The referendum on the UK’s membership of the European Union is fast approaching. In this briefing we provide an overview of the upcoming referendum and the possible routes the UK might take if it opts to leave the EU. We also examine the significance of the relationship between Britain and Ireland and identify key threats and opportunities for Ireland should the UK exit the EU. We explain Ireland’s attractiveness as an EU base in any post Brexit scenario.
1. Introduction to Brexit
On 23 June 2016, Britain will hold a referendum about its membership of the European Union (EU). The question being posed is 'Should the United Kingdom remain a member of the European Union or leave the European Union?' The referendum is a simple in/out vote, with the options for voters being 'Remain a member of the European Union' or 'Leave the European Union'. British, Irish and Commonwealth citizens over 18 who are resident in the UK will be eligible to vote, in addition to UK nationals living abroad who have been on the electoral register in the UK in the past 15 years.
British Prime Minister David Cameron is campaigning to remain in the EU on the basis of the package of reforms agreed in February 2016 on a variety of issues. If the UK opts to stay in the EU, these reforms will come into effect, including:
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Should the UK vote in favour of ‘Brexit’, the impact on Britain and the rest of the EU will be significant and is likely to bring about a period of major uncertainty, including market volatility. The impact on Ireland in particular could be far reaching, given the close geographic, political and economic ties between the two countries.
2. What is the legal mechanism for exiting?
No full member state has ever left the EU and so the practicalities surrounding a possible Brexit are somewhat uncertain. Article 50 of the Lisbon Treaty contains a procedure for voluntary withdrawal from the EU, although it is not very detailed. It provides that a member state can notify the European Council of its intention to leave and a withdrawal agreement would then be negotiated between the EU and that member state. The timing of the notification to the European Council of the intention to withdraw would be a matter for the UK government. Following the notification there would be a 2 year period in which to negotiate the withdrawal agreement. This 2 year period could be extended if both the UK and the European Council so decide.
Alternatively, the UK could seek to negotiate the terms of a Brexit in advance of triggering the Article 50 procedure set out above. Following conclusion of an agreement with the European Council, the UK could then make the notification of its intention to leave. However, it has been suggested that choosing this route could result in demands for a follow-up referendum in the UK on the terms of the exit deal reached, and so may not be suitable.
Of course, the UK could opt for a unilateral withdrawal from the EU by simply repealing the domestic legislation which provides for the primacy of EU law. Such a course of action would be a drastic one, and would be likely to antagonise the remaining EU member states. In turn, this could impact on Britain’s chances of negotiating favourable trade agreements with the EU following exit.
3. What are the different models that could be adopted if Brexit occurs?
If Brexit comes to pass, it is clear that the UK will need to put new trade arrangements in place with the EU and other third countries where the existing trading relationship is based on the UK’s membership of the EU. What is unclear is what form these trade arrangements will take. The following are the main options that have so far been identified:
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4. What is the significance of the relationship between Ireland and UK?
The UK is the 2nd largest economy in the EU and 5th largest economy in the world. It is therefore likely that the legal, economic and political consequences of a Brexit would be far reaching. However, given the very close connections between Ireland and the UK, it is arguable that Ireland would experience the greatest impact amongst EU member states were Britain to vote to leave the EU.
The significance of the relationship between Ireland and the UK is illustrated by the following:
5. What are the Brexit threats to Ireland?
In November 2015, the Economic and Social Research Institute (ESRI) published a paper setting out the possible economic implications of Brexit for Ireland, focussing in particular on the areas of trade, foreign direct investment (FDI), energy and migration. In general, the ESRI paints quite a pessimistic picture for Ireland if Britain were to leave the EU, with lower wages, higher prices and major trade losses being predicted.
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6. What are the Brexit opportunities for Ireland?
While most commentators and politicians predict a negative outcome for Ireland if Britain were to leave the EU, it has been suggested that there are a number of areas in which Ireland could benefit in a Brexit scenario.
As already mentioned, Britain would be less attractive to FDI if it were not in the EU, with research suggesting that EU membership increases FDI from outside the EU by 27%. For investors seeking access to the single market, Ireland would be a viable alternative to the UK.
It is predicted that the regulated financial services sector could see a particular influx of companies and institutions moving operations from Britain to Ireland in order to maintain a foothold in the EU markets. In the event of a full Brexit, regulated financial services firms based in the UK would lose their passporting rights to carry on business in any other state in the EEA without having to obtain an authorisation or registration on a country-by-country basis. It is likely that the asset management sector in the UK would be significantly impacted, and it is reported that the Central Bank is preparing for an increase in applications for authorisation from asset management companies due to a fear from asset managers that they would no longer be able sell UK regulated funds into the EU following a Brexit.
7. Why choose Ireland as an EU base in a post-Brexit scenario?
Ireland presents an attractive alternative for companies seeking to either establish or maintain a base in the EU in a post-Brexit scenario for a variety of reasons:
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8. What are the legal consequences of Brexit?
Without knowing what form a Brexit will take and what agreements would replace Britain’s membership of the EU, it is difficult to predict the specific legal consequences that would arise following a withdrawal from the EU. It is suggested that Irish firms that have close links with the UK or which do business with UK companies should consider the risks that a Brexit could pose to their business, in particular whether legal or regulatory changes in the UK could have an adverse impact on their operations. The following are some general legal and regulatory issues that may come to the fore if the UK opts to leave the EU:
- Financial services – loss of passport rights for UK based regulated financial services providers and possible need to amend documentation to take account of the new regulatory framework.
- Divergence of regulatory standards between Britain and remaining EU member states - areas of particular significance may include data protection, energy, financial services and health and safety.
- Employment issues – whether nationals from EU members states would be permitted to stay in the UK and also the impact on UK nationals already living in the EU.
- Review of legal documentation – governing law, territory and jurisdiction clauses could be impacted and references to EU legislation or legal concepts may need to be amended.
- Possible changes to competition law which could affect mergers and acquisitions.