioned “EU-minus-UK” “Summits are the first signs of this development. On the other hand, it is excluded to conduct exit negotiations without initiating the procedure, for example with the aim of only obtaining further concessions and special regulations and ultimately remaining in the EU. This rightly makes the so-called sunset clause impossible in order to prevent the abuse of the exit procedure by “predatory” member states and thereby free the Union from the confrontation with the “ransom dilemma”. Exiting in a different way than that provided for by Art. 50 TEU, for example by unilaterally terminating the accession treaty between Great Britain and the EC (northern expansion of 1973), is out of the question under international law - this would not only become EU law, but also Viennese law Violate the 1969 Convention on the Law of Treaties. 15

Options after leaving

As soon as Great Britain has triggered the procedure by informing the European Council, the exit negotiations will begin. Similar to the game of chess, Article 50 (3) TEU provides a time frame for this. If no agreement is reached after two years, Great Britain will automatically leave the EU (“sunset clause”). This deadline can only be extended by a unanimous vote (Art. 50 para. 3 TEU). If only one Member State out of 27 refuses to give its consent, the UK will automatically drop out. Its economic status is then that of a member state of the World Trade Organization (WTO), according to whose rules future economic relations will be shaped. By reducing the number of possible exit options, which the submission of a declaration of exit brings with it (no longer possible to remain in the EU), the negotiating position of Great Britain vis-à-vis the EU worsens, which results from the tacit default (formulated somewhat simplified): “no deal "no trade" results, ie without the agreement of special special provisions in the exit agreement, access to the European market will be made more difficult for Great Britain.

Realizing a scenario where Britain leaves the Union without negotiating specific arrangements in a withdrawal agreement would have far-reaching consequences. The lowest are likely to exist in the movement of goods, because even under World Trade Organization law, industrial tariffs are low, between 3% and 10%. After all, these should not be neglected when looking at the volume of trade between Great Britain and the EU: Over half of British exports go to the EU, while imports in Great Britain are just under 50% for the EU .16 For the Cross-border retailing on the Internet (e-commerce) can have a deterrent effect of any tariffs, not so much because of the level of the tariff rates, but more because of possible administrative hurdles.

The Brexit effects on financial services and private direct investment are much more serious. Any British or third country bank that has a banking license in Great Britain can do business in the entire European market. This is possible thanks to the so-called single bank license.17 This freedom and thus a major reason for the importance of the London financial center no longer applies. London is a base for international financial institutions to conduct their business across Europe. In addition, Great Britain is a center for private companies from third countries, which from there can conduct their business in the common European market without hindrance. That is economically very important per se, but it also contributes to the attractiveness and strength of London City.

Without an agreement on the exit conditions, London as a European financial center would be at risk. It would be cheaper for financial institutions to go to Ireland or Germany, for example, where these options would continue to exist. The European Banking Authority is also set to move from London to the continent - Frankfurt and Paris, but also Milan, are already fighting for the London successor. Barnier's nomination as Brexit negotiator for the EU, who as the French Internal Market Commissioner in the Barroso Commission (2010 to 2014) repeatedly proved to be a hardliner towards London City, promises difficult times for the financial industry on the Thames.

Consequences for corporations

Since the Brexit referendum, there has also been uncertainty for private direct investments, which Great Britain is using as a springboard to Europe. An official statement from the Japanese government in July 2013 stated, for example: “More than 1,300 companies have invested in the UK as part of the European single market and created more than 130,000 jobs - more than anywhere else in the EU. This demonstrates the UK's advantage as a gateway to the European market that made these investments possible. The government of Japan expects Great Britain to retain this role. ”18 Other states such as China, India, Russia, Canada, the USA or emerging countries such as Mexico, Brazil and South Africa have similar interests in Great Britain as the gateway to Europe.19

On the other hand, there is the question of thousands of corporations registered in Great Britain, 20 whose European founders operating outside Great Britain have used the freedom of establishment (Art. 49 ff. TFEU) in order to adopt the flexible, minimum capital and participation-free21 legal form of the "limited company" serve. If the fundamental freedom, which has been extended to a large extent by the Centros22, Inspire Art23 and Überseering24 case law of the ECJ, is no longer applicable, the existential questions for many companies on the continent will arise in a completely new constellation. It is unclear how the courts and registry offices, especially in countries that - like Germany - have traditionally applied the conflict-of-law seat theory, will in future be used by the British PLC and Ltd. - will then be regarded as the legal entities originating from a third country. The question is very important economically: In Germany alone there are around 9,000 British corporations.25 At the same time, however, the position of Great Britain as the winner of the “race for corporate charters” 26 will automatically be over with Brexit if no appropriate substitute agreements are made .

Access to the European market

Keeping access to the European market as unrestricted as possible - that will definitely be the aim of the British government. Paradoxically, the UK price may be higher than before. The willingness to submit to the rules of the market set in Brussels, but without having a say, can become part of this price. One thing is clear: in the confrontation between the perception of identity and the weighing of interests, as one can understand the Brexit referendum, 27 the former had the upper hand. However, should Great Britain voluntarily comply with the European internal market rules even after its exit, i.e. on the basis of an Article 50 (2) and (4) sentence 2 TEU in conjunction with Article 218 (3) TFEU and Article 238 (3) (b ) Subject to TFEU concluded exit agreement, this can lead to a surprising and disappointing result for the Leave voters, namely if the proverbial banana curvature is still determined in Brussels and still applies to London.

The deficits of a referendum on the European status of Great Britain can also be seen in the political dimension.28 Although Brexit, ie leaving the EU, appears to be a clear consequence of a dichotomous referendum (there was no yes and no variant or other nuanced questions) and membership in the EU according to the EUV is also a binary question (membership - 1 or no membership - 0; without partial membership or the like29), future relations between the EU and Great Britain can nevertheless be structured differently: starting from the Norwegian option via the Swiss option up to the Turkish variant or simply to the status of a third country according to the conventional WTO rules. The degree and intensity of economic integration post Brexit and the breadth of the UK's resulting access to the European single market will influence the price that London will have to pay Brussels in the form of transfer payments and (at least in part) compliance with EU law. Great Britain has a vital interest in continuing to play its role as a financial center even after leaving the EU. However, this requires an agreement with the EU - a withdrawal agreement in accordance with Article 50 (2) and (4) sentence 2 TEU in conjunction with Article 218 (3) TFEU and Article 238 (3) (b) TFEU. How realistic is this? Art. 50 (2) TEU provides that this agreement must be approved by a qualified majority of the European Parliament and the Council. This is defined by the Treaty on the Functioning of the European Union in accordance with Art. 238 (3) (b) TFEU. This majority requires the approval of 72% of the Member States, representing at least 65% of the population. In the European Council, it is relatively easy to get a blockade majority against any proposal for an agreement.

Country coalitions in the European Union

According to a calculation by the business lawyer Horst Eidenmüller, who teaches in Oxford, Germany's population is 18.30% of the total population of the EU excluding Great Britain. France's population is 14.97%, Italy's 13.70%, Spain's 10.47% and Poland's 8.75% .30 If Germany and France agree, they can form a blockade coalition with any of the other countries mentioned here . The most obvious coalition for this consists of Germany, France and Italy. It is therefore no coincidence that the heads of state and government of these three countries met before the Brussels summit on June 28, 2016 in Berlin to vote.If they are in agreement, they can overturn any proposal and at the end of the biennium (sunset) let Great Britain fall back to the level of economic relations with the EU that corresponds to a third country - a conventional WTO member

What interests will these three countries represent versus the British interest? These and other states do not want to "punish" or even humiliate Great Britain, even if the initial reactions of national (e.g. Federal Finance Minister Schäuble) and European (namely Commission President Juncker) politicians have indicated it. Even with a Brexit, the rules of “fair dealing” and of good faith apply. The latter are also firmly anchored in the Vienna Convention on Diplomatic Relations of 1961. Brexit and the subsequent negotiations should not create incentives for other EU countries to hold similar leave / remain referenda and thereby trap Brussels in a kind of “ransom dilemma”. Exit referendums, as a means of gaining a special position in the EU in the form of exceptions, concessions and discounts, must simply not be worthwhile. In the same sense, cherry-picking in exit negotiations and ultimately in the exit agreement should be prevented.32 It is hard to imagine granting Great Britain access to all the advantages of the internal market and at the same time denying free movement to continental Europeans. The latter, however, was an important motive of those who campaigned and voted for Brexit.

Germany, France and Italy also bear the greatest responsibility for dealing with the trouble spots in and around Europe, the refugee crisis, setting up camps and homes outside Europe, controlling the Mediterranean and refugee routes, overcoming the Greek crisis and stabilizing Ukraine .33 The latter is also of fundamental importance for Poland because of its geopolitical location on the eastern flank of the EU. Berlin, Paris, Rome and Warsaw will probably only agree to Great Britain's future role as the financial and economic gateway to Europe if it shares financially with these and other burdens after it leaves. This participation is unlikely to be lower and, because of the current British discount, higher than if they remained in the EU. In any case, the UK's net payments of just under 8 billion euros, which account for around 0.35% of the UK's Gross National Income (GNP), are hardly too high a year in return, despite the populist propaganda widespread in Great Britain.34 This is all the more true when other projects are added, such as the Erasmus program for student exchanges and many others.

In her speech in Birmingham, the British Prime Minister did not comment on the details, but she has already taken a few stakes that show how difficult it will be to reach an agreement. She wants to lead Great Britain to a “fully independent sovereign country” with exclusively sovereign British law, without any competences of European organs, in particular without any competence of the European Court of Justice in Luxembourg. For this she received the greatest applause at the party congress. In order to achieve this goal, it announced a repeal bill, with which all European laws, the entire acquis communautaire, will be transposed en bloc into British law. On the one hand, as May emphasized, this ends the direct application of European law (the so-called direct effect) in Great Britain and, on the other hand, deprives the European Court of Justice of any jurisdiction over European law and transfers it to British courts. Any further development and interpretation of European law for Great Britain is then exclusively in the hands of the British Parliament and British courts. With this announcement, a negotiation result based on the EU's relationship with Switzerland or Norway would have become unthinkable. May’s slogans against foreign workers and her announcement that companies will have to report the number of their foreign workers to the authorities are worrying. If she sticks to her stance, a hard Brexit will be more likely. It seems that Great Britain wants to return to the sovereign nation state in an era of globalization and also the internationalization of law. This is not a sign of the proverbial English pragmatism, but rather of the immobile staring at a time long past.

The countries of the Visegrád Group (Poland, the Czech Republic, Slovakia and Hungary) can be more accommodating to Great Britain. On the one hand, there is a certain skepticism in all of these countries - albeit with varying degrees of intensity - towards the further federalization of Europe. Great Britain was seen as a natural brake on these processes35 and at the same time formed a certain counterweight to Germany or to the Franco-German partnership - a role that was important for some countries in Central and Eastern Europe (CEE). Furthermore, Great Britain acted as a reinforcement of the Atlantic bridge, which was historically and politically important for Poland, for example, and is still important today.36 It should also not be underestimated that the CEE countries have experienced large waves of emigration to Great Britain in the last ten years. The reason for this was, among other things, the fact that Great Britain, unlike e.g. Germany, voluntarily waived the transition periods for the realization of the free movement of workers with effect for the then (Eastern enlargement 2004) new EU member states. The status of between 0.70 and 0.85 million Poles currently living or remaining in Great Britain will therefore be high on the agenda of future negotiations for the Polish government.37

On the other hand, Brexit awakens the old ideas of Europe at different speeds, i.e. of several levels of integration. This idea has long troubled the governments of the Central and Eastern European countries.38 If these ideas are put on the table again as a possible option for the development of the European project, it can bring the countries of the Visegrád group closer to Germany and France, in order to achieve the To avoid the risk of them being pushed into a peripheral position. This is also due to the relatively stronger role of the euro zone in the EU after Brexit. With Great Britain and the British pound, there were still European heavyweights outside the euro zone, which means that maintaining a national currency did not imply any marginalization in the EU. This can now be perceived differently. 39


Donald Tusk, the President of the Polish Council, has already put together a negotiating team. Britain is in a dilemma. As long as it does not officially inform Brussels of its willingness to leave, it is in a strong position, but it will remain a member of the EU. But as soon as the notification according to Art. 50 (2) TEU takes place, his position deteriorates drastically because a coalition of a few EU states can block every negotiation proposal and thus force Great Britain's automatic exit without any special regulation if it is not ready, considerably To provide transfer payments to the EU. As I said, these may be higher than the UK's current net contributions to the EU. The last word on Brexit has therefore not yet been spoken. The Brexit poker game between the European Union and Great Britain has begun. The European Union has the better cards.

  • 1 A. Young: Brexit, Article 50 and the "Joys" of a Flexible, Evolving, Un-codified Constitution, U.K. Const. L. Blog from July 1, 2016, codified constitution.
  • 2 P. Wintour: Brexit can be started without parliament vote, government lawyers say, in: The Guardian, July 5, 2016, http: //www.theguardian. com / politics / 2016 / jul / 05 / brexit-can-go-ahead-without-parliament-vote-article-50-government-lawyers-say.
  • 3 M. Elliott: Brexit - On why, as a matter of law, triggering Article 50 does not require Parliament to legislate, Blog: Public Law for Everyone of June 29, 2016, 30 / brexit-on-why-as-a-matter-of-law-triggering-article-50-does-not-require-parliament-to-legislate.
  • 4 A. Georgopoulos: "Brexit", Article 50 TEU and the Constitutional Significance of the UK Referendum, EJIL Blog from July 6, 2016, -the-constitutional-significance- of-the-uk-referendum.
  • 5 A. Tucker: Triggering Brexit: A Decision for the Government, but under Parliamentary Scrutiny, U.K. Const. L. Blog of June 29, 2016,
  • 6 N. Barber, T. Hickman, J. King: Pulling the Article 50 "Trigger": Parliament’s Indispensable Role, U.K. Const. L. Blog of June 27, 2016, -role.
  • 7 D. Pannick: Why giving notice of withdrawal from the EU requires act of parliament, in: The Times of June 30, 2016, -withdrawal-from-the-eu-requires-act-of-parliament-dz7s85dmw.
  • 8 UK government faces pre-emptive legal action over Brexit decision, in: The Guardian of July 4, 2016, -not-to-leave-the-eu-say-lawyers.
  • 9 A. Radwan, H.-B. Schäfer: Yes and no - a missing variant in the Brexit referendum, VerfBlog from August 17, 2016,
  • 10 A. Duff: Everything you need to know about Article 50 (but were afraid to ask), VerfBlog of July 4, 2016,
  • 11 C. Mac Amhlaigh: Changes to the UK’s EU Membership Might Require the Consent of the Scottish Parliament of October 14, 2015,
  • 12 Cf. materials available from the website of the European Council 2016/06 / 28-29.
  • 13 See official statement from the so-called informal meeting of the 27, Brussels, 29 June 2016, meeting statement.
  • 14 T. Lock: A Lame Duck for a Member State? Thoughts on the UK’s Position in the EU after the Brexit Vote, author blog from July 1, 2016,; J. Stearns: Brexit Is Already Making Britain a Lame Duck in Brussels, Bloomberg from July 6, 2016,
    articles / 2016-07-05 / brexit-foretaste-already-on-menu-in-brussels-as-u-k-loses-perks.
  • 15 A. Duff, loc. Cit.
  • 16 Customs Trade Statistics HM Revenue & Customs: UK Overseas Trade Statistics May 2016 of July 8, 2016,
  • 17 Directive 2006/48 / EC of the European Parliament and of the Council of June 14, 2006 on the taking up and pursuit of the business of credit institutions, OJ L 177 of June 30, 2006, pp. 1-200.
  • 18 I. Oakeshott, M. Woolf: Japan warns UK not to leave Europe, in: The Sunday Times of July 21, 2013, ece.
  • 19 A. Radwan, H.-B. Schäfer, op. Cit.
  • 20 M. Becht, C. Mayer, H. F. Wagner: Where Do Firms Incorporate? Deregulation and the Cost of Entry, in: Journal of Corporate Finance, 14th year (2008), No. 3.
  • 21 prominent examples are the airline, Air Berlin, the drugstore chain Müller, the fashion chain H&M or the logistics companies Kühne + Nagel and Dachser, see S. Sick, L. Pütz: Removed from German corporate co-determination: The number of companies with a foreign legal form is growing, in: WSI Mitteilungen, 1/2011,
  • 22 ECJ judgment of March 9, 1999 (C-212/97).
  • 23 ECJ judgment of December 30, 2003 (C-167/01).
  • 24 ECJ judgment of November 5, 2002 (C-208/00).
  • 25 U. Kornblum: Nationwide legal facts on corporate and company law (as of January 1, 2015), in: GmbH-Rundschau 2015, p. 695. The numbers are, however, declining.
  • 26 M. Becht, C. Mayer, H. F. Wagner, loc. Cit.
  • 27 M. Dawson: Great Britain's Neverendum, in: Die Zeit from June 16, 2016, Wahlkampf-great britain-europe-dissatisfaction.pdf.
  • 28 A. Thiele: The Brexit Referendum: Victory for Democracy ?, VerfBlog, from July 11, 2016,
  • 29 S. Becker, H. Enderlein, H. M. Kuhlmann, L.-M. Wolfstädter: UK wants Brexit and what kind of Europe does the EU want ?, Jacques Delors Institut Policy Paper of June 24, 2016, -after-Brexit_ Delors-Institut.pdf.
  • 30 H. Eidenmüller: Brexit Negotiation Games, OBLB of June 27, 2016,
  • 31 A. Radwan, H.-B. Schäfer, loc. Cit.
  • 32 Cf. President Donald Tusk after the informal meeting of heads of state and government from 27 EU member states: “There will be no single market“ à la carte ”” (Brussels, 29 June 2016), http: //www.consilium.
  • 33 A. Radwan, H.-B. Schäfer, op. Cit.
  • 34 Ibid.
  • 35 W. Jurasz: Brexit dla Polski, czyli test z dojrzałości, DGP of June 28, 2016,,jurasz-brexit-dla-polski-czyli-test-z-dojrzalosci .html.
  • 36 J. Dempsey: Polish-German Relations After Brexit, June 30, 2016, http: //
  • 37 A. Radwan, H.-B. Schäfer, loc. Cit.
  • 38 J. Dempsey, op.
  • 39 A. Radwan, H.-B. Schäfer, loc. Cit.

Title: Brexit Poker - Who Holds the Better Cards in the Withdrawal Negotiations?

Abstract: The political, economic and legal situation of Great Britain vis-à-vis European Union in the aftermath of the membership referendum and awaiting the commencement of withdrawal negotiations is interesting. The authors summarize the legal controversy in the UK over the powers and procedures needed to be complied with in order to duly trigger the Brexit. They then sketch the legal framework as provided by the Treaty on European Union and the Treaty on the Functioning of the European Union to reconstruct the decision-making architecture under which parties to the upcoming negotiations will have to make their choices. After outlining the opportunity cost for Great Britain associated with leaving the Union, in particular those regarding the financial institutions and foreign direct investments, they conclude that decision-making architecture governing the upcoming withdrawal negotiations puts Brussels in pole position vis-à-vis London. It is likely that Britain will have to accept transfer payments to the EU similar to, if not higher than the net transfers that have been due so far. Some degree of compliance with the acquis communautaire, at least with regard to the treaty's fundamental freedoms (goods, workers, services, establishment and capital) will most likely also be expected from London, if it wants to benefit from access to the European market after the termination of its EU membership.

JEL Classification: F13, F15, K33