Boris Johnson has pledged that the UK will leave the EU by 31st October “come what may” even if it means the UK leaving without a deal. His appointment as Prime Minister and the removal of 18 cabinet members who have been replaced with pro-Brexit supporters have made the prospect of a no-deal Brexit more likely as a result. In this article, Frank Scott-Ashe looks at what it will mean for businesses generally and, in a second article, he offers some suggestions as to what they can do to prepare. Follow this link to his other article, ‘Brexit “no-deal” – how businesses can plan‘.
Leaving the EU without a deal on 31st October (“Exit Day”) is currently the default position if the withdrawal agreement negotiated by Theresa May’s government is not ratified by that date or there is no extension of the deadline or the UK does not revoke the Article 50 notice (to exit from the EU) that was served on 29th March 2017.
What no-deal means for businesses?
UK will no longer be subject to EU law?
While this might indeed be the case from 31st October, the UK has in fact chosen to retain most of the existing EU law by passing the European Union Withdrawal Act which achieves the following:
- Transfer of lawmaking powers from the EU to the UK (the EU would cease to have power to create laws directly applying to the UK as the European Communities Act 1972 which granted that power would be repealed). The UK would become the sovereign lawmaking power once again.
- Enables existing EU law to be transferred (effectively copied across) into UK law to allow legal continuity and to minimise disruption as so much EU legislation currently applies to the UK. The UK government would have powers to amend or remove those laws that are no longer relevant.
UK post-Brexit policies would come into effect on Exit Day
They, for example, cover the following areas: customs; agriculture; fisheries; the environment; immigration and anti-money laundering.
While the UK may be doing all it can to deal with problems on the UK side of its relationship with the EU by, for example, facilitating imports to minimise trade disruption, transferring EU law into UK law and recognising EU standards on goods and services, the EU would have no obligation to do the same and, in the event of a no-deal scenario there may be little goodwill from the EU. Furthermore, the future of the UK’s relationship with the EU would still need to be resolved and the EU would want to address the following before agreeing on any free trade agreement:
- The matters that led to the original impasse (and no-deal scenario) such as maintaining the integrity of the EU internal market, along with the Irish backstop.
- Rights of EU citizens in the UK.
- The divorce bill.
Trade between UK and EU
HM Revenue and Customs estimates that about 240,000 UK businesses trade with the EU alone. As they may not have had experience trading with other countries, the process is likely to be particularly disruptive for them. Where the UK leaves in a no-deal scenario:
- Break away from single market – The UK would cease to be part of the EU single market and customs union. Also, there would no longer be the freedom of movement of people, goods, services and capital between the UK and the EU.
- Qualifications – UK professional qualifications obtained by workers (eg doctors, nurses, pharmacists, dentists, vets and architects) would not be recognised by EU countries. In short, those reliant on their UK qualifications in order to work elsewhere in the EU would no longer be able to practise in those countries. Certain professions are separately governed by legislation specific to their sector which would cease to apply on Exit Day. For example, lawyers who obtained their qualifications in the UK would find their ability to provide cross-border legal services restricted.
- What rules would apply? – Trade between the UK and EU would be subject to World Trade Organisation rules which apply to countries (or in this case the EU and the UK) where they do not have free trade agreements with each other. Each WTO member has a set of tariffs and quotas (listed in its own schedule) that it applies to other countries. The tariff applicable will depend on the type of goods in question. The UK would need to take into account of the following:
- Trade tariffs apply on goods supplied – This is due to the fact that the UK would not be able to rely on Article 24 of the General Agreement and Tariffs and Trade (GATT) which allows tariff free trade on goods between countries where a free trade agreement or interim trade agreement is in place (which would not be the case in the event of a no-deal).
- WTO’s “most favoured nation” rules apply – This is based on the general principle that each WTO member must treat every other member in the same way where they do not have a free trade agreement. A WTO member cannot, for example, agree to apply lower import tariffs with another country that does not have a free trade agreement with it without offering the same preferential tariffs to other WTO members who do not have a trade deal with it. Consequently, the UK will be unable to lower its import tariffs on goods received from the EU without a free trade agreement (unless it offers the same terms to other countries) and the same applies to the EU on EU goods exported to the UK.
- The UK would be classed by the EU as a “third country” – As the UK would be outside the EEA (being Norway, Iceland, Liechtenstein and any country in the EU), EU rules provide that trade with the UK would be governed by the same EU rules applying to non-EEA countries.
- A UK business trading in the EU would be subject to the laws and practices of each individual EU country where it has dealings (bearing in mind that each EU country may have different rules applying to non-EEA countries).
- Border issues – note the following:
- Imports / exports between the UK and EU would need to follow customs procedures just as they do for goods going to / coming from non-EU countries.
- Goods being transported between the UK and EU countries may encounter significant delays as the EU would, for example, apply customs and regulatory controls with goods having to be checked at ports. The UK government has however recently announced its intention to create up to 10 free ports across the UK which would allow goods to be imported, manufactured and re-exported outside of normal tax and customs rules.
Trade between UK and non-EU countries
In order for the UK to be able to continue to trade with non-EU countries as it does currently, this will depend on the UK government rolling over all of the EU’s existing trade agreements with those non-EU countries. WTO rules will otherwise apply to its dealings with those countries where it fails to do so. A list of those countries with whom the UK has signed trade deals so far may be viewed via this link.
Transfer of data between EU and UK
As the UK would be classed as a third country on Exit Day, this would mean that personal data can only be transferred to it where an adequate level of protection is guaranteed. Where the European Commission has not reached a decision on this point, an alternative arrangement would need to be made to enable the transfer of personal data from the EU to the UK.
UK businesses will no longer be eligible for EU funding. This would include, for example, funding for European research and innovation projects (under Horizon 2020) as well as for farming. The UK government is however guaranteeing to those businesses who have secured EU funding that they will continue to receive funding until the end of 2020 even in a no-deal scenario.
Follow this link to Frank Scott-Ashe’s article, ‘Brexit “no-deal” – how businesses can plan‘.
Where you are interested in a review of your existing contracts or wish to discuss how you may prepare for Brexit, please feel free to contact Frank Scott-Ashe in our Company Commercial Department on 01225 462871 or at frank.scott-ashe@blbsolicitors .co.uk.