Summary: more hard than soft

The UK Prime Minister, Theresa May, announced her pledge to take the UK out of the EU Single Market and explained the government's objectives for a Brexit that appears to be more hard than soft. The PM struck an optimistic tone and emphasised that the UK was leaving the EU, not Europe.

The key points of the PM's speech are the following:

Single Market: the UK will come out of the EU Single Market and respects the EU’s red line in relation to the 4 freedoms of movement of people, goods, services and capital.

New Relationship with the EU: the UK aims to enter into a “bold and ambitious” free-trade agreement with the EU which should include aspects of the Single Market in certain sectors (e.g. cars and financial services). The UK will not be subject to the jurisdiction of the European Court of Justice.

Customs Union: the UK will not accept “common commercial policy” (the principle under which trade outside of the EU is the exclusive preserve of the EU) or “common external tariff” (the principle under which all goods are imported into the EU under a single tariff) of the Customs Union but subject to that is open to “associate membership” of the EU Customs Union or a bespoke customs deal.

EU Contributions: large UK contributions to the EU will end but the UK is willing to contribute appropriately to the EU budget.

Ireland: common travel area with Ireland to remain with practical solutions with a view to controlling immigration whilst preserving an open border with Ireland.

Workers’ Rights: EU laws to be maintained and built on with worker participation on UK boards.

Security: cooperation in security, defence and intelligence to continue.

Science and Innovation: cooperation to continue on science, research and technology initiatives.

Rights for EU Nationals: rights of EU nationals currently in the UK would be guaranteed subject to reciprocal guarantees for UK nationals in the EU.

Transitional Arrangements: To avoid a “cliff edge”, there will be a phased process of implementation, not a drawn-out transition, to allow business to prepare for the change.

Parliamentary Vote: The UK Parliament will vote on the final deal with the vote expected in early 2019 at the end of the two-year period under Article 50.

Fall Back Position: If the EU adopts a punitive approach, the UK would be free to change its economic model with more competitive tax rates and business friendly policies: “no deal is better than a bad deal.”

Brown Rudnick Comment

The clarification on the Single Market is welcome. The government, having taken the political decision that it wishes to control immigration, has accepted the logical corollary that membership of the Single Market is incompatible with the EU position that the 4 freedoms are indivisible. However, seeking to replace this with a free trade agreement that preserves aspects of the Single Market in relation to certain sectors is subject to negotiation and agreement with the EU and therefore uncertain.

The position on the EU Customs Union is unclear. The UK wants to maintain frictionless trade and not disrupt supply chains with the EU but the government has recognised that an acceptance of the common commercial policy and the common external tariff will preclude it from entering into free trade agreements with the rest of the world. Some commentators believe that the government is hinting at a sectoral approach to the Customs Union with some goods being within it and others outside. If this is the case, it is unclear whether this would be compatible with Article XXIV of the General Agreement on Tariffs and Trade, which states that a customs union must provide that duties are eliminated with respect to “substantially all the trade” originating between the countries which are party to it.

Through previous announcements regarding the Great Repeal Act, we were already aware that in repealing the European Communities Act the UK was intending to transpose EU legislation in force at that date into domestic law. It is interesting, however, that the government wishes to “build on” the workers’ protections of EU law by giving workers the rights to have their voices represented on the boards of PLCs. We await details of whether this means members of the board co-opted by unions or workers councils, workers council veto rights (along the lines of German co-determination rules -“Mitbestimmungsgesetz”) or a right to make representations and be heard on certain matters. It is also unclear whether these rules will apply to AIM companies or PLCs admitted to trade on other markets.

The land border in Ireland continues to pose a problem for which the government is looking for practical solutions. An open border is on the face of it incompatible with the UK government’s desire to control immigration and with the need to monitor origin of goods (assuming a free trade agreement is reached outside of the Customs Union). Freedom of movement of people and goods within the island of Ireland will require creative solutions which will require the goodwill of the governments in London, Dublin and Belfast as well as in the rest of the EU.

Contact Us

In the blur of mega firms, Brown Rudnick stands out as a “global boutique” and has in place a multi-disciplinary, international Brexit Team. We are monitoring and analysing the consequences and considerations for businesses and are ready to advise on the potential legal implications of Brexit. The Brown Rudnick Brexit Team is available to advise on the issues across a broad range of sectors within our areas of expertise.

About Brown Rudnick

BROWN RUDNICK LLP, an international law firm with offices in the United States and Europe, represents clients from around the world in high-stakes litigation, international arbitration and complex business transactions. Clients include public and private corporations, multinational Fortune 100 businesses and start-up enterprises. The Firm also represents investors, as well as official and ad hoc creditors’ committees in today’s largest corporate restructurings, both domestically and abroad. Founded more than 60 years ago, Brown Rudnick has over 240 lawyers providing advice and services across key areas of the law. Beyond the United States, the Firm regularly serves clients in Europe, the Middle East, North Africa, the Caribbean and Latin America. With its Brown Rudnick Center for the Public Interest, the Firm has created an innovative model combining its pro bono, charitable giving and community volunteer efforts.

If you have any questions please call your usual contact at Brown Rudnick or one of the following partners: