The referendum on the United Kingdom’s (“UK”) membership of the European Union (“EU”) will take place on 23 June 2016. With the clock quickly running down to the vote, there has been significant speculation on the potential repercussions of a Brexit.

Ireland and the UK post-Brexit

A Brexit would have significant economic, political and practical implications for Ireland and the UK.

It is difficult to overstate the importance of the UK as a neighbour and trading partner to Ireland. Around 16% of our exports are to the UK, which is our single most important export market. The energy market demonstrates the strong connection between the two countries. Ireland imports in the region of 90% of its oil and gas supplies from Britain. There is a single all-island electricity market which operates through a North-South interconnector and the Irish gas and electricity grids are bound to the British grids through separate interconnectors.

It is also expected that the value of sterling will fall following a Brexit and this will have a knock on effect on Ireland’s competitiveness – Irish goods exported to the UK will be more expensive whilst UK imports will be cheaper for the Irish consumer. The UK accounts for over 50% of visitors to Ireland and the fall in the value of sterling against the euro, is likely to make holidaying here less attractive for UK citizens.

Since the foundation of the Free State, the UK and Ireland have had a Common Travel Area, which allows for nationals of both jurisdictions to travel and live in the other without immigration controls. After a Brexit the border with Northern Ireland would become an external EU land border. This could give rise to customs posts, passport controls etc. It is unclear whether the Common Travel Area would continue in existence with the UK having left the EU, although it is likely that a pragmatic approach would be taken to ensure a bilateral agreement in this regard.

There are some who regard Brexit as an opportunity for Ireland. Post-Brexit, Ireland would be the only English speaking country in the EU, so there are conceivable advantages for Ireland as a potential alternative location within the EU for currently British-based financial institutions and for third party firms seeking an EU base.

One way or another, if a Brexit does occur it will have a major effect on Ireland - and it will not be a short, sharp, shock, but will have a long-lasting impact.

Process for Withdrawal

Article 50 of the EU Treaty (introduced by the Lisbon Treaty), sets out the process for a member state to withdraw, however the provisions are very broad and lacking in detail. The Treaty provides that a member state which decides to withdraw from the EU must notify the European Council of its intention to leave. The terms of withdrawal will then be negotiated between the EU and the member state. Following notification there is a two-year period in which to negotiate the withdrawal agreement. This two-year period could be extended if both the UK and the European Council so decide.

Alternatively it may be possible for the UK to negotiate its exit in advance of issuing notification.

UK Relationship with the EU Post-Brexit

In all likelihood the negotiated relationship between Britain and the EU following Brexit will be unique, but we can look at the various existing models to get a picture of the possible outcome.

  • Membership of EEA/EFTA: The European Economic Area is an agreement between the EU member States and Norway, Iceland and Leichtenstein (these three countries are members of the European Free Trade Association). The EEA Agreement guarantees the free movement of goods, services, persons and capital throughout the 31 EEA States. The UK could remain a member of the EEA, availing of the single market for goods and services. However EEA members are obliged to implement many aspects of EU law, including free movement of persons, which would presumably not be acceptable to the UK.
  • World Trade Association: The UK, like all other EU member states, is a member of the WTO. If the UK did not negotiate a new relationship with the EU by the time it had left, then the WTO could be the basis for trade with the UK. The UK would not have to contribute to the EU budget and would not have automatic access to the internal market of the EU. UK exports to the EU would need to comply with relevant EU regulations but the UK would have no influence over the development or application of these.
  • Bilateral Agreements: The UK could negotiate bilateral agreements with the EU in relation to different industry or trade sectors – similar to Switzerland. This would consist of free trade arrangements and access to markets. The relationship Switzerland has with the EU is the closest to EU membership, but it also imposes certain obligations of membership on Switzerland, such as facilitating the free movement of people, making a contribution to EU spending and compliance with rules governing the Single Market, again without the benefit of having any influence over such rules.
  • Customs union: A limited customs union which would allow the UK tariff free access to EU markets, would provide some trade protection without substantial involvement in the EU and its institutions. The UK would still have to comply with some EU rules, without any influence over them.

Brexit and the Law

The UK has been a member of the EU for over 4 decades and in that time thousands of EU laws have been implemented. As we know, EU laws cover every aspect of life and, in particular, from a commercial perspective, EU law drives the regulation of financial services; company law; employment law; intellectual property and data protection; consumer protection; product safety and trade standards; competition law, state aid and merger law; recognition and enforcement of judgments, to name but a few.

EU laws are designed to harmonise regulation between its members in order to make commercial transactions easier. For example, financial services laws have created a single market by enabling firms authorised in one Member State (their home state) to carry on business in any other Member State (a host state) without the need for a separate host state authorisation either by establishing a local branch or on a cross-border basis – this is referred to as a “passport”. The negotiations between the UK and the EU on a Brexit would likely include specific provision to continue current arrangements allowing access to regulated markets within the EU.

EU laws that have been incorporated into UK law would not quickly fall away but there could be a gradual repeal of regulations seen to be burdensome. This is not a simple exercise. The legislation which provides for the adoption of EU law into UK law is the European Communities Act 1972 (the EC Act). If the EC Act were repealed all secondary legislation made under it (in the form of regulations and statutory instruments) would fall away. Therefore the UK Government would need to consider which EU measures it would like to retain and address any gaps arising, before any such repeal – a very time consuming process full of consequences for businesses needing the assistance of lawyers.

Conclusion

A Brexit will mean significant change to Ireland and Britain’s relationship. Negotiations between the UK and EU on their post-Brexit relationship will most likely take several years. In addition it will take many years to identify and unwind and/or replace the specific EU sourced legislation which the UK wants gone. Unplugging the UK legal system from the EU will create massive gaps, needing to be filled with replacement rules and regulations many of which could have an impact on Irish businesses.