European Union: Brexit: Hard Landing/Soft Landing Or Down The Rabbit Hole: What's Ahead?

This is the third in an ongoing series of blog posts by Foley & Lardner LLP on the implications of the June 23, 2016 referendum decision in the United Kingdom ("UK") to exit the European Union ("EU") ("Brexit"). Prior articles reviewed developments leading up to the Brexit vote, possible alternatives/outcomes, likely competition law and procedure implications as well as risks/uncertainties for standardization and innovation posed by Brexit.

This article reports on the current status of Brexit, on preliminary positions taken by the UK and the EU as well as on the shape Brexit may take when the exit process ultimately comes to fruition. Will the UK make a decisive hard, clean break from the EU to regain its "independence" (the "hard landing")? Will the UK seek to negotiate a limited withdrawal from the EU, maximizing the advantages of EU participation while eliminating what may be perceived as the negative, unacceptable elements of EU membership (the "soft landing"?) Or, will the outcome resemble Alice's nightmare journey down the "rabbit hole" to a "wonderland" world where nothing is as it seems and even the clocks appear deceptively wrong? "Time" will tell. However, at this point it looks like the old adage about making sausage once again rings true – it isn't going to be pretty.

As noted previously, UK's terms of exit and of its future relationship with the EU will be the subject of negotiations triggered by notice of its withdrawal from the EU pursuant to Article 50 of the 2009 Treaty of Lisbon. Theresa May, the UK Prime Minister, very recently signaled that the UK will give notice of its intent to leave the EU by the end of March 2017, perhaps as early as January 2017. Once this notice is given, a two year period will begin to run during which the UK's future relationship with the EU will be negotiated. Many people, on both sides of the Channel, are pushing for a longer period of disengagement in which substantive and procedural agreements could be negotiated during such a transition.

In theory, more time, cooler heads preaching moderation and more responsible leadership to the Brexit process are likely desirable. Is that, however, possible? Seemingly, such a "mature" approach would require unanimous consent of and necessary action by all 28 EU member states. However, the odds of such a rational outcome, obviously desirable, seem a stretch at this point. No one should count on such a result.

In addition to announcing possible timing of its Brexit notice, the UK Prime Minister has announced additional points of process and some "red" lines in the sand from a UK perspective. These statements, for example, promising a "Great Repeal" of the 1972 European Communities Act (through which EU laws and regulations have direct legal effect in the UK), "controlling" immigration (a current very hot button) and freedom from the jurisdiction of the European Court of Justice (return of the UK to an "independent and sovereign" state) were mostly polemical – political fodder for UK's rabid "Brexiteers." These pronouncements are long on rhetoric and short on substance or practicality.

In return, there have been signals from key EU members suggesting points of sharp conflict that will make for tough bargaining ahead. Indeed, the positions of continental authorities appear to be hardening. Among the EU salvos in response to PM May's statements were no "cherry picking" by the UK among EU member state rights and obligation, no UK negotiations with any third parties (e.g., USA) on possible future freed trade deals until the Brexit process is completed and, ultimately, no Brexit outcome leaving the UK in a better position vis-à-vis how it is today. As French President Hollande recently put it bluntly, there "must be a price for Brexit." Finally, the EU President Tusk put the continental position even more starkly, saying in effect that the only way for the UK to exit the EU is through a hard landing – a clean, hard break. For him, there will be no middle ground on Brexit.

Thus, strong push back from the EU will limit the UK's room to maneuver even if it maintains friendly relations with a number of EU member states (e.g., Denmark and the Netherlands). In particular, keep in mind that any Brexit deal providing concessions (e.g., continued free trade, free movement of services, zero tariffs and harmonized standards) has to be approved unanimously by the other 27 remaining EU members and the European parliament. To put it bluntly, the UK will not call the shots on how Brexit ends up.

What's ahead?

At this juncture, all that can be said is that Brexit presages a very difficult and contentious few years, at a minimum, for the UK, the EU and its trading partners – less transparency, less consensus, greater costs and increased uncertainty. Before we look at some of the possible models for the relationship between the UK and the EU post-exit, let's recall briefly some of the central principles on which the EU was created and has functioned.

The EU was founded on the basis of four so-called freedoms – the free movement of people, goods, services and capital within the EU member's combined territory. These four freedoms intended and today require:

  • The elimination of custom duties between member states and quantitative restrictions on the import and export of goods, with all measures having equivalent effect;
  • The establishment of a common customs tariff and a common commercial policy toward third countries;
  • Institution of a system ensuring that competition in the common market is not distorted; and
  • The approximation [harmonization] of laws of the member states to the extent required for the proper functioning of the common market.

At the core of the coming Brexit negotiations is at least one seemingly simple core question: Will the Brexit process permit the UK to exit the EU and still benefit from and be responsible to maintain some but all not of these "freedoms" – the free movement of people, goods, services and capital? Put into simple, stark terms, will the UK be able to pick and choose among these freedoms, e.g., could the UK opt-out of guaranteed free movement of people within the EU and still derive the benefits of the free movement of goods, services and capital?

For example, the UK in its recent announcement said that it will use Brexit to "control immigration." Would the EU permit the "four freedoms" to be thinly sliced apart like pieces of bologna in striking a Brexit deal that would permit the UK to restrict the free movement of EU member state citizens into and out of the UK? If the EU gave the UK that concession, what would the implications be for EU dealings with the remaining member states? Why would the EU even entertain seriously agreeing to such a concession? To complicate things, there will be important elections in France, Germany and the Netherlands during 2017 where this issue of free movement of people will be addressed as well.

While immigration (free movement of people) is one hot-button that was a driving force in the UK Brexit debate, it was and will not ultimately be the only issue on which the negotiations will turn. Take the UK's proposed "Great Repeal" of the 1972 European Communities Act, which the UK proposes to repeal. What does that mean? The European Communities Act provides that EU laws (e.g., a regulation or even a directive) are automatically binding in the UK. If there is a conflict, the EU law governs. At this juncture, the "Great Repeal" is intended to stop/terminate the automatic application of EU law in the UK. As we have previously noted, whatever the Brexit outcome may be, there will, when the UK exits, still be a substantial body of EU-generated (uniformed, harmonized) laws, regulations and standards. The UK says that after the "Great Repeal," it will adopt these EU laws as UK laws (if only to fill a large vacuum) and then proceed to repeal them, piecemeal. There are literally thousands of such laws, regulations, etc., that affect virtually every facet of UK life, particular UK business life. Getting rid of "foul-smelling" EU-tainted legislation is likely to be a lengthy and contentious process filled with much uncertainty and disruption.

What about the call to regain UK sovereignty free from the jurisdictional tentacles of the European Court of Justice? Well, maybe, but then again, maybe not. Even if Brexit may cut back to some extent on the power of the European Court of Justice to make decisions affecting UK interests, there will still be many, many occasions in which the EU Court of Justice will have the say, (or, at least a final word). This is particularly true given the current and unavoidable economic ties between the UK and the EU. The EU Court's jurisdictional reach extends to any course of conduct (e.g., a cartel, a large multinational merger, an international distribution system that has trade effects and is implemented in the EU0. Large mergers and acquisitions having a "community dimension" (even if between UK companies) will, except in very narrow circumstances, have to seek clearance to consummate from the EU Commission pursuant to EU legislation that imposes a mandatory global bar on closing (subject to substantial penalties enforced ultimately by the EU Court of Justice if the parties "jump the gun" and close before EU approval). What about a pan European distribution system or IP licensing system? The UK effort, particularly in commerce, to assert its independent sovereignty will frequently confront the continuing power and extraterritorial effect of EU law.

What are the choices facing the UK and the EU?

Currently, one widely discussed alternative among many is the European Economic Area ("EEA"), whose members are presently Norway, Iceland and Lichtenstein. The problem with that alternative is that it seemingly gains the UK very little and, of course, the current EEA members may well not want such a large elephant as the UK under their EEA tent. EEA membership requires members to embrace the four freedoms (including the free movement of people), to contribute to the EU budget, albeit at a reduced rate, to abide by most EU regulation, while at the same time having little say or ability to influence the EU legislative process (whether through the EU parliament, the EU councils or the EU Commission). At this juncture, the EEA model would seem to be a non-starter.

If the EEA is off the table, what are the other alternatives? Post Brexit, the UK could become a member of the European Free Trade Association ("EFTA") (like Switzerland). It could negotiate post Brexit a free trade customs union with the EU (like the ones currently in place – e.g. Morocco, Tunisia, Israel and Turkey, etc.). It could fall back on its current membership of the World Trade Organization ("WTO") and the European Patent Convention ("EPC"). There may ultimately emerge a variant of some or all of the above, a so-called "bespoke" or custom tailored approach. Obviously, the UK cannot dictate the outcome alone. It has to strike a deal with all of the other 27 EU member states.

Putting aside for the moment the ultimate choice or framework that will be negotiated (EEA, EFTA, WTO, etc.), there are a myriad of dense, complex "nitty-gritty" (often seemingly mundane) issues that need to be resolved across the board. Timely resolution of even some of these housekeeping issues will be a Herculean undertaking.

As the foregoing should make clear, both the UK and the EU are taking initial hardline bargaining positions. At this juncture, it appears that the UK and the EU are on a collision course presaging a hard-landing or even a trip for all concerned down the rabbit hole.

What's the bottom line for business, in general, and the automotive sector, in particular?

Brexit means change and uncertainty which traditionally have be anathema to business. Take a recent concrete example. Carlos Ghosn, head of Renault-Nissan (the largest motor vehicle manufacturer in the UK) has said that Renault-Nissan will make no further investments in its major facility in the UK until it is assured by the UK government that it will not face tariffs on its motor vehicle exports to the EU which account for a substantial majority of the plant's production. In response, the UK PM now promises such assurances to Renault-Nissan. How and in what form are reasonable questions.

What do such assurances mean for other motor vehicle manufacturers in the UK? Do they get the same deal? There are, of course other impacts beyond the motor vehicle sector. What about other sectors in the economy? Will Brexit result in a custom tailored sector-by-sector approach? Currently, almost 80% of the UK's GDP involves services. Take financial services as an example. This service sector accounts for more than 10% of UK GDP. The food industry and others are facing similar daunting challenges as well. These are some of many, many examples of the uncertainties and potentially disruptive effects, large and small, that Brexit poses for the UK, the EU and all their trading partners.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Arnold & Porter
Morrison & Foerster LLP
Shearman & Sterling LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Arnold & Porter
Morrison & Foerster LLP
Shearman & Sterling LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions