The Negotiation of Brexit

Posted by Brabners

Thu 08th, Jun

Negotiating a transaction

When approaching a transaction experience has shown us some of the key considerations are as follows:

  • Information - each party should learn as much as possible about the other so that they are better able to understand areas of leverage, easy gives and no go areas.
  • Leverage - the parties should evaluate the intrinsic factors of need, desire, competition and time pressures. For example, if a company’s business critical IT system fails they will need a replacement system straight away. As they enter into a deal for the supply of such a system their need will be high, they will be under considerable time pressure. Unless the system is easy and quick to procure from many competing suppliers, their leverage is less than someone who can wait several months to purchase a new system.
  • Analysis - the parties should carefully consider what all of the issues are, aiming to have no unknowns. They should consider also outside impacts and understand what they can control and what they cannot control. They should aim to isolate each issue and specifically reflect upon the relative importance of each individually.
  • Rapport - it is key to establish a mutually beneficial working relationship with the other party. This can help to determine what type of negotiator each party is dealing with and whether or not they are likely to be cooperative.
  • Expectations - it is important to set realistic expectations and then work to achieve them.
  • Plan - the parties should have a flexible plan and strategy for the negotiation, flexible because unknowns and uncontrollables arise. A plan enables a party to drive negotiations.
  • Available outcomes and alternative options - if the negotiation stalls and the parties reach deadlock it is important to effectively evaluate what the best alternative would be. You should always seek to understand what your own and the other side’s worst case scenario is. In the disposal of a company, the best alternative could be that another buyer immediately agrees to purchase the business at a better price. The worst alternative could be that a new buyer isn’t found and the company continues to operate. By contrast, the worst case scenario might be that the management team walk, that the buyer takes the customers or staff or that the business runs out of funds. As well as weighing up your own best and worst alternatives it is vital to be aware of the other side’s and also to have consideration as to whether or not they will be aware of your own. This enables pre-emption of the tactics the other side will employ in negotiation and allows an appropriate fall back, bottom line position to be set.

 

Negotiating Brexit

The opposing sides in the Brexit negotiations have been doing their homework, gathering and analysing the information. The UK and EU are now laying out their opening positions. This is not going to be a quick negotiation, Article 50 specifies that the parties have two years to negotiate the withdrawal and the UK’s future relationship with the EU. By comparison, trade deals usually take decades to negotiate.

At this starting point in the negotiations, there are no immediate time pressures. It is acknowledged by both sides that there is much to achieve in the timescales, but given the short termism of politics, the time pressures are not yet taking any priority or providing any leverage in the negotiations. As a result, neither side has been prepared to take a particularly reasonable initial position, no easy wins will be given at this stage. In other words both sides have adopted aggressive unilateral positions in an effort to retain all of their respective bargaining chips.

Theresa May started by taking any monies the UK may or may not owe in the “divorce” off the table unless a sensible trade agreement can be reached, so seeking to prioritise the trade agreement over Brexit. This is at odds with the EU position, who wish to secure the terms of the “divorce”, especially the financial terms, before they will allow any concessions and favours in any trade agreement. The relatively easy ‘gives’ for the both sides, for example, the rights of EU citizens already resident in the UK and vice versa, are currently not on the negotiating table. From the UK’s perspective, raising and dealing with these at this stage would be prioritising the divorce, rather than prioritising a trade deal.

The way in which each party has laid out their positions and reacted says quite a bit about the negotiation behaviour that each party is looking to use. Theresa May appears to have taken a quiet but firm approach, with some no go areas raised early. This has been proposed and discussed in private over dinner, backed up with conversations entered into by her negotiating team with their opposition. She has attempted to establish a personal rapport with Jean-Claude Juncker, President of the European Commission, to enable principle issues to be aired, whilst keeping the detail of the negotiations out of the public eye.

Juncker has sought to establish himself as the EU’s “negotiator” and middle man. He has listened to what May is saying, but has proposed nothing and given nothing away. At this stage it suits him to negotiate as the mouthpiece of the members and he has stressed the need for the Commission to keep the EU Parliament and member states informed throughout the process. His position is at odds with that of Theresa May. Juncker sought to illustrate the power of this position by publicly unleashing the voices of his 27 members (apparently as one) when he reportedly stated he left ‘Downing Street 10 times more sceptical’ than he was before he arrived. A series of leaks from his visit have cast doubt on any genuine rapport between him and May.

Juncker has, in addition, claimed that the UK has not done its homework and is ill prepared. He claims that Theresa May has unrealistic expectations and believes that she cannot allow the UK to land in what he considers to be its worst case scenario, one where no deal is made. Theresa May has refuted each point, has claimed her position is perfectly reasonable as are the UK’s expectations, is apparently comfortable that all information gathering has been done and the team are fully conversant with all issues to be negotiated and resolved. On 2 February 2017 the UK produced a white paper entitled The United Kingdom’s exit from, and new partnership with, the European Union. Tucked away at the bottom was the following quote:

‘The Government is clear that no deal for the UK is better than a bad deal for the UK’

These two opposing tactics are unlikely to yield much in the way of progress. They oppose each other in such a way that there cannot be a meeting of minds, a real negotiation. If Juncker continues to listen in private and retort in public, less will be said in private and the party’s positions will become intractable. Within the context of a corporate transaction, at this stage, we would look to identify between which other individuals on the opposing teams a rapport could be built, whilst at the same time seeking to mend the damage already done. Obviously, various other tactics and behaviours will already be being used behind closed doors between the negotiating teams, as well as between the various states.

Any agreement between the EU and UK requires the ascent of the ‘qualified majority’, in other words 72% of the member states. One of the key considerations that the UK will have analysed (and will continually re-evaluate) is whether remaining 27 states are speaking as one, through Junker. Each member state may have different and potentially competing best and worst alternatives in the negotiation. This ultimately adds to the complexity of the negotiation and makes Juncker’s actions high risk. He has a powerful position whilst the member states appear to be as one, whether or not he has a rapport with his opposition; but if that ceases to be the case, then he will quickly cease to have any purpose in the negotiations (no longer the mouthpiece and with a negative rapport with the other side) and he would then be seen as obstructive and will be side-lined.

Any ‘deal’ will require, from both sides, creativity and empathy for the other’s position. Many concessions will be required to achieve this. The posturing we have just seen is just the initial positioning of the parties. The positions are not yet close enough for real negotiations to start. We would expect revised opening positions from at least one of the parties in order to provide a platform from which they can reasonably start to make concessions.

Whilst the opening positions of both the UK and EU remain far apart it remains to be seen how the negotiation will unfold. Adopting the transactional approach, seeking a common ground for a meeting of minds is most likely to provide a positive solution for both sides.

For more information on the topic, please contact Head of Corporate at BrabnersMark Rathbone, on 0161 600 3124 or via email.

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