For companies engaged in the international trade of goods or services, the decision of the United Kingdom to exit from the European Union, creates uncertainty on many levels. Laying aside political effects, such as potential reconsideration of Scotland’s 2014 decision to remain in the U.K. (Scotland having overwhelmingly voted to stay in the U.K. during the Brexit referendum), the legal issues stemming from the Brexit decision are almost too numerous to mention. But, for a U.S. company thinking through the implications of Brexit, resultant changes in treaty obligations, British law, and U.S. law are the major categories to monitor carefully.
According to the U.K. government, consideration of legal changes and negotiations on treaty obligations will begin in October 2016, upon the effective date of the resignation of Prime Minister Cameron’s government. Realistically, under the U.K. government schedule, a new government is not likely to begin negotiation until early 2017, and the withdrawal shall be effective after two years of notification of withdrawal, whether or not an agreement has been reached. Extension of the two-year timeline can only be extended by a unanimous decision of the European Council. Whether the EU will have the same approach to the pace of breakup may depend on whether EU governments see the uncertainty created during this interim period as being too risky, and if they will push for a faster pace.
The U.K. has been integrated into Europe since 1973 when it joined the European Economic Community (predecessor to the EU) and its international obligations and rights have been negotiated and agreed to as a part of the EU. Once it is no longer part of the EU, the U.K. will not only need to expand the size of its government to take on those tasks, but will also need to reach new international agreements on issues such as trade and customs, banking and insurance, foreign investment, and immigration. The U.K. will remain a member of the World Trade Organization, but Roberto Azevedo, the WTO’s director general, has commented that the U.K. will be “the only WTO member without a list of its commitments… it’s a legal uncertainty…. [N]obody has that crystal ball.”
As part of the EU, the U.K. does not have its own laws on many issues. Items like trade remedies against unfairly traded imports and some intellectual property protections must be reviewed and amended. Parliament must now identify and pass any needed amendments to U.K. law in order to ensure that rights and obligations of companies and individuals remain the same under a purely U.K.–based legal regime. Of course passage of such laws could lead to changes, either intentional or inadvertent, in legal rights and obligations.
Because the U.S. has recognized agreements with the EU, and not the U.K., there will be changes to U.S. law reflecting the new relationship. Because in many instances the U.K. does not have individual international agreements with the U.S., any amendment of U.S. law must be coordinated with the negotiation of such obligations between the U.S. and the U.K. U.S. companies also should review their contracts with any U.K. or EU companies to determine whether amendments need to be made to take into account the new circumstances.
What This Means to You
Companies should identify broad issues with the U.K. transition that are likely to be affected by Brexit, whether with regard to exports to the U.K., imports from the U.K., technology transfer issues, or investment issues. Ongoing advice on legal and business strategies will be important to companies as they consider their options.