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2 August, 2016
The people of the United Kingdom (“UK”) have voted in the referendum on 23 June 2016 in favour of the UK leaving the European Union (“EU”).
Many businesses which have previously adopted, to the extent practicable, a “wait and see” approach will now begin planning in earnest.
Legal, regulatory and trading arrangements in particular present many complexities and uncertainties. These must be viewed in the context of the timing of an eventual withdrawal from the EU and the possibility (however remote) that “Brexit” may still not happen.
Faced with a wide array of possible outcomes, much of the planning activity at present will be to identify potential issues, as a basis for making firm decisions as things become clearer. Effectively, there is still a large element of "wait and see".
TIMING
To start the formal withdrawal process the UK government will need to serve notice on the European Council. That would set in motion a two year period for a withdrawal agreement to be agreed.
Withdrawal itself would take place at the end of the two years (unless agreement were reached with the European Council before then or the UK and European Council agreed to extend the deadline – requiring agreement of all other 27 member states, so thought to be difficult).
It is unclear when notice would be served. This may become clearer in the coming weeks as the dust settles around the immediate political consequences. In his resignation speech on 24 June, David Cameron stated that it should be for the next Prime Minister to commence exit negotiations with the EU and decide when to serve notice.
Many but not all prominent political figures in the UK see merit in delaying service of the withdrawal notice, in effect to improve the UK’s negotiating position in an initial period and to allow time for progress to be made in negotiating a new trade deal with the EU and other arrangements.
However, publicly the EU Commission and leaders of member states have indicated that no negotiations can begin until the withdrawal notice is given. It is unclear to what extent member states of the EU will be prepared, out of public view, to have informal discussion on Brexit before then. Effectively, they are seeking to minimise any period of uncertainty.
Until withdrawal takes place, the UK is expected to continue to have the benefits and obligations of an EU member, albeit presumably with reduced influence.
The next UK general election is scheduled for May 2020. It is possible that, either soon after the selection of a new Prime Minister by the Conservative Party this year, or later if a fresh negotiating mandate were required, there would be an early general election. It is also conceivable that, as things develop, further validation could be sought through another referendum.
Elections in France in May 2017 and in Germany in October 2017 may also have an impact on the timing and course of these negotiations.
LEGAL IMPLICATIONS OF WITHDRAWAL
Legal implications for leaving the EU would be considerable and far reaching and include:
> EU treaties, directives, regulations and rulings of the European Court of Justice would cease to apply to the UK, unless their
effect was specifically preserved by UK national law.
> UK citizens would no longer have the rights of EU citizens.
> The rights of EU citizens in the UK would need to be redefined.
> EU courts would no longer have any jurisdiction over the UK.
> The UK would no longer be entitled to participate in agencies such as the European Supervisory Authorities in relation to
financial services or the European Data Protection Board and probably a number of other EU working groups and bodies in
which it currently participates.
> EU agencies currently located in the UK, such as the European Banking Authority and the European Medicines Agency may need to relocate to an alternative location in the EU.
> EU funding for many organisations and projects would face uncertainty and need to be reviewed.
> The UK would cease to benefit from the EU’s trade agreements with other countries.
It also needs to be remembered that much of the UK law is derived from EU law and the way in which EU law provisions have been implemented in the UK is highly complex, often involving a combination of amendments to existing primary legislation, new primary legislation, secondary legislation and other rules, such as those of the Financial Conduct Authority.
It is likely that neither the capacity nor the desire will exist totally to re-write UK law in the event of a Brexit, and therefore provisions derived from EU law are likely to be retained, at least during the initial transitional period. It will, however, be important to ensure these laws function in a post Brexit UK and where EU institutions have direct administrative powers, these will need to be replaced with alternative arrangements.
In practice Brexit will require negotiation of a wide range of new arrangements with the EU and other countries. This may well result in the UK participating as a non-member in aspects of the EU on terms very similar to those currently in place, whilst other aspects are likely to be markedly different. Similarly, negotiations with non-EU countries could play out in a number of different ways. Taken together, this amounts to a wide range of possible outcomes, which will become
clearer over time.
WHAT BUSINESSES NEED TO CONSIDER
Initial questions you may wish to explore in the immediate aftermath of the referendum, as part of planning for an eventual Brexit, might include the following:
> How dependent are we as a business on the EU market and what proportion of our business comes from the EU?
> What impact will Brexit have on freedom of movement within the EU and how would it affect our ability to attract and retain the best talent from the EU?
> Do we rely on EU “passporting” for provision of services or on other forms of mutual recognition of standards or qualifications?
> Should our strategy on currency risk and hedging change? Also, does a currently weak pound create investment opportunities?
> Is legislation important to our business likely to change in the event of Brexit?
>What regulatory changes are likely to occur in our sector? Is regulatory relaxation in our sector/industry a possibility?
> To what extent might changes to international trade agreements affect us e.g. duties and tariffs?
> What impact will uncertainty have on growth rates?
> What is our exposure in relation to the financial health of our counterparties and the future financial health of the UK and its
credit rating?
> What are our options for an investment, merger or joint venture and should it be in the UK or in the EU? Should we be relocating any activities?
> Do we depend on grants or funding from the EU? How might that be impacted in the event of Brexit and therefore impact us?
> How will Brexit impact our particular sector, for example Technology, Media and Communications, Life Sciences, Private
Wealth or Energy, to name a few? Impacts are likely to vary between sectors, but all sectors are likely to be affected either
directly or by the economic impact of Brexit generally.
> Will Brexit cut across the effectiveness of any of our important contractual arrangements e.g. pricing, territorial restrictions,
regulatory oversight?
> Will Brexit affect the way in which we can protect or exploit intellectual property?
> What should we be communicating internally and externally on the subject?
(This article was contributed to RHTrospect on 11 July 2016 and does not take into account further developments thereafter.)
For more information, please contact:
Sandra Han, Partner, RHT Taylor Wessing
sandra.han@rhtlawtaylorwessing.com
