Brexit: The monster that cannot be tamed

Brexit: The monster that cannot be tamed

by Deloitte Legal

Brexit has so far been a long story of postponements and cancellations, for both negotiators as well as companies. However, it now seems inevitable that a conclusive outcome will finally arrive.

The Brexit process is a long sequence of important dates that never occurred as expected. An overview follows.

The United Kingdom held a referendum on 23 June 2016, putting its European Union membership into question. After a small majority voted to withdraw from the EU, Prime Minister David Cameron resigned immediately after. Theresa May subsequently (and enthusiastically) took office as Prime Minister on 15 July 2016. This culminated in a Brexit plan by the British government, and presented at Lancaster House on 17 January 2017. Eventually, the first formal Brexit step was taken on 29 March 2017, with the British Government invoking Article 50 of the Treaty on European Union (TEU) to withdraw from the Union. Art. 50, 3 TEU states that two years after formal notification, the EU Treaties no longer apply. However, the Treaty provides for a possible extension. This did not alter the fact that a special value was attached to the date of 29 March 2019 in this saga. On 18 April 2017, Theresa May announced a ‘snap’ election, convinced that she would obtain a comfortable majority to tame the ‘Brexit monster’. However, the ‘monster’ showed its fickle nature, with Prime Minister May losing her majority in parliament on 8 June 2017.

On 19 June 2017, a first round of negotiations began and was followed by a ‘dancing procession of Echternach’. White smoke seemed to have appeared on 14 November 2018, after an initial withdrawal agreement was sealed between EU and UK negotiators. However, this agreement would become Theresa May's ‘Waterloo’. She called for an extension of negotiations until 30 June 2019 after the Withdrawal Agreement was rejected in Parliament. A forward-looking EU however allowed an extension to 31 October 2019. The relativity of deadlines, 29 March 2019 specifically, was immediately apparent. On 24 May 2019, Theresa May resigned with Boris Johnson taking over as Prime Minister on 24 July 2019. The new Prime Minister appeared to succeed in reaching a new agreement on 17 October 2019. However, two days later on 19 October 2019, the British Parliament was still (for the time being) not convinced by this latest agreement. The 31 October 2019 end date was in jeopardy and the extension ended up running until 31 January 2020.

Businesses and the public consequently lost track of the process, and their confidence in a Brexit conclusion was very low; a growing number of companies put their preparations on hold. Those who never made any preparations seemed to have been proven right.

On 31 January 2020, the United Kingdom finally and formally left the European Union in a very low-key manner. As yet, everything seems to remain the same, with parties (again) given additional time, until 31 December 2020, to conclude a trade agreement.

History offers little confidence that 31 December 2020 will really be Brexit D-Day. However, recent developments seem to prove otherwise. On 1 July 2020, it became clear that the United Kingdom does not wish to postpone further. This made all those concerned look ahead to 26 November 2020, which appears to be the last useful date for the EU to see another comprehensive trade deal ratified before the end of this year. The UK has set itself an end of July 2020 deadline to reach a trade deal.

Negotiations have been extremely difficult. It cannot be ruled out that a basic agreement will be concluded before 31 December 2020 to prevent complete trade blockage, to then continue negotiations in supplementing the basic agreement until all areas are covered. Michel Barnier has already indicated that it is impossible to have a comprehensive agreement by the end of this year.

In his 2 July 2020 negotiations update, Michel Barnier underlined the real and present need to prepare for a hard Brexit. Angela Merkel, speaking for Germany, the current President of the Council, reiterated this urgency. Companies that have not yet understood the impact of Brexit should very much consider this during the summer period.

On 9 July 2020, the European Commission issued a document (COM (2020) 324) with a clear title: “Getting ready for changes”. It is a summary of all (legal) aspects that must be addressed. The Commission puts it as follows:

Inevitably, the fact that the United Kingdom will no longer participate in Union policies as of the end of the transition period will create barriers to trade in goods and services and to cross-border mobility and exchanges that do not exist today. This will happen in both directions, i.e. from the United Kingdom to the Union, as well as from the Union to the United Kingdom. Public administrations, businesses, citizens and stakeholders on both sides will be affected and must therefore prepare.

The first important part concerns trade in goods with the United Kingdom, which will become a third country hence inevitably increase administrative burden. This also means that all agreements with suppliers, customers, etc. that currently and legally manage goods flows must be reviewed. The use of certain Incoterms becomes problematic. The (preferential) origin of goods can be compromised. Permits required to move goods will need an analysis.

UK-based companies will not be automatically recognised under Article 54 TFEU. A corporate reorganisation of multinational groups may be necessary.

Choice of law clauses in contracts will also need to be reviewed. Judgments from a British court will no longer be easily enforceable in the European Union, as is currently the case.

One of the Commission's conclusions leaves nothing to the imagination:

The Commission therefore calls on all public administrations, citizens, businesses and other stakeholders to make sure they are ready for those unavoidable changes. Failing to take such preparatory measures will increase the negative impact and cost to their operations at the end of the transition period.

It is ultimately for businesses and other stakeholders to undertake their own risk assessment and implement their own readiness actions in light of their individual situation, but no one should underestimate the logistical challenges that will occur as of 1 January 2021, in addition to the legal changes...

If you have any questions concerning the items in this blog, please get in touch with your usual Deloitte Legal - Lawyers contact at our office in Belgium or with Alexander Baert (+ 32 2 800 71 51).

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