MAKING A SUCCESS OF BREXIT
For businesses, the final arrangement that the UK and EU negotiates is critical – but so too is the process of reaching and implementing that final settlement. There are serious concerns in the business community about disruption if the day after the UK leaves the EU its final 'deal' is not complete, with all trading and regulatory issues fully ironed out. Companies are also clear that there must be adequate time to implement any changes as the UK moves from EU membership to a new relationship.
In order to plan for the future, businesses are trying to understand the flow of events throughout the Article 50 period. This is particularly challenging given the unprecedented nature of the situation. The staging of technical, legal, and political decision-making is not yet clear. The two year period laid out by Article 50 adds a complicating factor to this.
Whatever the timing of the various stages of this process, it is important that it is a smooth one. Business wants to see a new UK-EU trading relationship secured from the day the UK leaves the EU. However, it does have to consider that this many not be possible. If the time allowed by Article 50 does come to an end before that new trading relationship is secured, there would be very real challenges from the resulting "cliff-edge".
To leave the EU without a new preferential trading arrangement in place would create considerable disruption for businesses. The effects of a "no deal" or "cliff edge" scenario would be felt right across the economy.
The EU would be obliged under WTO law to treat the UK as a third country, with no preferential access. This would mean the imposition of tariffs on UK exports to the EU. It would also mean new customs checks and other non-tariff barriers that create costs and delays on goods trade. The ability for both the UK and EU infrastructure to cope with this scenario is questionable. The knock on effects through supply chains means this would have consequences even for businesses that do not trade. It is not clear what affect this scenario would have on the UK's imports, as this depends on the UK's position at the WTO.
The UK's services businesses would no longer have preferential rights to offer services in the EU, and existing service provision would be open to challenge. This could potentially impact a huge range of services – from UK broadcasters in the EU to EU financial companies providing services to consumers in the UK. If no separate aviation agreement is secured, for example, it may also prevent UK airlines from flying to and from the EU in a legally compliant manner.
In this scenario, regulatory confusion and uncertainty would affect businesses in every sector. This could be reduced by the actions of the Great Repeal Bill, but this alone is unlikely to provide certainty in the event of a sudden exit.
It is critical that the UK does not leave the EU in this sudden fashion. Its exit must be a smooth transition from one arrangement to the next one. The government should be open to the need for a temporary interim relationship to bridge the gap and prevent the UK facing a sudden "cliff-edge" should negotiations not conclude in a deal by the end of the Article 50 period.
As the UK moves to a new relationship with the EU, an implementation period will be needed after the agreement has been signed. It is in the interest of both government and business for this to take place, as new guidance must be produced, new skills taught to staff or brought in, and IT systems updated. Those companies within supply chains may need to adjust them. Contracts with EU regulations written in may need to be renegotiated. Infrastructure may need adapting – particularly if more land is required for storage of goods.
The length of the implementation period will depend on the scale of the changes required. It may also differ by area of change, as it does with existing regulatory changes. Two years is allowed for companies to adjust to the requirements of the General Data Protection Regulation, for example. Whereas the transition to a new system of a labelling chemicals had a transition period in two phases over five and a half years.
At this moment, companies are weighing up investment, hiring and other spending decisions – and the UK-EU negotiations are known to be a factor in many of these decisions. Reassurances that the UK will avoid a cliff-edge scenario will help companies make the decisions for growth, especially once Article 50 has been triggered and the formal process for leaving the EU is initiated.
The UK Government should make its commitment to a smooth exit from the EU as soon as possible. This will provide the right signals to business and to EU member states. It also sends a signal across the rest of the world that the UK is a solid, pragmatic partner to do business with. But there are many different ways in which this smooth exit can be secured and many different elements involved. By moving agreement on a smooth Brexit to the start of the negotiations, the government will ensure it has time to focus on the details that will make this process work for all businesses.