Little of the UK business environment will change on day one of Brexit, but uncertainties may take years to resolve.
- Britain withdraws from the European Union as of 1 February 2020.
- EU law will continue to influence UK law, but divergence in case law is possible over time.
- Commercial agreements between the UK and EU states—including the status of the border of Northern Ireland—are yet to be negotiated.
As the clock ticks down to midnight on 31 January 2020 in Brussels and other parts of the EU, it is still 11 pm in London and the UK is an hour behind. As the Agreement on the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (the Withdrawal Agreement) takes effect, what are the implications for business, and how will the UK get ahead?
What happens next?
A key term of the Withdrawal Agreement is that it provides for a “transition period” effective from 31 January 2020 until 31 December 2020 (the Transition Period). This is intended to give the EU and the UK time to finalise the terms of the divorce.
However, whilst the UK will no longer participate in EU institutions and agencies, it appears that, in practice, very little else will change. During the Transition Period:
- Existing and new EU law will continue to have effect in the UK (save for limited exceptions).
- The European Court of Justice will continue to have the final say over legal disputes.
- The UK will remain within the EU Customs Union and single market. This means that freedom of trade and movement between EU states will continue to apply to the UK.
- The UK will continue to pay into the EU budget, meaning that schemes paid for by EU grants, will continue to be funded.
What will happen after the Transition Period?
From a legal perspective, the Withdrawal Agreement provides relatively clear goalposts as to the amendments that will be made to the UK legal system. For example:
- The repeal of the European Communities Act 1972 will become effective (meaning that EU law will no longer have effect and supremacy in the UK).
- All EU law as it currently stands (as at final implementation day) will be converted into domestic law in the UK. Laws that were made in the UK to implement EU law are also preserved.
- The government will have the power to allow UK courts to overturn the incorporation into UK law of EU case law made by the European Court of Justice. Under previous iterations of the withdrawal bill, this power was reserved for only the UK Supreme Court and the Scottish High Court of Justiciary. However, in order to prevent bottlenecks, this was extended to the lower courts. In practice it remains to be seen whether UK courts will be willing to decline to follow EU case law.
However, the bulk of the commercial and practical implications of Brexit remain unknown. A trade deal between the UK and the EU will need to be brokered and the question of the Northern Irish border will need to be resolved. With regard to contractual continuity, whilst many EU states have announced their intention to introduce measures to maintain the status quo, this is only possible where the individual EU states take active steps to amend their relevant legislation.
In the meantime most UK companies have already made their Brexit plans and there has reportedly been a late surge of EU and other international companies establishing in the UK to take advantage of what many commentators believe will be a more liberalised regulatory environment with trade links across the world. However, that is exactly what the EU fears, and faced with slowing economic growth and internal political divisions it is likely that any trade deal with the UK will impose limits on how much divergence will be permitted consistent with favourable trade terms.
And a trade deal may not happen soon. Crucially, Article 132 of the Withdrawal Agreement allows for the Transition Period to be extended by up to two years by mutual agreement. So we can say with certainty that Brexit is happening and that it will have profound effects on every business, but we still cannot say how and when these effects will be felt.
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.