Brexit: The Legal Position
It is important to understand that currently, the law has not changed, and the UK remains a member of the EU. The referendum result is not legally binding on the current or any future government. The vote may be followed by a decision of the UK government to leave the EU, but speculation about a second referendum has been raised, in addition to the possibility of an early general election. If the UK were able to negotiate concessions from the EU (such as on immigration), a second referendum could follow meaning that the UK could stay in the EU. At the moment, however, there is little sign from the EU that any such concessions will be made.
There is no legal obligation to make the decision that would give rise to the notification requirement under Article 50 of the Treaty on European Union, but once triggered by that decision, the formal withdrawal process begins. The period for negotiating the withdrawal agreement has a long-stop of two years after the notification date. After that time, the EU Treaties will cease to apply to the UK, unless there is agreement of all member states to extend this period.
If the UK government acts in accordance with the vote to leave there is no common consensus as to what will replace the existing relationship of the UK with the EU. This uncertainty is reinforced by the fact that such a course of action is against the opinion of a significant majority of current members of parliament.
There are a number of trading options for the UK following exit from the EU:
- The Norway Model: Norway, Iceland and Liechtenstein are part of the European Economic Area (EEA) and remain part of the EU's single market trading with the remaining members of the EU. If the UK opted for this model it would cease to have a vote in the EU legislative process, but would still be subject to much of the same EU legislation that applies currently. The EEA agreement covers the four freedoms (free movement of goods, persons, services, and capital) in all EEA States and other "horizontal" policies such as consumer protection. It also provides for other areas of cooperation such as research and development ("flanking" policies).
- The World Trade Organisation (WTO) Model: This model offers the most complete break with the EU and would rely on the UK using its existing membership of the WTO as an umbrella for trade with the EU. Tariffs may then be applied to goods exported to and from the EU. The WTO has never had discussions with an existing member in such circumstances and the timing and outcome would be uncertain.
- European Free Trade Association (EFTA): The UK could enter into its own trade agreements with the EU whilst not being part of the EEA. As part of these trade agreements it is likely that the EU will require acceptance and compliance with most EU laws – both existing and future. Switzerland is currently the only EFTA member not in the EEA but still part of the single market.
- Free Trade Agreement (FTA): The EU has concluded a number of FTA's with many countries worldwide in order to reduce trade barriers and to increase trade of goods and services with the EU. Any FTA between the EU and the UK would specify those aspects of EU law to which the UK would be subject. In view of both the history of the UK with, and its proximity to the EU, it is possible that the EU would require significant compliance with existing EU legislation as a condition of an FTA.
- European Union Customs Union (EUCU): No customs are levied on goods travelling between countries within the EUCU and the EU negotiates as a single entity in international trade deals instead of member states negotiating for themselves. Andorra, Monaco, San Marino and Turkey are non EU members of the EUCU. Membership of the EUCU for the UK is highly likely to be subject to conditions, particularly acceptance of the same tariffs for non-EU imports.
The UK's position is unique in that it is the only EU member state to have voted to leave. It is also an important economic player, particularly in financial services. Although it is difficult to predict, it is likely that any future agreement between the EU and the UK will also be unique.
The options above are the most obvious but due to the existence of a unique EU confectionery - "European Fudge" they are by no means exclusive and a wide spectrum of negotiated agreements are possible.
We will continue to monitor events as they unfold, and will be posting further information on our website in the coming days.