Following the Referendum on 23 June 2016, the UK has taken the historic decision to exit from the European Union (EU) which means that the UK Government will trigger Article 50 of the Treaty on the European Union by notifying the European Council of the UK’s intention to leave. What the future will look like is uncertain for both UK companies and the economy, and until details emerge, it’s also unclear as to the type of relationship the UK will have with the EU.
We also note that it is an open question as to whether the UK will generally align itself with the EU, or undertake an independent course: crucially, will the UK continue use EU law as the main body of UK law? There is a broad assumption that the UK will, as a result of Brexit, repeal the European Communities Act 1972. This repeal would stop the UK being obliged to follow EU law as of that date, but will the UK decide to permanently keep the corpus of EU law in place as at that date, will there be some transitional period in which EU law is replaced, or will the UK seek to replace EU law with something else immediately?
It is worth noting that a vast body of EU law (in the form of EU directives) has already been implemented in the UK by UK statute, and this would therefore not be affected by Brexit (unless the UK actively decides to repeal the relevant UK legislation). Other forms of EU law, such as EU regulations, applied directly to the UK whilst it was a member of the EU. Post-Brexit, EU regulations will no longer in the UK unless transposed by appropriate UK legislation.
This is an important issue because some consequences of Brexit will be automatic because the UK and EU-27 will continue to trade in some form. Other consequences will depend on whether the UK decides to change the way it governs itself when not trading with the EU-27. Will the UK take a conscious decision to stop adhering to EU law, and develop an increasingly separate body of law governing only the UK? Or will it decide to transpose certain EU regulations into UK law by use of appropriate UK statute, and so maintain the status quo? Again, at the moment, there is no legal or political framework for answering these questions.
Of course, exporters of goods and services to the EU-27 will always need to adhere to EU-27 rules affecting that trade, in the same way that US exporters to the EU have to comply with EU rules at the moment. But there is no particular legal reason why the UK should align itself with all EU law, particularly those that do not directly affect trade with the EU-27, for example, many employment, tax or competition rules. Nor is the UK required to keep EU rules designed to regulate trade within the EU, for example public procurement rules designed to eliminate national preferences. It is almost impossible to predict what effects a divergence of UK law from EU law will have, and so this checklist does not cover this issue.
We now know that the UK has voted in favour of leaving the European Union (“EU”), in a so-called “Brexit”, however many companies are struggling to understand whether or not they will benefit or be at risk now that the UK has voted to withdraw from the EU. Asking the right questions now will help companies identify the potential risks and opportunities that the Brexit scenario causes for their organisations. Baker McKenzie has put together a Brexit checklist which aims to outline the core questions that any organisation should be asking itself in order to understand the implications of Brexit. It should also help to identify which alternatives to EU membership are best for your business.
Below are the main questions that your business needs to consider:
- Does your business manufacture in the UK? If so where does your business purchase its inputs from?
- Does your business consume services in the UK provided from third countries?
- Where are your business’ main markets?
- Does your business supply of goods or services into the EU require establishment in the EU?
- Does your business have many mobile employees or employees that travel/work in different locations within the EU?
- Does your business have any long term contracts which might be affected by withdrawal from the EU? What if any steps can be taken to rebalance rights and obligations under such contracts?
- Who is responsible for taxes and duties in any contracts you have?
- Does your business receive any grants or subsidies from the UK government and/or the EU?