Brexit has blasted its way to the top of the boardroom agenda. Your business now confronts the possibility of dramatic change, rich with opportunity and fraught with risk.

What form will Brexit eventually take? What will the UK’s relationship with the EU look like in the future? How will Brexit affect your people, your structure, your transactions and financing, imports and exports, data, and contracts?

This Brexit guide surveys the legal, regulatory and strategic issues.

Brexit process and scenarios

Businesses have a lot at stake. With the final shape of Brexit yet to be decided, several scenarios are being discussed. There are huge differences between something like the Norwegian model at one end of the spectrum and reliance solely on rights and obligations under World Trade Organization rules at the other. If a bespoke free trade agreement is preferred, there are decisions to be made about how deep and comprehensive it should be. All this will have to be negotiated.

Outside the EU, the post-Brexit future of the UK’s trade relationships with the rest of the world will need to be reconsidered. And last but not least, the UK will have greater scope to shape its own domestic laws and regulations outside the EU. How best to undertake this will be the subject of much discussion.

In the short term, questions linger about the Brexit process. Will the UK trigger the official withdrawal process by giving the EU notification of its intention to leave? If so, when? Will the UK continue to comply fully with its EU treaty obligations until it leaves the EU? Or will it be prepared to breach some of those obligations (for example on immigration) in order to achieve immediate results?

These uncertainties have near-term implications for share prices, exchange rates, interest rates, credit ratings and commercial relationships. In a competitive environment, some companies will have been weakened by the vote; others strengthened.

Events could move quickly, and organisations must be prepared to meet basic business continuity challenges.

Brexit business advice

What can you do now to protect yourself, influence or take advantage of the new Brexit reality? How are your competitors, customers and suppliers likely to be affected? Are there good deals to be done, or defences to be prepared?

At Freshfields we are working with our clients to develop a deep understanding of these questions – to reduce uncertainties, to quantify and assess impacts and seize opportunities. Some of our clients have been working on dealing with Brexit for a while. Others are just beginning.

This guide will give you a flavour of Brexit-related issues, from hiring and deploying staff, through to your tax liability, the impact on imports and exports and protecting copyright, patents and the environment.

The possibilities permitted under WTO rules

Scenarios: what will the post-Brexit situation look like?

Now that the UK has voted to leave the EU, a post-Brexit UK/EU relationship will have to be negotiated between the UK and the EU.

Existing models, such as the Norwegian, Swiss, Turkish options, illustrate the main possibilities. But the rules of the World Trade Organisation (WTO) also need to be considered. They set important parameters for what it would be possible to agree.

The WTO option

Relationship governed by respective obligations of the UK and EU as members of  the World Trade Organisation (WTO). 

  • Trade between UK and EU largely similar to current situation between, for example, the US and the EU
  • Trade in goods governed by the General Agreement on Tariffs and Trade (GATT), and trade in services by the General Agreement on Trade in Services (GATS)
  • Not part of the EU single market or customs union*. UK exports to the EU would be subject to the EU’s common external tariff
  • Not bound by single market rules, but would need to comply with EU product standards for exports to the EU
  • Trade in services likely in practice to be constrained by non-tariff barriers
  • Most likely is not bound by EU/third country free trade agreements (FTAs), but do not benefit from them either. Free to negotiate own FTAs with third countries, and the UK would need to do so if it wanted to retain the advantages it currently enjoys under the EU’s FTAs
  • No contribution to the EU budget

The lack of market access could make the WTO option unattractive both to the UK and to the EU.

The Norwegian option

Membership of the European Free Trade Area (EFTA) and the European Economic Area.

  •  Outside EU customs union - tariff-free EU/UK trade in goods within scope, but subject to country of origin conditions**
  • Part of the single market, but must comply with single market rules. Would need to comply with EU product standards for exports to the EU
  • Most likely is not bound by EU/third country FTAs, but do not benefit from them either. Free to negotiate FTAs with third countries, either on its own or with EFTA, and the UK would need to do so if it wanted to retain the advantages it currently enjoys under the EU’s FTAs
  • Little formal power in making EU single market rules
  • Must pay for access to the single market, but probably not as much as UK currently pays

Arguably, remaining fully bound by single market rules but having greatly reduced power in making those rules would be an unattractive combination for the UK.  

The Swiss option

Membership of EFTA, supplemented with a series of bilateral agreements concerning market access in specific sectors. In the case of Switzerland, around 129 bilateral agreements have been concluded.

  • Outside EU customs union - tariff-free EU/UK trade in goods within scope, but subject to  country of origin conditions
  • Part of the single market in specific sectors, and would need to comply with EU product standards for exports to the EU
  • Most likely is not bound by EU/third country FTAs, but do not benefit from them either. Free to negotiate FTAs with third countries, either on its own or with EFTA, and the UK would need to do so if it wanted to retain the advantages it currently enjoys under the EU’s FTAs
  • Little formal power in making EU single market rules
  • Must pay for access to the single market, but probably not as much as UK currently pays. 

The EU has criticised the Swiss model because of the lack of an adequate institutional framework to ensure the arrangements keep pace with constantly evolving EU legislation, and it is doubtful whether this option would be on offer from the EU side.  

The South Korean option

Relationship based on a comprehensive free-trade agreement (instead of a series of bilateral treaties) outside the EU customs union.

  • Tariff-free trade in goods, subject to country of origin conditions
  • Potential scope to provide for access to the whole or parts of the single market for services, but little formal powers in making single market rules
  • Would need to comply with EU product standards for exports to the EU
  • Most likely is not bound by EU/third country FTAs, but do not benefit from them either. Free to negotiate own FTAs with third countries, and the UK would need to do so if it wanted to retain the advantages it currently enjoys under the EU’s FTAs
  • No contribution to EU budget

In theory this option is very flexible, within WTO limits, although it is likely to take a long time to negotiate. Access to the single market, and influence over single market rules, would be less than at present, but the UK would have greater power to make its own rules.   

The Turkish option

Membership of the EU customs union, but little formal power in shaping EU trade policy or market rules

  • As regards goods:
    • tariff-free EU/UK trade, regardless of country of origin
    • obligation to apply the EU’s common external tariff to third countries (cannot negotiate own FTAs with third countries in that respect)
  • Would need to comply with EU product/services standards for exports to the EU
  • Not part of the single market in services

The UK would have greatly reduced access to the EU market and few formal powers in those areas where it would have market access.