Brexit poses key questions on regulation for all business and professional sectors, in and outside the UKJuly 12th, 2016
By Keith Nuthall The UK's vote on June 23 to quit the European Union (EU) creates deep uncertainty over the shape of regulations and legislation in Britain, affecting all economic and professional sectors. As new UK Prime Minister Theresa May takes office, she has the toughest in-tray imaginable – recasting and then renegotiating the UK’s regulatory relationship with the 27 countries remaining in the EU and the EU’s central institutions.
Victory by the ‘Leave’ side in Britain’s in-out referendum enables the UK government to kick off an exit process by invoking Article 50 in the Treaty on European Union, which gives notice that member state wishes to leave.
Assuming Article 50 is invoked, and only a serious political crisis would prevent this, Britain would have two years to renegotiate its relationship with the EU, during which time existing EU legislation would stay in force. Afterwards, that would depend on the post-Brexit relationship negotiated by the UK with the EU, and whether the UK would, unilaterally, impose national controls based on EU laws.
And there is, of course, a lot of EU legislation in force that may not apply in Britain after a Brexit. As of July (2016) the EU’s statute book (called the Acquis Communautaire) contained 19,649 legislative acts. These cover a huge range of issues – including general, financial and institutional matters; customs and free movement of goods; food, agriculture and fisheries; employment and company law; transport’ competition; taxation; capital movements; external relations; energy; industrial policy; regional development; the environment; consumer and health protection; science; security; justice; and much more.
This is a veritable ‘Tower of Babel’ of laws, and the UK will have to decide what it applies and what it does not, after it quits the EU.
It is now up to the UK to decide when to request withdrawal from the EU, so that Article 50 two year clock has yet to start clicking, and it maybe some months before Britain makes its formal Brexit application.
Once it has, however, then the UK must choose what kind of relationship it wants with its former EU partners. One option would be for Britain to apply to join the European Economic Area (EEA) – which currently includes non-EU members Norway, Iceland and Liechtenstein. This EU halfway house system could limit the impact of a Brexit (British exit from the EU). It involves the application by member countries of EU laws on the free movement of goods, services, persons and capital, as well as competition and national subsidy rules, as well as consumer protection, company law, environment, social policy, statistics, research and technological development, education, training and youth, employment, tourism, culture, civil protection, enterprise, entrepreneurship and small and medium-sized enterprises. It would also retain duty free trades on industrial goods for EU imports and exports. With this option, however, Britain would be free to decide its own agriculture and fisheries production policies; customs policies; tariffs on food and drink goods with the rest of the EU; trade policy; foreign and security policy; justice and home affairs; direct and indirect taxation; and – as today – the UK could refuse to use the single European currency, the Euro
That said, these laws may not apply in exactly the same way to Britain, if it became a non-EU EEA member, as there are a range of detailed exemptions and opt-outs negotiated for these countries.
But Britain may baulk at this choice as non-EU EEA members have to pay into the EU budget to get access to non-food elements of the EU single market; have no votes on the EU Council of Ministers and European Parliament (although it would be consulted on EU EEA legislation); and other EEA countries would have to accept Britain as a member. As this includes other EU member states – maybe upset over Brexit – British EEA membership maybe refused.
Another option would be following Switzerland and remaining outside the bulk of EU laws, negotiating bilateral trade deals with the EU. But the Swiss usually have to implement EU rules as the price of such deals. And they are struck only where the EU wants to grant the Swiss market access – so duties on UK exports to the remaining EU and vice versa could well be erected, although the Swiss currently trade for the most part without duties with the EU, at least as far as industrial goods are concerned. But Switzerland exporters do not have free access to the EU single market for various goods and services, facing a range of non-tariff bureaucratic barriers. Negotiations on dealing with such problems continue, notably over free access for Swiss energy exporters. However, the passing of a referendum measure in 2014 ordering the Swiss federal council to enact immigration controls on EU citizens, has meant many talks have not been brought to a conclusion, including on allowing Swiss scientists access to EU research projects, and power companies to the electricity market. With immigration being a key concern underpinning the UK’s ‘leave’ vote in the referendum, the risks of a Brexit without accepting free movement of EU citizens into Britain are clear – the UK may not get the access to EU markets it wants.