Legal implications for business after Brexit. London lawyer John Walmsley warns that full exit could take up to 10 years
By James Brewer
Britain may face a longer transition process than many commentators forecast if the electorate votes in the June 23referendum to leave the European Union. The unravelling, or decoupling, could take up to 10 years, said London lawyer John Walmsley, when he hosted a round-table briefing for businesspeople at a City venue.
A decision to leave the EU has already been predicted to result in market volatility and uncertainty during the lengthy negotiations that would surround the UK’s exit.
Mr Walmsley went further, advising that it would be “horrendously complicated” for the UK to achieve a smooth departure within the two years that is a technical possibility, and that Prime Minister David Cameron would be tempted to delay the start of the process.
In an even-handed survey of the legal implications, Mr Walmsley said that London could retain its advantages as a leading financial centre … but noted that Christine Lagarde, managing director of the International Monetary Fund, had forecast “pretty bad to very, very bad consequences” for the UK economy. Ms Lagarde has said that keeping Europe together is a huge asset which is vastly under-rated.
Mr Walmsley was joined at the May 27 forum by independent London lawyer, Silvia Campeanu, who has worked in Romania and Greece. Ms Campeanu is strongly in favour of the Remain stance because of what she sees as economic and security advantages.
Some others who attended the forum were Brexiteers, for reasons of the perceived need for greater independence of action by the UK, and concerns about immigration.
Mr Walmsley said: “Everybody talks about Brexit, but not many people look at the legal processes that would be needed to unravel 43 years of legislation and membership.”
He said that under the Lisbon Treaty, the UK could break free from the EU after two years, “but I think it is going to take far longer than that. I think it could take 10 years to nail down the agreements in terms of our continuing trading relationship with the EU. It would appear that the civil service is not geared up for that [a two year span]. I read that we may have to dust off and revisit powers from the time of Henry VIII in terms of the relationship.”
Mr Walmsley, who runs his practice JKW Law for clients in insurance, construction, finance and other areas, conceded that Brexit “may not be as catastrophic as some would argue, partly because of this withdrawal agreement, ” although “we are only one part of that negotiating process.”
He emphasised that the European Council, in agreement with a member state concerned, could extend beyond the two-year longstop the entry into force of a withdrawal agreement. During this time, Britain could be faced with incorporating further EU laws. Article 50 of the Treaty of Lisbon was vague, he said, and lacked practical guidance. There would be “lots of difficult decisions.”
There was a misconception that a leave vote would allow things to go back to the way they were earlier with the UK’s own statutes. A lot of European law had found its way onto the statute books.
The extent of UK’s ability to develop its own regime would depend on the approach to repeal of the European Communities Act 1972, when secondary legislation (EU laws and measures)made under the Act would fall away. Which such laws did we wish to keep? EU law implemented into UK law via primary legislation would be unaffected.
Mr Walmsley outlined the five possible ‘post-Brexit models.’
Adhering to the European Economic Area and European Free Trade Area, as did Norway and Iceland, the UK would still be obliged to permit movement of workers under EU immigration laws, obliged to contribute financially to the EU budget and to adopt EU laws. “Perhaps that is an incentive to step up the negotiations, but as a lawyer I see no way we could resist new laws while still a member.”
Relying on bilateral trade agreements and EFTA was the pattern adopted by Switzerland, which had 120 trade treaties with the EU – although not in services because of resistance to interference with domestic banking laws. Under this model, Switzerland was not subject to EU legislation.
A Customs union could be developed, as has been agreed with Turkey, but Turkey could be brought into the EU sooner than some predicted, because of its strategic position and membership of Nato.
A single free trade agreement between Britain and the whole of the EU was highly unlikely, and there would be a loss of internal rights in the trade bloc.
The purest form of exit model would be an arrangement using World Trade Organisation parameters, aimed at giving the UK absolute control over its trade policy and borders. The UK would not be required to comply with or adopt EU law and regulation, “but I think there would be a lot of difficult issues to overcome, ” opined Mr Walmsley. Would all UK goods become subject to tariffs?
Turning to financial services, Mr Walmsley said that the City was acknowledged to be “the engine of the UK economy and attracts talented individuals from all over the world.” It was a pre-eminent location for trading in foreign exchange markets and other wholesale markets.
Loss of the ‘passport’ system under which companies are authorised to use the UK as a springboard into the rest of Europe without the need for host state permission would have a significant effect unless there was some form of replacement. Commentators have said that Paris and Frankfurt were “licking their lips” at the prospect of taking talent away from the City.
Mr Walmsley said that the EU had made financial services more secure in terms of capital framework and tackling market abuse, and of harmonisation – “why get rid of that if the EU is following up our own legislation?”
Among the “high risk” factors of Bruit was the impact on imports and exports, currently covered by 53 free trade deals, with the concern that the EU might slap significant taxes on UK goods which could raise prices of many supermarket items. Fluctuations in exchange rates could impact UK trade.
Many people were unaware that EU funding generously supported research and medical projects. Would universities in the UK be able to attract the people needed? Industries including construction relied heavily on migrant workers. What about the 2m expatriates living in the EU – would they be able to access hospitals and medical services freely?
Of “medium risk” were aspects such as the cost of finance and borrowing including mortgages. If equities took a dive, the value of pensions could be hit. Would the UK be able to protect rights in the area of intellectual property?
In the insurance sphere, Solvency II – similar to the banking capital reserve requirements – had to be considered. Would the UK be granted formal equivalent status? A UK-headquartered insurance company might be subject to group supervision both a UK regime and Solvency II.
Mr Walmsley said that English contract law and tort had largely been unaffected by the proliferation of EU law covering general commercial contracts, so he expected little change in contracts between parties conducting business internationally.
English courts would continue to respect a contract clause stipulating English choice of law. English law governs around half of cross-border commercial contracts. He said that parties to a contract should have an exclusive jurisdiction clause to allow enforcement under the Hague Convention. Meanwhile, the changed background could lead to a growth in the use of arbitration.
Silvia Campeau, a Romanian-born attorney specialising in commercial and other fields of law, said that when she first heard of the plan for a referendum, she asked: “Do the British people realise how much it [Brexit] will affect them from the financial point of view? I am thinking of the price of every single item you are importing into the UK. Let us not forget that Britain is a trader and not a producer.”
Right now, prices were at a certain level because of the membership of the EU. “I think British people should think with their wallet, ” she declared.
British people who were worried about the state of society should examine what was wrong internally, rather than simply blame the outside world. She believed that frustration stemmed from the “weak” attitude of the nation’s leaders within the EU.
Ms Campeanu urged Britain for instance to tighten its checks on migrants, saying that the mere acquisition of a National Insurance number appeared to be sufficient to allow residence. She compared the UK approach unfavourably with that of Romania, where newcomers had to undergo a criminal record check at police stations. “In Romania, ” she added, “it is almost impossible to work without a contract because there are frequent checks on businesses, with harsh enforcement of employment laws.”
Among advantages of being in the EU, said Ms Campeanu, was the “tremendous access to security information.”
Mr Walmsley asked of those entitled to take part in the poll: “Are you going to vote with your heart or your head?”