Brexit – What Next?

On 23 June 2016, the UK voted in a referendum to leave the EU. The actual legal implications for businesses will depend on the final form of the Brexit and the post Brexit relationships which the UK has with the EU and with other non-EU countries.

The withdrawal process

In accordance with Article 50 of the Lisbon Treaty, the EU Treaties shall cease to apply to the UK two years after the UK has given notice to the EU of its intention to withdraw or, if earlier when a withdrawal agreement is reached with the EU.

The Prime Minister gave the final notice on 29 March 2017, starting the two-year period for exit negotiations. Several Article 50 negotiations have taken place over the course of the summer, especially in regards to EU-UK positions on citizens’ rights. This autumn, the UK Prime Minister delivered a direct Brexit speech in Florence, and the European Parliament Plenary session in mid-October saw President Juncker underlining that work still remains to be done as he stated that the EU was not ready to enter the second phase of negotiations. On 13 November, the UK government announced that a Withdrawal Agreement and Implementation Bill, that will implement into UK law the major policies set out in the withdrawal agreement between the UK and the EU. In late December 2017, following further Article 50 negotiations and General Council meetings, the initial discussions are planned to be concluded and in early 2018 the UK Parliament is expected to pass the European Union (Withdrawal) Bill 2017-2019.

UK’s position until Brexit

Needless to say but important to note is that until the UK leaves the EU the existing trade relationship it has with the EU remains unchanged. The UK continues to be a full EU member state within the single market and the customs union. The UK has conducted informal discussions with non-EU countries, but until it leaves the UK, the UK cannot finalise any bilateral trade agreements with other countries or set its own tariffs.

Post Brexit models

There are many possibilities as to how the UK will withdraw from the EU and what model it will adapt going forward, which will depend on the conclusions of the negotiations with the EU. Below are some commonly discussed models:

Free Trade Agreement (FTA) and Customs Agreement

This is the UK government’s preferred option, although it aims for a financial partnership that goes beyond a traditional FTA. The government has also rejected a full customs union and its intention to leave the EU’s common external tariff. The UK will rather implement a close association model with the EU’s customs union for an interim period after Brexit.

European Economic Area (EEA) – The Norwegian model

The UK would become a member of the European Free Trade Association (EFTA) and EEA. This would give the UK access to the EU single market by complying with its regulations and restrictions including the free movement of goods, workers, services and capital. However, the UK will not be able to negotiate any derogation from internal market obligations.

European Free Trade Association – The Swiss model

The UK would become a member of EFTA but not the EEA. It would only give the UK access to the EU single market by bilateral agreements. However, the EU has already indicated that it is less favourable to tolerate this type of model.

World Trade Organisation (WTO) – UK alone model

The UK would remain a member of the WTO, General Agreement on Tariffs and Trades (GATT) and would negotiate other bilateral trade agreements on specific fields with the EU. The UK would also continue being a member of the OECD and G20. This is the default option for the UK, should it fail to achieve a FTA or other preferential trade agreement. It has also asked the EU for a “period of implementation” so as to have the required time to complete, ratify and implement a future relationship agreement.

The Prime Minister made it clear in her speech on 22 September in Florence that the UK will reject a model based on EEA membership as this would require the UK to adopt new EU rules automatically and in their totality. A traditional Free Trade Agreement, such as the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada is also going to be rejected by the UK. The Prime Minister has confirmed that the ties with the EU will be cut and that a “creative solution” would be welcome that takes into account the UK’s and the EU’s pre-existing regulatory relationship and shared commitments. It is therefore likely that the UK will end up with one of the latter two models.

What should businesses do now?

To be prepared for all eventualities, we recommend that businesses;

(1) appoint a person/committee responsible for Brexit;

(2) analyse (audit) your business and your market to include on-going commercial contracts;

(3) prepare for a range of possible outcomes pre- and post-Brexit;

(4) communicate with stakeholders (employees, customers, suppliers and shareholders): and

(5) monitor Brexit continuously to make sure your preparations are up to date.

Analysing your business you need to identify the areas of potential impact. Request our checklist which you may find useful when reviewing your company.

Can we help? Please do not hesitate to contact us if you have any questions or concerns regarding Brexit and its possible implications on your business.

 

The material contained in this note is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© Miller Rosenfalck LLP, December 2017

 

Please contact:

Steen Rosenfalck - Partner

DD +44 (0)20 7553 9931

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