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Brexit - The UK and the EU

Mayer Brown is helping companies and organizations worldwide understand, and respond to, the emerging legal and business implications of the UK’s decision to leave the EU.


Brexit Impact Assessment Tool

Brexit Impact Assessment Tool

The majority vote in the UK referendum on membership of the European Union, announced on 24 June 2016, in favor of departure by the United Kingdom from the European Union, means that businesses operating in the United Kingdom now face a period of uncertainty.

The United Kingdom is set to leave the European Union on 29 March 2019 (Exit Day). The formal legal agreement on the terms of withdrawal (Withdrawal Agreement) and the non-binding Political Declaration on the framework for the future relationship were endorsed at an EU summit on 25 November 2018. However, the deal cannot take effect until it is approved by both UK and EU Parliaments (in that order) and by a majority of Member States at an EU Summit. After some delay, a 'meaningful vote' by UK MPs took place on 15 January 2019 and the deal was rejected by an overwhelming majority. The Prime Minister will make a statement setting out how the Government will proceed on 21 January.

It appears unlikely that there will be ever be sufficient parliamentary support for the deal, as it faces opposition from across the political spectrum. However, it is possible that the Prime Minister will be able to obtain further political assurances from the EU in relation to the contentious Irish 'backstop' arrangements. The backstop is designed to avoid a hard border between Ireland and Norther Ireland by establishing a temporary UK-EU Customs Territory (with deeper integration for Northern Ireland) in the event that no agreement on the future relationship can be reached by the end of the transition period. The key issue is that the UK would be unable to exit this backstop without the EU's agreement. However, it is considered unlikely that any further substantive concessions will be obtained from the EU. Both the UK and EU have stepped up significantly their 'no deal' contingency planning in recent weeks, and this is the legal default option if the Prime Minister cannot renegotiate her deal, or if no majority can be found in Parliament for an alternative approach.

Timing will now be a critical issue. Even if the Prime Minister's deal is eventually approved, any further delay to the Parliamentary vote would risk there not being sufficient time for the legislation implementing the Withdrawal Agreement to be put on the statute book in the UK. While an extension to the March 2019 deadline is possible, the Prime Minister has stated consistently that she would not make this request. If the UK were to request an extension, agreement would require the unanimous approval of the 27 remaining Member States. The EU has indicated that an extension might be possible if it were with a view to holding either a General Election or Second Referendum. While current Labour Party policy is to seek a General Election and renegotiate the deal, there appears to be growing political pressure for a Second Referendum.

In addition, the Court of Justice of the European Union has confirmed in a recent judgment that the UK may unilaterally withdraw its notification to leave the EU up until 29 March 2019. It stated that the withdrawal would need to be 'unequivocal and unconditional', putting an end to the withdrawal process and resulting in the UK remaining a Member State on current terms.

If parliamentary approval for the Prime Minister's deal is obtained, there will be a transition period of 21 months from Exit Day until the end of December 2020. The UK would be entitled to request a one-off extension to this transition period of either one or two years, subject to EU approval. This gives the UK an option to avoid the Irish backstop in the event that the negotiations on the future relationship are still ongoing at the end of the transition period, or that the technical measures required for a new customs regime are not yet in place. The UK would need to request this extension by 1 July 2020.

During the transition period, businesses will trade on essentially the same terms as before and EU law will continue to apply, while the detailed legal agreement on the future relationship between the UK and the EU is negotiated. This will occur against a backdrop of political uncertainty, with European Parliament elections and a new Commission being appointed in Brussels in 2019, as well as continued debate within the UK as to the right approach to the UK's long-term relationship with the EU.

While the Withdrawal Agreement sets out a 'best endeavours' commitment to reach agreement on the terms of the future trading relationship by 31 December 2020, it is possible that a full UK-EU trade deal will not be agreed in this timeframe (or indeed after the end of an extended transition period).

Negotiations, and the accompanying uncertainty surrounding the UK's exit from the backstop arrangements, could thus continue for some years to come.
The UK will also need to use this time to seek to 'roll over' existing trade relationships with third countries with which the EU has trade deals, as well as negotiate and ratify new ones.

This period is also likely to see several legal challenges as the new relationship with the EU is tested in the courts.

It will therefore be important for businesses to consider the implications of the likely changes in the legal and regulatory framework for their operations and strategic decision making. In the current uncertain climate it is also highly prudent to be prepared for the possibility of a 'no-deal' outcome.

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