UK: Will They, Won't They, And What Happens Next…? The Great Brexit Debate

Last Updated: 11 April 2016
Article by Jeremy Cohen, Brandon Ransley and Stuart Hopper

Introduction

The UK is now counting down to the 23 June 2016 referendum on whether to stay in or leave the European Union. Dentons summarises the background to this momentous choice, and takes a deeper look at some of the legal issues involved in some key areas that would be impacted by a vote to leave the EU.

Background

On 17 December 2015, the European Union Referendum Act 2015 (the Referendum Act), came into force, providing for a referendum—to be held before the end of 2017—on the question:

"Should the United Kingdom remain a member of the European Union or leave the European Union?". The Referendum Act explicitly requires the government to publish information to help voters make an informed choice in the referendum. This information must include:

  • details of the terms of any revised agreement with the EU, together with the government's opinion on what has been agreed; and
  • information about the rights and obligations accompanying EU membership, with examples of how non-EU countries manage a relationship with the EU.

The UK government entered into negotiations with the other EU Member States to address concerns over its existing EU membership. It sought a package of reforms in the four key areas of economic governance; competitiveness; sovereignty; and immigration. Its demands were set out in a letter of 10 November 2015 from the British Prime Minister to the President of the European Council ("A New Settlement for the United Kingdom in a Reformed European Union").

At the European Council meeting in Brussels on 18–19 February, the terms of a "new settlement" for Britain were finally agreed by all Member States. On 19 February, the Prime Minister issued a statement outlining the reforms that had been agreed. On 20 February, the agreement was put to the full UK Cabinet; the referendum date was set for 23 June; and the campaigning—on both sides of the debate—began.

In accordance with the provisions of the Referendum Act, the government published the terms of the new EU settlement on 22 February.

In the report—entitled "The Best of Both Worlds: The United Kingdom's Special Status in a Reformed European Union"—the government also made a clear recommendation that Britain remains in a reformed European Union.

Legal procedure for withdrawal

On 29 February, the Cabinet Office published "The Process for Withdrawing from the European Union", a document setting out the process that would follow a vote to leave the European Union, and the subsequent negotiations. It is helpful to consider the two elements of any withdrawal process, which can be summarised as:

EU process: Article 50 of the Treaty of the European Union1 states: "Any Member State may decide to withdraw in accordance with its own constitutional requirements." Briefly, the process is triggered by a notification from a Member State to the European Council of its intention to leave. Following a withdrawal notification, there is a two-year time period for negotiations to be carried out in accordance with guidelines issued by the European Council.

UK process: There is no formal procedure under UK law for a withdrawal from the EU, so specific legislation would be required to make the necessary amendments to existing UK law. The starting point is likely to be the repeal of relevant provisions of the European Communities Act 1972, which makes obligations under EU Treaties binding in the UK and gives the UK government the power to make payments in line with its EU obligations. A large number of savings provisions and transitional arrangements are likely to be required, to preserve those parts of EU law—or the domestic legislation made under it—that are needed to avoid a legal vacuum in some areas.

On 2 March, the Cabinet Office released a further policy paper as part of the government's information obligations under the Referendum Act. "Alternatives to Membership: Possible Models for the United Kingdom Outside the European Union" looks at potential models for the UK's relationship with the EU, were it to vote to leave. Further information about the rights and obligations of the UK's membership of the EU will be published later.

The "Alternatives to Membership" paper discusses the options for the UK to have an ongoing relationship with the EU, in the event of a vote to leave. It provides examples of countries that are not members of the EU but have other arrangements with it: specifically Norway, Switzerland, Canada and Turkey. It also looks at a possible relation-ship based only on World Trade Organization membership. It sets out the main features and implications of each of the key existing models for the relationship, and assesses their suitability for the UK.

The paper concludes with the unequivocal repetition of the government's belief that no existing models outside the EU can provide the UK with the same advantages and influence that it has from its current status inside the EU.

Wider issues raised by the campaign

In the run up to the referendum, there is the potential for the reform debate to discuss some of the fundamental problems with the UK's relationship with Europe and to provide a roadmap for "better"— meaning less—EU regulation in future, in the event of a vote to stay in Europe. Whether this opportunity will be actually grasped is unclear.

However, it is the case that the UK's problematic relationship with Europe has multiple causes:

  • The UK currently doesn't get (enough of) its own way because it devotes too little resource to EU negotiations. Most of the time, these negotiations are fairly low down ministers' lists of priorities—negotiations are largely conducted by officials and they don't involve ministers having to face tough questions in parliament.
  • It is true that the Commission has an in-built bias towards legislation as the answer to any problem. This is because legislation is often the easiest way for officials—and the Commission as a whole—to show that they are "doing something".
  • A significant part of the "burden" of EU legislation arises from uncertainty over the meaning of key provisions. In part, this may be inevitable in a system that requires compromise; where some conscious "fudging", to achieve agreement between Member States or between Council and Parliament, allows the different parties to the legislative process to be able to interpret a provision in a way that suits their different priorities. At other times, however, this uncertainty may be just the result of laws being drafted in committee, by non-lawyers. Either way, the Court of Justice of the EU may then be called on to identify the "true" meaning hidden in the tangled verbiage— a responsibility that, contrary to popular belief, the Court does not relish or undertake lightly.

A Brexit vote

With so much in flux at the moment, providing anything more than rather academic guidance on the impact of a UK vote to leave the EU is challenging.2 This uncertainty has already led to significant economic impact on markets, business and investor confidence3, and will most certainly continue to do so after a vote, whichever way it goes.

In reality, should the UK vote to leave, little will actually change at a legal level immediately after the decision. It is likely to take months, if not years, to conclude the process, which includes:

  • Negotiating the terms of departure with the rest of the EU
  • Enacting domestic legislation to implement the Brexit
  • However, businesses are advised to review their positions now in light of a potential UK exit from the EU. Brexit would have significant impact on a wide range of relationships, commercial agreements and contracts, as well as the regulatory environment that may apply post-Brexit. Some of these potential impacts are looked at in more detail below.

In the run up to the referendum, parties entering into contractual relations also need to consider whether such agreements should in any way be conditional on the result, or should include mechanisms to deal with any issues that might arise in the event of a Brexit vote.

Footnotes

1 Consolidated version of the Treaty on European Union—TITLE VI: FINAL PROVISIONS—Article 50

2 However, for some intellectually rigorous speculation on the difficulties of negotiating Brexit, see the evidence of two of the UK's most distinguished EU lawyers to the House of Lords EU Select Committee (8 March 2016)

3 Sterling fell by its biggest single session loss since October 2009 after London Mayor Boris Johnson declared that he would be supporting the "Out" campaign; while Moody's warned that Brexit would threaten the UK's strong credit score, potentially pushing up the cost of government borrowing (see "Pound hits seven-year low on Brexit fears", Financial Times, 22 February 2016; "Moody's warns Brexit would risk UK's credit rating", Guardian, 22 February 2016)

To read the full article please click here.

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