European Union: Brexit: Heat But No Light For The UK's International Businesses

Last Updated: 16 May 2019
Article by Sam Eastwood, Jason Hungerford and Paul Whitfield-Jones

Last week's series of Brexit votes in Parliament could mark a profound shift in the trajectory of the UK's exit from the EU. However, businesses still do not know when Brexit will happen (if at all) and what the UK's relationship with the EU and the rest of the world will be. 

In the space of three days, the House of Commons voted (i) on Tuesday to reject the UK government's negotiated withdrawal agreement in the second so-called "meaningful vote"; (ii) on Wednesday to reject a no-deal Brexit, with even Cabinet ministers defying the Conservative party whip to vote against it; and (iii) on Thursday to request an extension to Article 50 of the Lisbon Treaty to delay the UK's exit from the EU. And if that was not enough, on Thursday the House also voted marginally against exercising more control over Brexit and overwhelmingly against a measure calling for a second referendum, with even supporters of a second referendum calling on MPs not to back it because it was not the right time.

The government indicated that it intended to put the so-called Withdrawal Agreement before Parliament for a third "meaningful vote," possibly even this week, although ministers said it would not happen unless Prime Minister Theresa May felt she could win it. However, on Monday, March 18, House of Commons Speaker John Bercow shocked most observers when he said the government could not have a third vote without a substantial change to the Brexit deal, citing a 400-year-old precedent to the effect that that the same question may not be put twice to the House in the same session.

Any extension of Article 50, to allow the government more time to seek approval for the Withdrawal Agreement, would require unanimous approval by the European Council, comprising the heads of state of EU member states.  It had previously been thought that if Prime Minister May was able to obtain approval for her Withdrawal Agreement before March 29, she could request a "short technical" extension to the Article 50 process. However, the speaker's decision made it very unlikely that another vote would occur in this time frame.

Today, therefore, Prime Minister May has written to Donald Tusk, president of the European Council, to request an extension to June 30, which is still a relatively short period. The letter sets out her intention to bring the Withdrawal Agreement back to the House, with certain changes at both the EU and domestic level, but acknowledges that there will not be sufficient time for Parliament to ratify the revised Withdrawal Agreement before March 29. The European Council is due to meet tomorrow and Friday, and their reaction to the UK's request is now keenly awaited.

For now, these ongoing machinations leave businesses in the dark about the UK's future trading relationship with the EU. In the meantime, the UK has made slow progress in getting trading agreements in place with other countries around the world. 

The UK government has said that it is seeking, so far as is possible, to replicate the EU's trading agreements with third countries in which the UK currently participates as a member of the EU (the "Trade Continuity Programme"). The EU currently has approximately 40 of these trading agreements, with around 70 countries. These EU agreements account for approximately 11 percent of the UK's trade. So far, the UK has signed only seven substitute agreements, with Chile; the Faroe Islands; Eastern and Southern Africa (Madagascar, Mauritius, Seychelles and Zimbabwe); Switzerland; Israel; the Palestinian Authority; and Pacific States Papua New Guinea and Fiji. 

There are also certain mutual recognition trading agreements in place with the US, Australia and New Zealand. The UK is seeking to establish free trade agreements with these countries outside the Trade Continuity Programme as well as looking at potential accession to the Comprehensive and Progressive Trans-Pacific Partnership. 

The UK government has acknowledged that at least certain agreements would not be in place by March 29, including those with Japan and Turkey. In the event of a no-deal Brexit, the EU's trading relationships would cease to apply to the UK. If the UK has not implemented a particular agreement with a country at that time, then trade will take place under World Trade Organization terms, meaning "most-favoured-nation" (MFN) treatment, the principle that a country cannot generally discriminate between its trading partners.

Even if the European Council does grant the requested extension of Article 50 to June 29—which is not guaranteed—it is still unclear whether the Prime Minister's proposed revisions to the Withdrawal Agreement will be sufficient to get it through Parliament given the lack of support it has had to date. We may therefore find ourselves in a similar position of uncertainty a few months hence, with the June 29 deadline looming. Therefore, not only do businesses still lack clarity they urgently need about the UK's future trading framework, they also do not know when this clarity will finally emerge. 

Symposium: A Comprehensive Look at the International Trade and Investment Landscape in the UK After Brexit – April 11, 2019 

To learn more about the immediate ramifications of Brexit (or its delay) in shaping trade policy and negotiations, we invite you to join us in our London office on April 11 for a half-day symposium. Speakers from the private and public sectors—including the UK government—will address how the current situation will likely impact UK international trade law and investment policy moving forward. For more information or to register, please click here.

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Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2019. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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