Brexit in short
After the UK’s vote to leave the EU and consequent notice of withdrawal under Article 50 (2) of the Treaty on European Union, the UK has entered into a two-year negotiation period ending at the latest on 30 March 2019, in which it should – in the best case scenario – smooth out post-Brexit relations and avoid business uncertainty. To buy more time to adjust to the new relations between the UK and the EU, the parties agreed on a 21-month transition period ending 31 December 2020.
What are the possible outcomes?
Many might have heard about “soft and hard Brexit”, but the terms mistakenly make it look rather simple. There are five possible outcomes by which UK-EU relations are going to be treated after Brexit:
- First: the “softest Brexit” in this unlikely case, UK remains part of the European Economic Area like Norway, Iceland or Lichtenstein (Also part of the EFTA), enjoying full access to the European Single Market;
- Second: “soft Brexit”, UK going down a path like Switzerland, being part of the European Free Trade Area, negotiating its own bilateral agreements;
- Third: “hardish Brexit”, UK remaining in the EU’s customs union like Turkey;
- Fourth: “hard Brexit”, probably the most likely one, UK and the EU concluding a Free Trade Agreement like Canada;
- Fifth: no Brexit agreement, if parties cannot agree on post-Brexit relations the UK will fall back on the general WTO framework, relying on general international trading rules;
What will happen to businesses that deal with exports and imports?
Depending on the above-mentioned Brexit outcomes, businesses will have to comply with the different trade rules, possibly incur customs duties, carry out import and export according to EU regulations etc. In order to understand the impact of Brexit, we shall take into consideration the worst case scenario, the WTO framework, that is without being part of the common market, thus losing the four freedoms of the European Single Market (Freedom of Goods, Persons, Services and Capital).
1. What the EU framework provides for
It must be taken into consideration that community law helped businesses by providing them:
- Right of establishment;
- A set of substantive and procedural regulations aimed at facilitating the resolution of international disputes between companies residing in different member states. By not applying these regulations, companies will undoubtedly face uncertainty and much higher legal costs in case of EU-UK disputes;
- European funds aimed at helping businesses, research & development;
2. The WTO framework
The WTO model is the default option the UK falls back on in case no agreement is reached, in which the UK would rely on rights under the WTO GATS and GATT. As a consequence, the UK would have to negotiate and individually agree on the concessions with regards to services and goods and would also have to establish a tariffs framework. To businesses this would probably mean that their business would be subject to tariffs (for example a 10% tariff on exports and a 40% tariff on imports of components purchased from the EU).
What will happen to individuals?
With regards to one of the four freedoms, losing the free movement of persons would entail establishing a visa framework, thus regulating the flow of persons between the UK and the EU. The UK and the EU issued a joint document stating that both EU Citizens and UK nationals can continue “to live, work or study as they currently do under the same conditions as under Union law” until the cut-off date of 29 March 2019. EU citizens living in the UK arriving before that date will have the “right to stay” and would only lose their rights to residency if they are out of the country for five or more years. This would most probably apply to UK citizens living in the EU as well.
What the EU framework provides for
Community law guarantees numerous rights for European citizens in the UK and for UK citizens who are in the other EU Member States. Without this framework:
- They will no longer enjoy the strict and effective Community legislation aimed at protecting consumers;
- They will no longer enjoy “roaming like at home” when they travel in Europe;
- They will no longer enjoy free emergency medical assistance;
- They will no longer enjoy the digital single market which allows, for example, the use of streaming services throughout the territory of the Union by abolishing geoblocking;
- They will be subject to the immigration regulations of every single state like any other non-EU citizen;
If a European Citizen loses these rights for just one Country, a UK Citizen loses these rights in front of 27 Member States.
Conclusions
The outcome of a Brexit deal is a matter of great importance. Its consequences would not only affect business activity, but people in general. On one side, the UK-EU relationship is essential for maintaining economic development on the continent and global competitiveness, on the other hand the EU is understandably highly reluctant to offer a fantastic deal to the UK as this would only encourage other member states to take the exit door.
Finally, with the cut-off date quickly approaching, it is essential for both the UK and the EU to work out a deal that can be relied on by businesses and people alike as this will probably play a big part in the shaping of the future of the whole continent.
This article isn’t exhaustive and comprehensive of all the Brexit implications but it contains just few key topics to be aware of. Each situation must be singularly evaluated taking into consideration that negotiations are still ongoing with uncertain possible outcomes.
Euroleges ®