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The people of the UK voted in the referendum on 23 June 2016 in favour of the UK leaving the European Union. The UK government has said that it intends to serve a notice triggering the formal Brexit process on 29 March 2017.

Many businesses will already have carried out a high level analysis of what the principal areas of impact on them are likely to be. Some will have gone further, identifying areas which already merit detailed planning or initial action.

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.

Faced with a wide array of possible outcomes, businesses need to have in place a process which:

  • identifies Brexit sensitivities (risks and opportunities),
  • reviews those identified areas in more detail (due diligence),
  • clarifies “red flag” issues requiring immediate action and “amber flag” issues potentially requiring action as the regulatory and commercial landscape becomes clearer, and
  • establishes a system by which these issues are subsequently reviewed and implemented.

Taylor Wessing is well placed to advise on these matters from its offices in the UK and around the world.

Below is some further background on timing and the legal implications.

Timing

To start the formal withdrawal process the UK government has said that it intends to serve notice on the European Council (the “article 50 notice”) on 29 March 2017. That will 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).

This would mean the UK leaving the EU by March 2019 unless an extension of the deadline were agreed.

Publicly the EU Commission and leaders of member states have indicated that no negotiations can begin until the withdrawal notice is given. That said, it is clear that there have been at least some preliminary discussions of principle.

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 UK government has signalled a wish to reach agreement on a new partnership with the EU within the two year negotiation period and to avoid a “cliff-edge” for business or a threat to stability. A phased implementation process is envisaged following such an agreement, which would give businesses enough time to plan and prepare for new arrangements, whilst avoiding the creation of some form of unlimited transitional status.

The “cliff edge” remains at least a theoretical possibility in the background for negotiations, with the government saying that “no deal for the UK is better than a bad deal for the UK”.

The next UK general election is scheduled for May 2020. It is possible that there would be an early general election if at any time it were felt a fresh mandate were required. It is also conceivable that, as things develop, further validation could be sought through another referendum.

In this context, one unknown is whether the withdrawal notice is capable of being revoked without the consent of the 27 other EU members. A number of prominent international public law commentators have said that it may be revocable whilst others doubt that. Ultimately this would need to be determined by the European Court of Justice.

Elections in France in May 2017 and in Germany in October 2017 may have an impact on the course of Brexit 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 (although the UK government has already given certain assurances in this regard).
  • The UK would cease to benefit from the EU’s trade agreements with other countries.

Much of 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.

On 2 October 2016 David Davis (the secretary of state for exiting the EU) announced that the government plans to repeal the European Communities Act 1972, which gives direct effect to all EU law in the UK. This would also end the jurisdiction of the European Court of Justice in the UK. It would take effect from the date of the UK’s exit from the EU.

At the same time a Great Repeal Act will convert existing EU law into domestic law, while allowing parliament to amend, repeal or improve any law after appropriate scrutiny and debate. It will be important to ensure these laws function in a post Brexit UK and where EU institutions currently have direct administrative powers, these will need to be replaced with alternative arrangements.

A white paper issued by the government on 2 February 2017 confirmed that there will be new primary legislation where there are significant policy changes, for example on immigration and customs (therefore allowing debate and scrutiny by parliament).

In a speech by the UK prime minister, Theresa May, in January 2017 and the white paper published on 2 February 2017, the UK government set out a number of negotiating objectives including the following:

  • the UK will leave the EU single market and enter into a free trade agreement with the EU,
  • to re-draw customs arrangements to enable the UK freedom to negotiate its own trade agreements with other countries and to notify its own tariffs to the World Trade Organisation,
  • to replicate as far as possible the UK’s current position as an EU member state, in relation to WTO tariff schedules, so that the interests of the UK and other WTO members are protected, and
  • the UK will have control over the number of people coming to the UK from the EU (with the white paper clarifying that the UK “will always welcome genuine students and those with the skills and expertise to make our nation better still”).

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.

How we can help

Taylor Wessing can help you establish or move forward your Brexit planning process, looking at the risks and the opportunities. We can help you navigate what, for many, will be a period of considerable uncertainty.

If you are an existing Taylor Wessing client, please speak with your regular contact, or for general Brexit enquiries, in the first instance, please contact Andrew Telling, Head of Knowledge Management.

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