European Commission puts business on Brexit amber alert

20 July 2018

Yesterday, the European Commission released a Communication entitled 'Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019'[1]. It outlines the steps that business should take to prepare for the UK leaving the EU. The Communication's message is clear:

"On 30 March 2019, the United Kingdom will leave the European Union and become a third country"

The UK's status as a third country will affect businesses across all sectors.

To assist with the change, the Commission is publishing notices that outline the factual and legal situation that will prevail following the UK's withdrawal. To date, 68 have been published, which cover health and food safety, transport, financial stability and financial services, environment, internal market, customs, civil justice, company law and professional qualifications. The notices can be accessed at Europa.



The ongoing negotiation of the withdrawal agreement

The Communication notes that the EU and UK are currently negotiating a withdrawal agreement, including detailed arrangements for the transition period to run until 31 December 2020. While progress has been made, various issues remain. These include regards for data protection, geographical indications, cooperation in criminal matters, the role of the Court of Justice and the Irish border.

It is planned that the withdrawal agreement will be agreed by the EU and UK in October 2018 and be accompanied by a political declaration on the future EU-UK relationship.

A Brexit deal

The transition period will commence if the withdrawal agreement is ratified by the EU and UK before 30 March 2019. EU law would continue to apply generally to the UK but the UK would no longer participate in the governance or decision-making of the EU institutions, bodies and agencies. EU law will still be directly applicable in the UK and the UK would still be required to comply with EU law. Then, on 1 January 2021, EU law would cease to apply to the UK.

"No-deal" Brexit

Should no withdrawal agreement be agreed or ratified by the EU and UK by 30 March 2019 (the so-called "no deal" Brexit scenario), EU law will cease to apply on that date. The Communication sets out that this would have significant consequences for all stakeholders:

  • On migration, there would be no specific arrangement in place for the 3.2m EU citizens living in the UK or the 1.2m UK citizens living in EU27 member states
  • On trade and regulatory issues, the UK's relations with the EU would become governed by general public international law, including that of the World Trade Organisation
  • On EU funding, UK entities would no longer be eligible to receive EU grants or participate in EU procurement procedures
  • On border issues, the EU would be obliged to apply its regulations and tariffs at EU/UK borders. This would involve customs checks and controls, sanitary and phytosanitary standards, verification of compliance with EU norms and changes to transport systems

Preparedness measures and contingency planning

Whether there is a transition period or not, the Communication notes that the European Council – comprising the EU member states and the body which defines the EU's overall political direction and priorities - has stated that a third country cannot have the same rights and enjoy the same benefits as a member state. The Communication states:

"Untangling a relationship built over more than forty years will inevitably result in significant changes in the interactions with the United Kingdom at all levels, including economically and legally"

The European Commission stresses the need for all stakeholders to undertake two different approaches in readiness for the UK's withdrawal: preparedness measures and contingency planning.

Preparedness measures for the UK's withdrawal

So-called preparedness measures are those that will have to be taken as a consequence of the UK's withdrawal from the EU, regardless of whether a withdrawal agreement is in place by 30 March 2019.

For example, for enterprises that operate on the basis of authorisations or certificates issued by the UK, preparedness measures would include applying for authorisations and certificates in an EU27 member state to ensure continued access to the EU's single market.

Contingency planning for a "no deal" Brexit

Contingency planning consists of envisaging the measures necessary to mitigate the effects of the UK withdrawing from the EU without a withdrawal agreement in place and therefore no transition period.

The Commission states that it is "devoting very significant resources and committing great efforts to achieve an agreement…which remains [its] goal". Nevertheless, it notes that the outcome of negotiations cannot be predicted and contingency planning should be undertaken with regards to the worst case scenario. Much of the contingency planning will fall under the remit of individual member states.

Who should prepare? Everyone…

The Communication states:

"Although the withdrawal of the United Kingdom may appear to be playing out at a high and rather abstract level between the United Kingdom and European Union, its consequences will be very real for citizens, professionals and business operators"

Different stakeholders will take responsibility for different actions:

  • Member states will need to take responsibility for legislative and logistical changes
  • Businesses and professionals will need to take responsibility for their individual situation
  • Industry associations will need to relay information to their members
  • Embassies and consulates will need to adopt a similar role in informing citizens

The Communication stresses that Brexit will have significant implications for the EU as a whole but individual member states will also be affected. The extent of this will depend on their vicinity to and economic integration with the UK. Example sticking points could include shared infrastructure or the control of the movement of goods and people. In preparation, several member states have set up dedicated webpages to assist stakeholders - for an example, see Ireland's view on preparing for Brexit.

The role of the EU

The Commission has identified several areas where preparation for Brexit lies within its own remit.

On legislative changes and other instruments, a comprehensive review of EU law will be required to identify the action necessary in various sectors and policy areas to ensure that EU law continues to function appropriately in the EU27 member states after the UK's withdrawal. For example, in the area of motor vehicles, there could be a regulation allow holders of UK approvals to apply for new and equivalent approvals from an EU27 member state.

On the relocation process for EU agencies and bodies, EU bodies and agencies that are based in the UK will have to be relocated to an EU27 member state. Where the UK has responsibility for certain tasks, such as the EU Reference Laboratories for certain animal diseases and food safety, these will also need relocation or reassignment.

On other work streams, the EU will need to inform international partners with whom it has bilateral relationships regarding the UK's withdrawal.

Summary

In concluding the Communication, the Commission states:

"Preparing for the withdrawal of the United Kingdom from the European Union in whatever scenario it may take place, is a matter for everyone…it is therefore important to take the necessary action in time and that everyone take the necessary steps to be ready and to minimise the negative impact that the withdrawal will have".

Footnotes:

[1]https://ec.europa.eu/info/publications/preparing-withdrawal-united-kingdom-european-union-30-march-2019_en


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