The legal and practical implications of a potential UK exit from the European Union without an agreement governing the terms of withdrawal and without a transition period.

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 (Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Atomic Energy Community, as confirmed at a special meeting of the European Council on 25 November 2018) is a document of almost six hundred pages, resulting from long and complex negotiations between the European Commission and the United Kingdom (UK).

Their aim was, inter alia, to minimise disruption resulting from the UK’s withdrawal from the European Union (EU). The withdrawal agreement provides for a transition period lasting until 31 December 2020, during which most EU law would continue to apply to the UK. At this stage, however, it seems unlikely that the agreement will enter into force before the date of the UK’s anticipated withdrawal from the EU.

When will the UK leave the EU?

The UK will cease to be a member of the European Union on 29 March 2019 unless one of the following happens:

1) an agreement is concluded setting out the terms of withdrawal, providing for a different exit date,

2) the UK unilaterally revokes its notification of intention to leave the European Union,

3) the other EU countries and the UK agree to postpone the withdrawal date.

There are currently many options for how things could develop. However, the most important from a practical point of view is the distinction between two scenarios: exit without an agreement (the so-called no-deal) and the option of finalising the Withdrawal Agreement essentially in its current form.

In this article, we will focus on the implications of a UK exit from the European Union without an Withdrawal Agreement and without a transition period.

No-deal, i.e. if the UK leaves without an agreement …

In the absence of an agreement governing the withdrawal from the European Union by 29 March 2019, and in the absence of an extension of the two-year negotiating period or withdrawal of the notification of intention to leave the EU, the UK will leave the European Union without an agreement sorting out the separation and without any transition period. On the stroke of 12:00 at night in Warsaw (11:00 in London, due to the time difference) EU law will, in principle, cease to apply to the UK.

British Exit from the European Union Act

However, the severing of ties with EU law will not be definitive. The UK’s European Union (Withdrawal) Act 2018 (referred to as the EUWA) provides for most of the provisions of EU law in force at the date of exit to be retained in English law. This will be known as ‘retained EU law’, retained as it is on exit day.

Following exit, this “retained EU law” will not be subject to the evolution and change that will naturally and inevitably take place in member states. EU law directly applicable in the UK and the laws implementing EU directives (with some exceptions) will simply become UK domestic law on withdrawal. Retained EU law will remain in force until amended by Parliament.

The EUWA also preserves general principles of EU law which are relevant to the interpretation of retained EU law. The EUWA is therefore a legal instrument that prepares a comprehensive legal framework for the period after withdrawal from the EU, the purpose of which is, among other things, to secure legal stability in the country after the “divorce”.

In the longer term, the UK will have to decide on a case-by-case basis whether to reflect in its law the changes made in EU law. However, it will no longer be obliged to implement EU law in its domestic legal order.

The legal landscape after divorce

In March 2017, the House of Lords Constitution Committee estimated that 20,000 pieces of EU law were then in force, of which 5,000 were directly applicable from the UK and 900 were directives implemented into English law. Furthermore, 800 to 1,000 statutory acts will be needed in the UK to achieve the aims of the EUWA, as indicated by the UK Government in its ‘White Paper: Legislation for the UK’s Withdrawal from the European Union’. Despite the best intentions of legislators, the legal landscape created by the UK’s withdrawal from the EU will be extraordinarily complex. Further complexity is to be expected in relation to the actual application after the date of withdrawal of English law provisions relating to EU law.

Reciprocity requirement

It should be noted that the mechanism for preserving EU law used in the EUWA is unilateral and can only work in areas where the consent of another member state or the EU is not required. Full legal continuity and stability in international relations cannot be ensured unilaterally. While this is possible in certain areas, in many cases it depends on agreements with the EU, individual EU states and other countries.

The greatest changes will therefore occur in those areas where reciprocity is required on the part of the EU or a Member State. This applies, for example, to rules on jurisdiction and the enforceability of court judgments in a Member State other than the one where the judgment was made. Significant changes may also occur in relation to the rules for transferring personal data from EU countries to the UK. Regulations on mutual recognition of qualifications will also cease to apply.

The end of freedoms

As soon as the UK leaves the EU, the four freedoms of the single market that have operated between the UK and EU countries will cease to apply. These are the free movement of goods, services, capital and people.

Trade and services crossing the UK’s borders will be governed by the same rules as for countries outside the European Economic Area. The EU should apply duties and controls to goods from the UK. Importers and exporters will therefore have to submit to the customs procedures currently applicable to goods originating outside the EU. World Trade Organisation (WTO) rules may provide a framework for trade with the UK. These rules apply unless countries involved in international trade are bound by more favourable international trade agreements.

Brexit due diligence

The impact of the UK’s withdrawal from the European Union on businesses varies, depending on the nature of the relationship with UK counterparties. For any entity whose business model is linked to the UK, planning for the absence of a Withdrawal Agreement is not a simple task, but it is a necessary one. In the first instance, it is necessary to identify those areas affected by Brexit. Such “Brexit due diligence”, in particular reviewing contracts and assessing the situation of counterparties, will identify the risks (or benefits) associated with the new situation. This will provide a basis for comparing the current legal position to the potential situation after the UK leaves without a deal and assessing whether and what action is needed.

What happens after Brexit

Formal negotiations on the future relationship between the EU and the UK, based on Article 218 of the Treaty on the Functioning of the European Union (TFEU), will only start after the UK leaves the EU. The Article 218 procedure cannot be used for negotiations between the EU and a member state. The UK must therefore first formally withdraw from the EU (cease to be a member of the European Union) before formal negotiations on the future relationship can begin.