Brexit, what now?

Our previous article outlined the global economic shockwaves caused by the Brexit referendum. Now, we turn our eyes to the legal implications of Brexit. We approach primarily from the perspective of the UK government, and the countless decisions it faces ahead.

The road to Brexit…

First, it is important to establish that the referendum held on 23rd June 2016 was nothing more than advisory. This means that even after the vote for “Leave” prevailed, nothing changed from a legal perspective. The UK is still currently a member of the European Union (EU) and is still bound under EU law. Before the UK leaves, it must undergo a tenuous process to negotiate its new relationship with the EU as well as trigger the necessary legislation for its formal departure.

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Treaty of the European Union

Two articles in the Treaty of the European Union (TEU) provide possible routes for the UK’s exit, as explained by the Vote Leave campaign. There is Article 48, that is, the amendment of the treaty using an ordinary revision procedure. However, the second Article 50 now provides a specific legal basis for a withdrawal process. The Court of Justice requires that the rules and procedures which apply to a specific legal basis apply over the rules and procedures of a more general legal basis. [1] Regardless of the legitimacy of using Article 48, it provides little procedural advantage. For a treaty amendment using Article 48, a unanimous agreement of all EU Member States is required. Additionally, the amendment must be ratified by each Member State in accordance with its own constitutional traditions. Simply put, using Article 48 creates unnecessary uncertainty that makes it a less viable alternative to Article 50, which is what we will focus on instead.

Article 50 states that “Any Member state may decide to withdraw from the Union in accordance with its own constitutional requirements”. In the case of the UK, a national referendum was held and must now give the European Council notice of its intention to leave. The treaties will then cease to apply to the UK after two years, unless an agreement has been reached before the expiry of the two-year period, or there has been an agreement to extend the negotiation period.

Do note that the outcome of the referendum does not act as “notice”. As such, the tricky issue is when notice will be served. (The question of whether notice should be served, is of course a whole other matter.) The UK currently has not served notice, thus resulting in its uncomfortable state of limbo. While Donald Tusk, President of the European Council, said that he expected the UK to trigger the process “as soon as possible”, David Cameron stated in his resignation statement that triggering the UK’s formal EU withdrawal should be a matter for the next incoming Prime Minister. The EU can bring great political pressure upon the UK to initiate the formal process, but legally, has no power to make the UK do anything. [2] This leaves the rest of the world awaiting the UK’s every action with bated breath.

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David Cameron (L) with  Donald Tusk (R)

Negotiations, negotiations, negotiations

The withdrawal process is likely to involve three sets of negotiations. First, the terms of withdrawal themselves – for example the rights of EU citizens living in the UK, and similarly, UK citizens living in EU countries. Second, trade partnerships with the EU and third, trade partnerships with the rest of the world and the World Trade Organization (WTO), as the existing arrangements from being part of the EU would no longer apply. [3]

Regarding the second and third issue, there are several existing models the UK could adopt. First, the UK could completely exit the EU and thus the single market the EU provides. Trade with the EU would rely on rules set by WTO or through a bilateral trade deal. Second, the UK could leave the EU but join the European Economic Area (EEA). The EEA constitutes the EU Member states and three countries not part of the EU (Norway, Iceland and Liechtenstein). Being part of the EEA extends the EU’s four freedoms (free movement of goods, services, capital and people). EU law would (largely) continue to apply to the UK, and the UK would have full access to the single market. Third, the UK could leave the EU and not join the EEA, but join the EFTA instead. The EFTA is an intergovernmental organization that includes European countries who are not members of the EU. This is likened as a Swiss model as Switzerland is the only country part of EFTA but not the EEA, and has negotiated for access to sector-specific parts of the single market. [4]

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What will Parliament decide?

Each model has its own pros and cons. Ultimately which path is chosen is most likely up to debate by the Parliament. For example, the second model (the Norwegian model) is likely to suffer from the anti-immigrant sentiment rampant in the UK. A large part of the Vote Leave campaign was driven by the intent to reduce the free movement of people across borders. On the other hand, the Vote Remain campaign emphasized the great benefits access to the EU single market provides the UK. Without access to the single market, the ability of EU nationals to work in the UK and the ability of UK nationals to work in the EU will be greatly affected. Which model is chosen will thus have significant impact on a range of issues such as tax and competition law and the various sectors, most notably, financial services, where the EU has embarked on its most significant harmonization efforts in recent years. The UK needs to decide how much of EU law to retain, as it has adopted a vast number of EU directives into its own law since 1973.

Final words

It is difficult to evaluate the potential impact on businesses and firms in the UK because the referendum has essentially created a great amount of uncertainty. However, the immediate steps following the UK referendum are largely a matter of politics, rather than law. [5] While it is legally possible to ignore the referendum, it would be devastating political suicide to do so. It is arguable that there is an insuperable political obligation to initiate the process and trigger Article 50. [6]. Aside from the issues we have discussed above, there is also the looming possibility of the disintegration of the United Kingdom. Dissection of the referendum results revealed the brutal truth: the UK is greatly divided on national issues, such as EU membership. While the majority of England voted Leave, Scotland, Wales and Northern Ireland, were overwhelmingly for Remain. What will happen in the next two years? Only time, and endless debates in Parliament and with the EU, will tell.

References

[1] http://resources.law.cam.ac.uk/cels/working_papers/CELS_Analysis_the_Leave_Roadmap.pdf

[2] https://publiclawforeveryone.com/2016/06/26/brexit-can-the-eu-force-the-uk-to-trigger-the-two-year-brexit-process/

[3] https://ukconstitutionallaw.org/2016/06/22/alan-renwick-the-road-to-brexit/

[4] https://corpgov.law.harvard.edu/2016/06/24/brexit-legal-implications/

[5] https://next.ft.com/content/5b82031e-1056-31e1-8e0e-4e91774e27f1

[6] https://publiclawforeveryone.com/2016/06/24/brexit-legally-and-constitutionally-what-now/

Images

1. Header: http://www.empowermm.com/wp-content/uploads/2015/06/ad_or_editorial_consider_content_marketings_broader_legal_implications1.jpg

2. Treaty of European Union: http://eeas.europa.eu/delegations/azerbaijan/images/content/treaty_of_lisbon.jpg

3. David Cameron & Donald Tusk: http://eeas.europa.eu/delegations/azerbaijan/images/content/treaty_of_lisbon.jpg

4. UK Parliament: https://i.ytimg.com/vi/BMP-BrXhcR0/maxresdefault.jpg

 

 

 

 

 

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