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UK Referendum result - What will it mean to leave the EU?

  • Latvia

    28-06-2016

    The result of the EU referendum was announced on Friday, 24 June 2016 with a vote in favour of the UK leaving the EU. In this briefing we outline what happens next and the exit process. We also identify some of the issues that businesses should be considering now and the steps that they should be taking. The “Leave” vote has led to political uncertainty which will have a significant impact on the exit process. We will keep you updated on developments via our Brexit hub.

    Although it will be some time before the terms of the UK’s future relationship with the EU are known, there are things that businesses can consider and plan for now, and changes they can start to make, to help protect their interests. Planning will help put businesses in the best possible position in the uncertain months to come. The shape that Brexit will take is not certain and there is scope for businesses to be involved, on their own or together with their trade bodies, to influence the outcomes of the EU/UK negotiations in relation to their sector.

    Does the UK still have to comply with EU law?

    The short answer is yes – nothing changes until the UK actually leaves the EU. During the negotiation period, the strict legal position is that the UK and businesses operating in the UK must continue to comply with EU law and EU law will still be enforceable in the UK. Free movement of goods, people, services and capital will continue and the UK will continue to make contributions to the EU budget. The UK will be required to implement any new EU laws that are due to come into force during the negotiation period.

    A number of commentators have, however, suggested that there could be a ‘go slow’ in relation to the implementation of new EU laws during the negotiation and withdrawal period. During the referendum campaign, Vote Leave said that it would move to pre-empt a UK exit, including proposing bills to limit the powers of the Court of Justice of the EU (“CJEU”), to make VAT changes, to allow the UK to make its own trade deals and to limit EU immigration. These could cause clashes with Brussels and put the UK in breach of its obligations under international law.

    What will the UK’s trading relationship with the EU be post-Brexit?

    Trade deals are very hard to negotiate; they tend to take many years to agree. To achieve a full trade deal between the UK and the EU in two years would be a remarkable feat. In practice, all EU Member States would need to agree the terms of any new trade deal.

    Post-Brexit, the UK’s relationship with the EU could take one of a number of forms. Eversheds has set out a detailed examination of five possible models on which a post-Brexit EU/UK relationship could be based – you can find these in our brochure "Making Sense of Brexit". At this stage there is no clear vision of what the UK would want that relationship to be. Even within Vote Leave there are differences of opinion on this issue but it will be the UK Government, not Vote Leave, that will lead the negotiations.

    If no trade deal is agreed within the relevant time frame, the UK and the EU will trade under the terms of the World Trade Organisation ("WTO"). This would mean that the EU would be obliged to impose its Common External Tariff on UK imports and the UK would be free to impose import tariffs on goods entering the UK (from the EU and elsewhere). Goods would also be subject to custom barriers. The EU’s Common External Tariff varies from 0% on cotton, 11.5% on clothing, 25.6% on sugar and confectionery, to 45% on certain dairy products. Goods exported to the EU would still need to comply with EU standards.

    For businesses in the UK who import from or export to the EU or are part of an EU corporate group this uncertainty means that planning is very difficult if not impossible. Businesses should look at the various models and work out the implications of those models. Lawyers in our export control and trade group have been advising clients on the impact of Brexit on tariffs for their particular business in the run up to the referendum. Contact one of our trade lawyers for further information.

    Trading with the rest of the world

    Once the UK leaves the EU the UK will lose the benefit of the EU’s free trade deals with non-EU countries. The UK will no doubt look to replace these and create trade relationships with countries

    where the EU does not have a relationship. Vote Leave has said that it will start to negotiate trade deals during the withdrawal period, though whether the individuals who make up the Vote Leave group will have the authority and whether the UK will have the resource to do so are both moot points.

    What happens to those laws deriving from the EU on Brexit?

    To answer this question, some understanding is needed on the different instruments used to implement EU law.

    EU Treaties form the constitutional basis of the EU and create the Single Market supported by the four freedoms of movement in goods, people, services and capital. The EU Treaties are implemented into UK law through the European Communities Act 1972 ("ECA"). The ECA provides for the supremacy of EU law in the event of a conflict over UK law and also provides the legislative basis for transposing EU law into UK law.

    Some EU laws are implemented by means of a Directive. EU Directives set out general rules to be implemented into national law by each country as they deem appropriate. In the UK, they are implemented via primary legislation such as Acts of Parliament or secondary legislation such as Statutory Instruments in order to have effect. Other laws are implemented by means of a Regulation. EU Regulations are directly implemented into UK law and do not require legislation from UK Parliament. However, some have been implemented explicitly into UK law. EU laws are also made through the judgments of the CJEU which UK courts and regulators are required to follow.

    Which EU laws will continue to apply in the UK when the UK leaves the EU will depend on the model of Brexit that is adopted – if the UK were to join the European Economic Area ("EEA") for example to take advantage of being in the Single Market then it would have to continue to be bound by Single Market laws.

    If the UK is not required to comply with any EU laws as part of the withdrawal agreement, the EU Treaties will no longer apply to the UK. We expect the ECA to be repealed or amended at the same time so that EU law will no longer be supreme over UK law.

    Eversheds has looked in more detail at the likely impact in different areas


    How can Eversheds help?

    We will be monitoring the political developments closely as well as the negotiations between the UK and the EU when they commence. The outcome of those negotiations as well as any action taken by the UK Government to sidestep the UK’s obligations under EU law will have different consequences for each business. Businesses should, therefore, keep abreast of these developments.

    As a law firm with legal experts in all areas of law, we are well-placed to advise businesses across all sectors on the possible implications of Brexit for your business. We can help you to identify the specific risks for your business to manage your exposure and help you prepare a contingency plan. The new EU/UK trade deal will be crucial to business and with a team with extensive experience in advising on WTO and other trading terms we can work with you to help you lobby for post-Brexit arrangements for your sector.

    If you have any queries regarding the content of this briefing or any legal query on Brexit, our team of lawyers will be happy to assist you.

    Disclaimer

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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