On 23 June 2016 the ‘Brexit’ referendum will take place; the only question being asked is does the UK stay a member of the European Union, or do we leave? Polls have the voters nearly tied with the ‘as yet undecided’ being the crucial swing votes, and over the next few months both camps will be fervently campaigning for the future of Britain.
Polls indicate that the vote is nearly tied, and so over the next few months both camps will be fervently campaigning for the crucial swing votes of the ‘as yet undecided’, to determine the future of Britain.
The ‘remain’ camp’s principal argument is that Brexit is the biggest domestic risk to the economy, a view shared by Mark Carney, the governor of the Bank of England, and reinforced by the falling value of the pound. In the spring 2016 budget, announced on 16 March, George Osborne also concluded that Britain leaving the EU would adversely affect our economy, which is slowly still recovering from the recession in 2008. In the weeks since the budget, more and more financial institutions are declaring their support to remain in the EU. Internationally the IMF have also stated they believe Britain is a financially stronger entity as part of the EU.
However, the pro-leaving camp are campaigning that Britain under membership of the EU has lost control of its ability to govern its own future. Instead, the vote leave camp advocate that by leaving, Britain will have more control over spending and will have the freedom to re-invent our economy more in line with a Singapore-style supercharged economy. As the sixth largest economy in the world, and a super power within the EU, there is substantial evidence to suggest that the EU costs the UK too much in taxpayers’ money; and headlines constantly refer to how much the UK, France and Germany are propping up the other member states’ weaker economies. There is also the well documented argument that the EU wastes too much, as well as burdening member states with superfluous regulation. By leaving the EU, the campaigners insist that Britain should and can make all its own decisions.
If the UK were to exit the EU, the impact on the UK, and UK business in particular, will depend on the detailed terms of the UK’s negotiated exit. There is no precedent for a country leaving the EU, and therefore exit terms, and the relationship between the UK and the EU (or individual countries within the EU) can only be speculated. Much UK law and regulation is based on EU law; how an exit would affect current law or its interpretation is not yet clear.
Commentators are currently debating the strengths and weakness of the possible options available to the UK post exit. The first option is for the UK to become a member of the European Economic Area (EEA) but not a member of the EU. The UK would enjoy the benefits of free movement rules and would contribute (albeit at a reduced amount) to the central running of the Internal Market as well as maintaining many of the EU laws already in place.
Option two is for the UK to become a member of the European Free Trade Association (EFTA) rather than the EEA. The UK would be able to enter into bilateral trade agreements with the EU, however businesses would not be governed by the same laws as member countries. The UK would therefore be free to conclude separately negotiated trade agreements with other countries either independently or jointly through EFTA.
The third option is to adopt a stance similar to Turkey and enter into a Customs Union with the EU. This would give the UK access to the EU Internal Market for goods without customs duties, however access is conditional on the UK not breaching the EU-set common external tariff on imports from outside the Customs Union.
The fourth option would see the UK negotiate a Free Trade Agreement with the EU, covering goods and services and giving the UK freedom to set its own laws. However, UK businesses would lose the Internal Market rights which could have an impact on international companies being able to use the UK as their European base.
The fifth and final option is a World Trade Organisation (WTO) relationship. The UK would leave the EU in its entirety and only rely on its WTO membership as a basis for trade with the EU. The UK would have the same access to the EU as the USA and China currently enjoy. Each trade agreement with an EU member state would have to be negotiated separately, however the UK would be free to act independently without being subject to EU laws.
With the outcome of the referendum too close to call, neither side can predict the impact of a UK exit or what the precise implications will be for commercial parties. However, what is clear is that while the details of any UK exit are being debated, legal uncertainty remains for all business entities and remaining inactive is a risky strategy. Steps should be taken now to examine the potential effects of Brexit, based on your individual circumstances. Businesses will be receiving advice from their legal teams on appropriate strategies to implement decisions on legal and operational matters efficiently and in a way that minimises potential risks should the vote to leave prove convincing. Should a Brexit take place, in any form, there will be an impact on the legal rights and obligations of commercial parties in all sectors, as well as the wider legal framework.
N.B. This article covers a range of legal and other issues to be considered and may express independent views of the author. None of the views expressed are representative of the Partners or the Partnership.