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Brexit – 5 possible Scenarios

The United Kingdom has voted to leave the European Union. The UK and EU will now enter into negotiations to form a new relationship. Pursuant to Article 50 of the EU Treaty, the UK should notify the European Council, and then the UK and the EU should negotiate a withdrawal agreement. If, two years from the date of notification, the withdrawal agreement has not come into force, the EU Treaty and all associated regulations will cease to apply to the UK. The same goes for a number of trade agreements which were negotiated and concluded by the EU on behalf of its member states.


Stibbe Brexit Team

Brexit brings legal uncertainty. Consequences will vary depending on the markets  involved and area of law. Stibbe’s Brexit team is available to advise you on all legal, regulatory and tax implications of Brexit on your business. Please get in touch with either your usual  Stibbe contact or our Stibbe Brexit team for advice.

Brexit scenarios
There are various possible scenarios for the new arrangements between the UK and the EU, five of which are set out below. These scenarios stem from arrangements that the EU has with other non-EU countries. It is unlikely that the agreements to be struck between the UK and the EU will precisely follow the scenarios below. After all, none of the scenarios concern a state which was previously a member of the EU. The UK is the first state to leave. Also, the UK”s political and economic position is different from the states in the scenarios below. Still, the information may be helpful when assessing the possible consequences of Brexit.

Five possible scenarios


1

The UK joins the European Economic Area and maintains full access to the single market. In this scenario, the UK will have to adopt certain EU standards and regulations. The UK would still have to make a substantial contribution to the EU budget and would not be permitted to impose immigration restrictions. The UK would not participate in the EU common policies.

In addition, the UK could become a member of EFTA, which aims to establish free trade between its members,  without uniform external tariffs.

The EEA was established in 1994 and includes the EU and three EFTA states (Norway, Iceland and Liechtenstein).

2
The UK enters into a customs union with the EU. Goods may be exported to the EU without tariffs or customs restrictions, but the UK would be required to comply with various areas of EU regulation (including competition and state aid). The UK would also be required to apply EU external tariffs, without influence or guaranteed access to non-EU markets.

A customs union has been in place between the EU and Turkey since 1995.

3
The UK and the EU agree a series of bilateral agreements which govern UK access to the EU market sector by sector. The UK will have to follow regulation in the sectors covered, but can negotiate free trade agreements (“FTAs”) separately. It would not get full access to the internal market but would not be required to comply with EU law except in relation to exports and investments into the EU. In addition, the UK could also become a member of EFTA (see above), like Switzerland.

Switzerland is a member of EFTA and has negotiated a special relationship with the EU through various bilateral agreements and trade treaties.

4
The UK is free to agree FTAs independently and the UK’s relationship with the EU can itself be governed by an FTA.

Mexico has a free trade agreement in place with the EU for goods and services. The EU is currently Mexico’s largest export market after the US.

5
The UK could rely on existing World Trade Organisation (WTO) rules. In this scenario there would be no negotiations for new agreements between the EU and the UK. The UK would gain full autonomy over its trade policy. UK exports to the EU would be
subject to the EU’s common external tariff. The UK would not be bound by single market rules, but would need to comply with EU product standards for exports to the EU.

China joined the WTO in 2001 after 15 years of negotiation. China is currently the EU’s biggest trading partner after the US.

 

Compliments of Stibbe – a member of the EACCNY