01December2020

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Impact of the Decision To Leave the EU

Impact of the Decision To Leave the EU

It is now clear that the British people have made the choice to leave the European Union. The countr...


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Impact of the Decision To Leave the EU

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It is now clear that the British people have made the choice to leave the European Union. The country has spoken and it is for us to listen. Many businesses will be concerned and need time to assess the implications. But they are used to dealing with challenges and change and we should be confident they will adapt.

It’s important to remember that, despite the turmoil, the legal situation today is no different to the legal situation yesterday. We are still in the European Union, and will be for the next two years at least.

The immediate priority for Government is to shore up confidence and stability in the economy and to take the time to make the right decision

How the UK can leave the EU
Article 50 of the Lisbon Treaty sets out the formal process for leaving the EU, which will begin when the UK notifies the European Council of its intention to leave. The next meeting of the European Council is Tuesday 28th – Wednesday 29th June, but the UK Government does not have a legal obligation to provide this notification immediately.

The 27 remaining Member States will decide on some guiding principles by which the European Commission is to negotiate a withdrawal agreement with the UK. The process allows two years to conclude this agreement, but can be extended if Member States agree unanimously.

The future of the UK-EU trading relationships may not be the focus of this initial withdrawal agreement. There are many complex institutional considerations including:

  1. The future of EU nationals in the UK and UK nationals elsewhere in the EU
  2. The potential for continued UK participation in EU programmes such as Erasmus and Horizon 2020
  3. How to approach current EU funding commitments through Social and Regional Development Funds
  4. The UK’s commitments to contribute to the EU’s 2014-2020 budget
  5. The future of the UK’s MEPs, Commissioner, civil servants and Presidency

Article 50 dictates that 20 of 27 Member States in the Council and a majority in the European Parliament will have to agree the deal.

The CBI is prepared to react to a rapidly changing situation, as use of Article 50 is unprecedented. Whilst the theoretical process set out above is clear, there is a lot that remains uncertain.

The alternatives under debate If the future of the UK’s trading relationship is not considered as a part of the withdrawal agreement, a separate process will have to be established. However, a general understanding of how close the UK wishes to remain to the EU will have to be decided very swiftly. This will be the focus for the CBI over the coming weeks. Join the European Economic Area (EEA) In the EEA as in the EU, there are no tariffs on trade and the services passport that allows financial services firms to operate cross-border is maintained. However, trade in goods would require additional bureaucracy in the form of VAT payments and rules of origin declarations at borders.

Free movement with the EU is a pre-condition of EEA membership. Contributions to the EU budget and the EEA budget are required, and EEA members transplant extensive EU regulations into their own law without a formal mechanism to influence them.

To join the EEA, the UK would have to seek unanimous permission of the other members - Norway, Lichtenstein and Iceland.

Join the European Free Trade Area (EFTA) Switzerland is the only country in the EFTA but not in the EEA. Through 120 bilateral arrangements and 27 Joint Committees, Switzerland’s businesses have partial access to the Single Market.

The relationship the UK could secure if emulating Switzerland would be very similar to membership of the EEA – but only in certain areas of the economy.

As the relationship between Switzerland and the EU has become strained, it is not clear that the EU would accept another agreement of this sort.

A Free Trade Agreement (FTA) The scope of EU FTAs vary extensively. The UK could secure tariff-free trade and some access for service businesses. There is no requirement for free movement or budgetary contributions except for specific programmes.

Once an FTA is secured, it cannot evolve to respond to additional needs unless a new FTA is negotiated.

The negotiations to secure an FTA take around 5 years. Any complex, mixed trading agreement covering trade in both services and goods will be the subject of votes in the European Parliament and referendums in a number of Member States.

Without a new deal, the UK will trade with the EU under World Trade Organisation rules Leaving the EU without an agreement permitting Single Market access would result in the UK having to trade with the EU via WTO rules. That would mean the return of tariffs and customs borders on trade between the EU and the UK.

Separate negotiations will be required with the countries with which the UK wishes to maintain Free Trade Agreements with. Deals with 53 international partners have been secured through the EU

The legal relationship will remain the same for the next two years. Whilst we are anticipating a level of political and economic upheaval over the next few days, the UK is still a member of the EU for at least the next two years. A withdrawal agreement must now be negotiated, but the legal situation is currently the same.

It is important, however, that companies thoroughly assess the various ways their organisations might be affected by the UK’s withdrawal from the European Union. Areas you may wish to consider for your own business, customers and suppliers include:

  1. The potential impact of tariffs, customs charges and rules of origin declarations on EU trade
  2. The potential impact of non-tariff barriers to service trade with the EU
  3. Trade outside the EU in countries with which the EU has trade deals
  4. Current regulations and standards influenced by the EU which may now be renegotiated
  5. Upcoming European legislation, its application in the UK and the significance Brussels may have going forward
  6. Disruption to EU programmes and funding
  7. The future of migration, including current EU residents and future immigration policy
  8. Potential for further devolution in the UK
  9. Investment decisions, contracts and licenses that refer to EU legislation

Source: HTA