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What happens now?

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, key issues that businesses need to follow, 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.

What is the exit process?

Article 50 of the Treaty on European Union sets out the mechanism for leaving the EU. It states that any Member State can “decide to withdraw from the Union in accordance with its own constitutional requirements.”  The UK Government will, therefore, need to formally trigger this process,  in accordance with UK constitutional law.

There are mixed views as to whether the UK Government alone can do this or whether the decision will need to be approved with an Act of Parliament.  While the UK Government can trigger Article 50 at any time, there is no mechanism for the EU to compel the UK to trigger it.  Nonetheless, British Prime Minister Theresa May has confirmed that she will serve the Article 50 notice, formally commencing the process of withdrawal from the EU, by the end of March 2017.  Paving the way for the UK to have left the EU by the Summer of 2019.

Under Article 50, notice of the UK’s intention to leave must be given to the European Council (which includes the Heads of State and Governments of the EU Member States). This must be done in an unequivocal manner, and can either be a letter to the President of the European Council or an official statement at a meeting of the European Council duly noted in the official records of the meeting. Once notice is given, negotiations between the UK and the rest of the EU to agree a withdrawal agreement will commence. 

During the negotiation period, the UK will remain a full EU Member State and will continue to take part in all EU decision-making except in relation to the withdrawal agreement. The withdrawal agreement will need to be agreed by the EU Parliament and the European Council.

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 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 to apply during this period.

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.

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

The EU has the exclusive competence to negotiate trade agreements on behalf of its Member States (including Ireland) under its Common Commercial Policy.

Trade deals with the EU are very hard to negotiate; they tend to take many years to agree. For example, the EU’s Comprehensive Economic and Trade Agreement with Canada took seven years to negotiate and it has still not been ratified. In practice, all EU Member States would need to agree the terms of any new trade deal. Furthermore, on 30 June 2016, the EU’s Trade Commissioner stated that the withdrawal agreement between the UK and the EU would need to be negotiated and agreed before the negotiations on the trade agreement could commence. In practice, however, the withdrawal agreement and the terms of the UK’s future relationship with the EU will be closely linked.

Post-Brexit, the UK’s relationship with Ireland / the EU could take a number of forms. Eversheds Sutherland 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". It is, however, likely that the eventual UK model will be bespoke and may include elements of more than one model.

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

For businesses in Ireland who import from or export to the UK or are part of an EU corporate group this uncertainty means that planning is very difficult if not impossible until we have some clarity as to what kind of relationship the UK is seeking with the EU. Businesses should look at the various models and work out the implications of those models. Lawyers in our Brexit Group have been advising clients on the impact of Brexit, including reviewing current trading relationships and contracts to identify the potential areas of risk arising out of Brexit and ways in which that risk can be mitigated.

Trading with the rest of the world

The UK cannot conclude any trade agreements until it actually leaves the EU due to the EU’s Common Commercial Policy. 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 with which the EU does not have a relationship.

In respect of non-EU countries with which the UK does not negotiate a free trade agreement, WTO rules require the UK to charge each country the same tariffs (referred to as its “most favoured nation” tariffs). Some commentators have suggested that the UK may adopt the EU’s Common External Tariff as a starting point, however, it would seem likely that the UK would immediately drop the EU’s protectionist tariffs on produce and goods that the UK does not grow or make, but the EU does, such as bananas and tobacco.

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