Brexit briefing paper: further clarity but no answers | Practical Law

Brexit briefing paper: further clarity but no answers | Practical Law

Since the result of the UK’s EU referendum was announced on 24 June 2016, much has been written about both the process of Brexit and potential implications of it for the UK and the EU, including for businesses. The House of Commons Library has now published a briefing paper which goes some way to providing an objective and reasonably comprehensive summary of the implications for the UK of withdrawing from the EU.

Brexit briefing paper: further clarity but no answers

Practical Law UK Articles 5-633-7673 (Approx. 4 pages)

Brexit briefing paper: further clarity but no answers

by Roger Matthews, Dechert LLP
Published on 29 Sep 2016 • European Union, United Kingdom
Since the result of the UK’s EU referendum was announced on 24 June 2016, much has been written about both the process of Brexit and potential implications of it for the UK and the EU, including for businesses. The House of Commons Library has now published a briefing paper which goes some way to providing an objective and reasonably comprehensive summary of the implications for the UK of withdrawing from the EU.
Since the result of the UK’s EU referendum was announced on 24 June 2016, much has been written about both the process of Brexit and the potential implications of it for the UK and the EU, including for businesses. But even identifying the specific effects of Brexit has proven more elusive.
On 26 August 2016 the House of Commons Library published a briefing paper (the briefing) which goes some way to providing an objective and reasonably comprehensive summary of the implications for the UK of withdrawing from the EU.
The briefing does not provide answers on points that remain uncertain, nor does it make explicit policy recommendations. But it draws together the key elements of the considerations to date, it analyses each policy area, setting out the current legal framework and relevant economic and statistical data, identifying what changes might be expected, drawing on relevant political statements and external analysis, and considering both the likelihood of the various post-Brexit scenarios and the implications of them.

Key considerations for businesses

The briefing identifies 20 policy areas that may be affected by Brexit, some of which are likely to be of interest to business generally, while others (for example, fisheries and agriculture) are likely to be of immediate interest mainly to those operating in the sector concerned. The sections likely to be of most interest to British businesses include:
Trade. The briefing notes that the EU is the UK’s most important trading partner (constituting 44% of its exports and 53% of its imports), and that the UK runs a trade deficit with the EU but a trade surplus with the rest of the world. The briefing deals first with the UK’s relationship with the EU, setting out the UK’s current trade arrangements as an EU member state before assessing what the various alternatives might entail, including EEA membership, a bespoke free trade agreement or World Trade Organization (WTO) rules. It considers the impact of these for tariffs, non-tariff barriers and services trade.
While the briefing does not express any preference, it observes that most economic analyses have found that the EEA option would do least harm to the UK economy, while the WTO rules option would have the largest negative impact. In terms of trade arrangements with third countries, it notes the uncertainty as to whether the UK could continue to participate in the existing free trade agreements between the EU and third countries, but clearly flags the weight of scepticism on this point. It also notes the risk that the EU may have to pay compensation to the third countries with which it currently has agreements, as a result of the shrinking of the EU market from what was originally agreed.
Overall economic impact. In this section, the briefing identifies an assortment of effects:
  • It warns that levels of foreign direct investment could fall post-Brexit, from both member states that currently benefit from free movement of capital with the EU, and non-EU countries that are attracted to the UK in part because it offers internal market access. However, it notes that the UK may partially offset this by regaining powers to conclude investment agreements with other countries and by establishing a regulatory environment that is more favourable to overseas investors.
  • It notes that the UK pays approximately £8.5 billion to the EU budget, net of receipts under the common agricultural policy, regional funding and budget rebate, and that it is a net contributor. But it makes no comment as to how the money saved following Brexit might be applied.
  • It notes that EU free movement rules currently prevent any restrictions on EU immigration, and that this would be likely to continue if the UK were to join the EEA. Under other arrangements, the UK would be able to apply more restrictive rules such as a points-based system, which would most likely allow high-skilled migrants but reduce the flow of low-skilled migrants. Any system would place an additional burden on businesses, which would have to allocate time and resources to getting visas for recruits and dealing with immigration rules. Sectors in which EU migrants are employed in large numbers, such as food services and manufacturing, will be affected the most.
  • The briefing notes that the EU has legislated in a number of areas of regulation which arguably go well beyond its founding purpose, such as product specifications, competition, employment terms, health and safety, and consumer protection. The briefing finds that, while a cost-benefit (to business) analysis of EU regulation is hard to conduct, the costs imposed by way of administration and compliance significantly outweigh the benefits, with the Alternative Investment Fund Managers Directive (2011/61/EU) and the Bank Recovery and Resolution Directive (2014/59/EU) being cited as particularly cost-heavy. However, it notes that much of this regulation might be retained even after withdrawal, and that businesses that export to the EU would have to comply with EU laws as far as those exported goods or services are concerned.
  • Public procurement rules currently limit the ability of public bodies to buy UK goods and services, but conversely allow UK businesses to compete to supply the public sectors in other member states. Outside of the EU, the UK may choose to participate in the WTO’s general procurement agreement, although doing so may undermine the reduction of burden which follows from leaving the EU.
  • The briefing goes into some detail on financial services, noting the UK’s role in leading much of the EU-level reform of financial services. It notes the view that firms may relocate at least certain functions to another member state soon, in order to be prepared for the possibility of a so-called “hard Brexit”, and that the equivalence provisions in many EU financial services instruments are burdensome in practice. It notes that many institutions hinted previously at likely moves from London in the event of a Brexit vote but that, so far, the only institution to have a declared intention to move is the European Banking Authority.
  • In respect of taxation, indirect taxes (VAT and excise duties in particular) will be free of current harmonisation requirements, but the briefing doubts that the freedom from the EU will lead the government to substantially increase or decrease these rates.
Employment law. The briefing notes that, following Brexit, employment rights that are guaranteed under EU law may fall away, unless otherwise agreed. The briefing lists the many areas where the UK will be free, post-Brexit, to change current employment law. It notes that the scope of many EU rights have been amplified by the European Court of Justice, the case law of which may not apply in the UK post-Brexit.

Issues not addressed

The shape of the briefing, which analyses effects by policy area, has led to some issues being mentioned only in passing. For example:
Legal framework. The briefing makes no mention of the post-Brexit status of the Rome I Regulation (593/2008/EC) or the Rome II Regulation (864/2007/EC), which govern which countries’ laws apply to contractual and non-contractual arrangements, or of the Recast Brussels Regulation (1215/2012/EU), which sets out the rules on jurisdiction and the enforcement of judgments.
Intellectual property. There is passing reference to intellectual property rights (mainly copyright) in the section on culture, communication, copyright, broadcasting and sport. But this does little justice to the issue and overlooks the potential impact on trade marks, such as the loss of the Community Trade Mark, and the potential effects on European patents and the Unitary Patent Court.

A useful reference tool

This is a useful and thorough compendium of the competing views and concerns that will dominate the evolution of the UK’s policy development on Brexit. In this sense, it is a useful reference tool for businesses. It achieves its aim of setting out these views, but does not seek to take forward the analysis of them or make any recommendations. In overlooking some overarching issues that do not readily apply to specific policy areas, the briefing falls short of serving as a complete resume of the impact of Brexit.
Roger Matthews is a senior director at Dechert LLP.
The briefing paper is available at http://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7213.