Brexit – Next Steps

Although the UK referendum narrowly supporting the country’s departure from the EU took place more than 18 months ago, uncertainty still reigns over what this means in terms of the UK’s future trading relations and legal framework. As things currently stand, the UK is set to leave the EU on 29 March 2019. As this date approaches, Cooley will be on hand to provide you with advice and insight.

State of flux

The British government triggered the formal process to leave the EU on 29 March 2017 by serving notice to the European Council of the country’s “intention to withdraw” under Article 50 of the EU Treaty. Under Article 50, the UK and EU have up to two years from the date of notification to negotiate a withdrawal agreement. Although Article 50 provides that a later date may be provided for in that agreement, the current consensus is that Brexit will formally take effect two years after that notice was given, i.e. at the end of 29 March 2019. Until that date, the UK remains an EU Member State. After that date, it becomes a ‘third country’ where EU law no longer applies. At that point, the default position is that the UK will leave the EU Single Market and lose all the benefits that come with membership, such as free trade in goods and services, access to the financial services passporting regime, unitary pan-European intellectual property rights and the free movement of people.

The reality beyond that basic legal position is complex and uncertain. The politics of Brexit remain highly contentious, as evidenced by ongoing arguments within and beyond government over whether the UK should seek to maintain continued alignment with EU laws, up to and including arrangements that seek to replicate elements of the Single Market and Customs Union, or diverge by adopting its own rules on matters such as environmental protection, employment law and food safety. While official government policy is to leave all institutional structures of the EU and reject any future role for the European Court of Justice, loss of the Conservative government’s parliamentary majority in the May 2017 General Election appears to have put this position under some pressure.

The EU and UK agreed key aspects of the withdrawal agreement in December 2017, thereby enabling discussions between the UK and EU to proceed to negotiation of the future trading relationship. Since the December 2017 political agreement was deliberately ambiguous on key points, there remains significant uncertainty over the UK government’s objectives for that future relationship. Judged on the basis of the EU position, the choice is likely to be between an EEA-style arrangement (the ‘Norway option’), under which the UK retains membership of the single market in return for agreeing to implement most EU laws (without having a say in their drafting), or a more basic free-trade agreement based on the recent EU/Canada ‘Comprehensive Economic and Trade Agreement’, albeit with additional provisions covering matters such as security cooperation. At the date of writing, the UK government appears to be sticking to its position that the UK can enjoy many of the benefits of EU membership without the attendant obligations, while the EU continues to maintain that this is not possible.

Since it is effectively impossible for even a limited free trade agreement to be negotiated by March 2019, attention is now focused on the scope for agreement to be reached on a ‘transitional period’. This would extend the current EU legal and trading framework beyond that date and thereby avoid a so-called ‘cliff edge’ Brexit, which would result in a disappearance of key legal provisions, and the imposition of material barriers to trading, overnight on 29 March 2019. The EU has indicated openness to such an arrangement, provided that it does not last beyond the end of 2020 and that the UK agrees to apply EU law in full for its duration. Assuming such a transitional period can be agreed, it remains unclear what would happen after that date.

In the meantime, the UK is making tentative steps towards starting to discuss new free trade agreements with countries outside the EU, including those that already have such agreements in place with the EU. Such discussions are unlikely to progress until the UK’s current trading arrangement with the EU become clearer and, in any event, these agreements cannot be concluded until the UK has left the EU.

Plan ahead

Reflecting the UK’s membership of the EU for over 40 years, a significant portion of UK law is either directly implemented EU law or reflects EU law influences. Most EU law applies in the UK only by virtue of the European Communities Act 1972, which gives binding effect in domestic law to EU legislation and wider legal principles underpinned by the EU Treaties. While EU laws that have been incorporated into UK statute will remain in place after March 2019, other EU laws will no longer have effect once Brexit occurs (which requires that the European Communities Act be repealed).

Failure to take account of this would leave material gaps in UK domestic law post-Brexit, leading to significant legal uncertainty and disruption. To address this, the government has introduced the European Union (Withdrawal) Bill (commonly known as the Repeal Bill) before Parliament. Once enacted, this will convert all applicable EU law into UK domestic law at the date of withdrawal. The intention is that ministers will then use secondary legislation to fix any issues (for example, to remove references in UK statutes to the European Commission that reflect a role that ends when the UK is no longer a Member State). More controversially, ministers will also gain extensive powers to modify “domesticated EU law” over time, allowing a gradual divergence of the two legal regimes. The Repeal Bill has been extensively debated in the Commons and will proceed to the Lords early in 2018. A number of other bills related to Brexit are either already before Parliament or are expected to be introduced soon.

While much remains uncertain, the European Commission has recently started writing to UK businesses to point out the implications of Brexit and urging them to take steps to ensure compliance with their legal obligations after March 2019. We recommend that our clients should plan for the coming changes and stand ready to assist.

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