Heading towards no-deal Brexit: how businesses can prepare
The previous Prime Minister’s Withdrawal Agreement has been declared dead, but the EU has so far said it is not prepared to consider any changes to it.
The ‘default’ position on Brexit therefore remains what it has been for the last few months: the “Brextension” agreed in April extended the Article 50 negotiating period to 31 October, meaning that by that date one of four things must happen:
the UK and EU agree, ratify and implement an agreement on the UK’s withdrawal, potentially including transitional or standstill arrangements;
the UK and all other EU Member States agree unanimously to a further extension;
the UK withdraws its Article 50 notification; or
the UK leaves the EU without a deal.
The Prime Minister has said he wants a revised deal and expects to achieve one. However, the process required to achieve that means time is already at a premium. Before the Government can ratify any withdrawal agreement (which makes it binding in international law), it must be approved by the House of Commons – the ‘meaningful vote’ that the existing Withdrawal Agreement repeatedly failed to win. In addition, if the agreement required changes in UK law (e.g. to continue the supremacy of EU law during a post-Brexit transition period), legislation would be needed. A Bill giving effect to the previous Withdrawal Agreement was reportedly drafted but was neither introduced in Parliament nor published, and would first need to be amended to reflect a revised agreement before then making its way through the Commons and Lords. On the EU side, any withdrawal agreement must be agreed by a super-majority of Member States and the European Parliament.
These requirements may sound like technicalities, but they have potentially massive real-world impact. UK and EU negotiators cannot simply reach agreement at five minutes to midnight on 31 October and avoid a ‘no-deal’ Brexit, as the necessary approvals would take at least a few days to secure. Weeks would be more likely, particularly given the possibility of MPs and peers disrupting the passage of the necessary legislation. Because the Prime Minister has ruled out extending Article 50 even to buy time to formalise an already-approved deal, there is a credible prospect of a no-deal Brexit happening on 1 November, even if only temporarily while an agreement is implemented. Combining this with the UK Government’s apparent determination to leave on 31 October, without a deal if necessary, it is essential that businesses understand how they could manage a no-deal outcome.
This includes understanding what that scenario would mean for issues such as EU employee status, contract terms, travel to the EU, data transfers, IP protection and trade in goods. Brodies first produced our ‘no-deal readiness’ guide on these and other issues back in January, and it is perhaps a sign of how little progress has been made that the content has barely had to change. Our guide, and regular updates on developments in the Brexit process (including any changes the new UK Government may make to the existing no-deal contingency arrangements), are available at our Brexit Hub: brodies.com/brexit
Charles Livingstone, is a partner in Brodies’ government, regulation and competition team.