The Future of the United Kingdom in Europe

The Future of the United Kingdom in Europe

Brexit Scenarios and their Implications on Trade Relations


Introduction

The guide deals with the recent debates on the possibilities of the UK leaving the EU and its consequences. This paper is structured in four sections. The first section deals with a general introduction and overview on the various aspects of UK’s withdrawal from the EU and its consequences.


General procedures of withdrawal from the EU under Article 50 of the Lisbon Treaty

Article 50 of the Lisbon Treaty shall be interpreted as requiring both parties to negotiate in good faith as well as obliging the EU to conclude a withdrawal agreement. Under this provision, the EU would further be obliged to make serious good efforts to reach an agreement on future trade relations with the UK. Nevertheless, this may be contingent upon the UK submitting a proposal to this effect. Furthermore, Article 50(3) of the Lisbon Treaty provides for a two-year period to reach a withdrawal agreement. It enables either party to escape the conclusion of a withdrawal agreement if the other party considerably breaches its good faith obligation. Thereinafter this section deals with the issue concerning the need to agree on the protection of acquired rights of/against UK individuals and entities as well as the survival of claims based on EU law after the UK’s withdrawal from the EU. The general EU law requirements of legitimacy presuppose that upon withdrawal, the UK and the EU would be required, or at least recommended, to agree on the protection of acquired rights and legitimate expectations of/against individuals and entities of the UK. At the same time, the claims of/against UK individuals and entities would survive even in case the UK and the EU fail to conclude such agreement. In any pending case based on EU law before the CJEU or the domestic court of a Member State, the claimant may raise the principle of legal certainty and its different aspects, such as protection of legitimate expectations, non-retroactivity and acquired (vested) rights. The situation with UK courts will differ as they will not be obliged to apply the rules of EU law on legal certainty after the Lisbon Treaty is terminated. However, they would still be obliged to follow the minimum standards of protection of acquired rights.


Options available to the UK for its continued trade relations with the EU after withdrawal

Upon withdrawal, the UK may opt for one of the five models discussed in this paper for its relations with the EU, namely:

 

  1. EEA Model
  2. Swiss Model
  3. Customs Union Model
  4. FTA Model
  5. Exit without any agreement.

 

The EEA Model grants the UK access to the EU single market with a lesser financial contribution and more control over its external commercial policies. The Swiss Model allows the UK and the EU to enter into bilateral agreements on particular areas only. This also provides most of the advantages of the EEA Model, while leaving the possibility that the UK may have more bargaining power with the EU than Switzerland under this model. The Customs Union Model allows the UK and the EU to eliminate the duties on certain negotiated goods. There will be a Common External Tariff (CET) and the negotiated goods from the UK will have access to the EU single market without any financial contribution. The FTA Model allows far lesser integration into the EU system, with the lack of any financial contribution or CET. The last model is the UK exiting without any trade-related agreement. Here, the UK’s trade relations with the EU would be shaped solely by the WTO rules. This would grant complete autonomy to the UK in all sectors. While these models have certain benefits, each of them also poses various difficulties in terms of financial and political autonomy. Therefore, each of these models should be carefully weighed against the scheme of the current EU membership of the UK prior to any decision regarding withdrawal from the EU.


The impact of the withdrawal on existing UK-EU relations

As the UK is party to various agreements entered into by the EU, the status of the UK in these agreements after withdrawal is of utmost importance. As regards the EU’s exclusive agreements, they cease to apply to the UK after withdrawal. As to the EU’s mixed agreements, which bear the signature of the UK along with the EU, they may or may not continue depending on the level of negotiations between the UK and the EU during withdrawal. The most likely legal outcome of these mixed agreements is that the UK would be automatically disqualified from them for the reasons that the UK will no longer be a ‘party’ as defined in these agreements and the territorial application of the agreements cannot be extended to a country outside the EU. Nevertheless, if the UK continues to be a party to these agreements, the third country with whom the agreement has been entered into can terminate it in relation to the UK, based on the termination clause in the treaty or under the rules of international law. Any questions that may arise in this regard can be settled mutually by the parties, or the International Court of Justice. However, for practical convenience, the third countries may agree with the EU and the UK for the continuation of these agreements in relation to the UK. In such situation, the parties merely have to modify and make amendments to the necessary extent to clarify the applicability of the agreements to the UK. Therefore, the fate of these mixed agreements would greatly depend on the level of negotiations between the UK, the EU and the third countries after withdrawal. As the UK is party to various agreements entered into by the EU, the status of the UK in these agreements after withdrawal is of utmost importance. As regards the EU’s exclusive agreements, they cease to apply to the UK after withdrawal. As to the EU’s mixed agreements, which bear the signature of the UK along with the EU, they may or may not continue depending on the level of negotiations between the UK and the EU during withdrawal. The most likely legal outcome of these mixed agreements is that the UK would be automatically disqualified from them for the reasons that the UK will no longer be a ‘party’ as defined in these agreements and the territorial application of the agreements cannot be extended to a country outside the EU. Nevertheless, if the UK continues to be a party to these agreements, the third country with whom the agreement has been entered into can terminate it in relation to the UK, based on the termination clause in the treaty or under the rules of international law. Any questions that may arise in this regard can be settled mutually by the parties, or the International Court of Justice. However, for practical convenience, the third countries may agree with the EU and the UK for the continuation of these agreements in relation to the UK. In such situation, the parties merely have to modify and make amendments to the necessary extent to clarify the applicability of the agreements to the UK. Therefore, the fate of these mixed agreements would greatly depend on the level of negotiations between the UK, the EU and the third countries after withdrawal.


The UK WTO membership

The UK’s EU-exit would have major implications for its WTO membership. Upon its withdrawal from the EU, the UK’s WTO membership will not automatically remain in place. In order to preserve its WTO membership, the UK will have to submit its individual schedules of commitments under several WTO agreements, unless it enters into a customs union with the EU. The approval of these schedules is subject to the consensus of all other WTO members, which underlies complex procedures and cannot be taken for granted since major difficulties may arise. The approval of the UK’s new schedules may require extensive negotiations on their design and extent with a view to preserve the UK’s WTO membership. Besides, the UK’s membership to the Agreement on Government Procurement is dependent on the preservation of its WTO membership. It is therefore concluded that once the UK’s WTO membership is approved, the UK would also have to preserve its membership to the Agreement on Government Procurement upon its EU-exit. This process, however, involves difficulties similar to the submission of schedules under the WTO Agreements indicated above.

Moreover, this section also concludes that once the UK’s WTO membership is approved, its trade relations with non-EU parties to the WTO would continue to be governed by the very same WTO rules that currently govern this relationship. The tariffs applied by any WTO member would thus continue to be governed by the WTO’s MFN principle, which guarantees non-discrimination among WTO members. As to non-tariff barriers, the trade relations between the UK and non-EU members to the WTO would continue to be governed by the standard rules set out in the relevant WTO Agreements. Nevertheless, these trade relations are subject to any changes set out in the UK’s new schedules and any continuing or new FTA relations between the UK and non-EU parties to the WTO.

Finally, this section concludes that the UK’s EU-exit may generate both advantages and disadvantages for the UK’s position vis-à-vis the world’s regional trade networks. This problematic results from the fact that not only the UK but also all other non-EU parties to the WTO may deviate from the MFN treatment obligation under certain conditions. Consequently, the nature and extent of trade advantages granted to the UK will depend on negotiations, having major implications on the UK’s key industry sectors and other stakeholders.

The final section of this paper provides a short assessment of the findings as to the UK’s exit procedures from the EU and its possible consequences.

 


 

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