The long goodbye: Brexit – the real question

01 July 2016

01 July 2016 by Chris Denning Tax

Now that the dust is starting to settle on the result of the UK’s EU Referendum and its subsequent decision to ‘Brexit’, all eyes are now turning to the untangling of 40 years of political and economical marriage.

There has been a lot of noise around whether the EU will play hardball over establishing new trade agreements, will others exit, is the UK headed into recession, or will separation lead us back to prosperity…

The real question here, however, is can Brexit really be negotiated in just two years from the date Article 50 is triggered?

The EU currently has 50 trade agreements in place with non EU territories which the UK benefits from by virtue of being a member of the EU so there are 50 existing agreements that will need renegotiating, hopefully towards replication.

The EU has also been negotiating with other territories, negotiations which the UK will now need to do on its own (and from “the back of the queue” with the US!)

This will be on top of the UK negotiating to exit the EU and agree a way forward. The initial view from our legal friends is that there are likely to be two separate agreements negotiated separately and concurrently.

Experience will play a key role with the UK’s civil service having little know-how in trade negotiations (we have, after all, been part of the EU for 40 years!) and limited resources so getting these in place will be a driver in the timing of the trigger of Article 50.

The key issue here is how and when we pull the trigger on Article 50. This needs to be a “constitutional” decision and it’s unclear what this actually means. It may be that a parliamentary vote is required, or even a specific act of parliament.

This point was highlighted in the aftermath of a ‘Brexit’ vote when prominent British law firm, Mishcon de Reya, was instructed by, supposedly, a group of clients to block Article 50 being triggered. Although the group’s identity hasn’t been revealed, Mishcon de Reya’s client base includes Capita Group, Dell, Hewlett Packard and Microsoft.

Proceeding to trigger Article 50 without the consent of Parliament would be unlawful, the firm alleged. In a statement, it said:

“The Referendum held on 23 June was an exercise to obtain the views of UK citizens, the majority of whom expressed a desire to leave the EU. But the decision to trigger Article 50 of the Treaty of European Union, the legal process for withdrawal from the EU, rests with the representatives of the people under the UK Constitution.”

So, if/when Article 50 is triggered, clearly the simplest solution would be that the UK negotiates to remain a member of the European Economic Area, although this would require UK consent to the free movement of people so unless this can be watered down this is unlikely to be an acceptable way forward.

Even when agreement is reached it will then need to be ratified not just by the UK Government (following another referendum?) but also by the all of the member states through each of their own parliamentary processes.

It is worth noting then that the two year time period within Article 50 can be extended which given the enormity of the task ahead must be more than likely. If talks are not concluded after two years, and not extended, Britain reverts to world trade organisation terms which mean that tariffs have to be imposed on trade between the UK and the EU. This, of course, could have a consequence on our exports – especially if they operate on a razor thin margin line, or are exported via the US, for example.

Whilst we wait for the UK Government to act, one thing is for sure – we will be instructing clients to stay close to their advisors to ensure they are well placed to respond to the ever changing business environment.

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If you have any immediate Brexit questions please email us or send enquiry as we are interested in discussing this with you.