Risk & Economy » Brexit » Ignorance of legal changes may be the ultimate Brexit challenge for business

From the post-War abolition of German coal and steel cartels onwards, business always lay at the heart of the European project.

But the 5,000 regulations and 7,500 decisions which currently make up the codex of EU Law, as identified by the House of Commons Library in its post-Referendum advice to Parliament, and some of which the said Parliament is soon to scrap, are more like the project’s veins and arteries, its corpuscles and platelets.

Thus any assessment of the challenges faced by businesses after Brexit is hampered by the very granularity of the law which the UK will be giving up.

From almost immediately after the Referendum, experts in different sectors began to predict possible consequences, albeit painted in primary colours.  The transportation sector foresaw the collapse of certain major infrastructure projects without the support of the European Investment Bank.  The engineering sector worried about reduced access to research funding and a shortage of recruits to lower-skilled roles.

Those in the energy sector worried that an end to free movement would lock the UK out of the EU energy market, increasing the cost of imported power and causing bills to go up.  Likewise, health professionals worried that exclusion from the EU’s licensing regime would see drug companies prioritising the continental market over the UK’s.

Later, at the various post-Referendum Parliamentary enquiries, Select Committees were able to hear from affected individuals and drill down more deeply into some of these purported problems.  Through their reports, a more contextualised, nuanced picture emerged.  Thus, for example, while animal welfare groups called for improvements to EU welfare standards after Brexit, some farmers warned of the knock-on effect which that could have for their competitiveness.

In the motor industry, while ‘reshoring’ certain operations (that is, bringing them back to the UK) could in theory get round some of the problems of disruption to just-in-time supplies, it became clear that economies of scale forbade such UK-only operations.  Producing at competitive prices meant specialising (say, building one specialist forgery to manufacture one specialist part) and that only worked if all markets were integrated, not if they were segregated.

It would simply not be cost effective to have a separate UK forgery running at less than full capacity.  The creative industries also had concerns around the EU’s Community Design Right.  While Brexit potentially opens up new markets for fashion, designers are unlikely to show off their new collections at London Fashion Week if these are no longer protected and a surface pattern – currently protected under the design right – could be subsequently copied within the EU.

Another difficulty in assessing the challenges which Brexit poses to business is that some of these challenges are location-dependent.  Not long after the Referendum, the seafood industry in Grimsby called on the government to give the port special ‘free trade’ status in any future deal with the EU-27.  This was because 90% of the seafood processed in the town was imported, and thus the imposition of duties would threaten the town’s viability as a centre for processing, to say nothing of delays in the fresh fish actually getting to the factories.

The port of Dover, which was not designed to handle extensive customs checks, also faces an uphill task in converting its systems, and this is particularly hard where it does not actually know what the new post-Brexit tariffs regimes may look like. And the Overseas Territories have some particularly unique concerns.  The Falkland Islands, whose 3,000 inhabitants are vastly outnumbered by penguins, face a loss of EU environmental and biodiversity funding, leading the Falklands Trade Minister to plead with Michael Gove that ‘no penguin is left behind.’

Unintended consequences

From the legal point of view, the situation has been further clarified by more recent research, in particular that carried out as part of Routledge’s series Legal Perspectives on Brexit,  which has shown how some of the subtler niceties of EU Law can conceal unintended consequences for post-Brexit business.  We learn, for example, that the UK’s aviation sector is poised to lose traffic rights over Switzerland and Morocco thanks to exclusion from bilateral treaties.

This is because, even if the treaties are ‘rolled over,’ UK carriers will still find themselves reclassified as non-EU carriers who are unable to benefit from whatever special arrangements the EU has negotiated with third countries. Meanwhile, in the car sector, the EU’s complicated ‘rules of origin’ mean that, even if a deal is reached between the UK and the EU-27 to avoid tariff barriers, that will not help supply cars with the components of which are less than 60% British; current local value content of UK-produced cars is only around 40%.

Thus, unless UK manufacturers can shift the proportion of the assembly to more UK parts, bringing with it the problems mentioned above, they risk their products being treated as third country products and taxed accordingly.  I am Series Editor for this series and would be happy to hear from anyone who wanted to contribute with regard to their own sector; the ultimate intention is to build up a complete library of titles cataloging all the legal effects of the UK’s leaving of the EU.

So I return to my starting point of EU regulations and decisions as the ‘life-blood’ of the European project.  It is noteworthy that, rather than these regulations and decisions being jettisoned as soon as the UK withdraws from the Union, in fact the UK is attempting a legally innovative ‘transfusion’ on Exit Day.  Thereafter, the country will be free, as Prime Minister May made clear in her very first speech on the subject, to ‘amend, repeal and improve any law it chooses’ (Conservative Party Conference, 2 October 2016).

However, this leads to a final challenge for business which I think has been under investigated, and that is around the level of transparency which these amendments, repeals and/or improvements will attract.  Although there was some chatter about Henry VIII clauses when the EU (Withdrawal) Bill, later Act, was being debated, there is little discussion now, even though at this very moment some 250 amending instruments, touching upon every sector imaginable, are awaiting Parliamentary approval, the latter likely to be given with minimal debate or none at all, and thus little or no publicity.  This will surely pose problems not only for businesses in this country but also, and perhaps especially, for businesses abroad.

One problem is that the Withdrawal Act divides the incoming EU Law (so-called ‘retained’ EU Law) into two categories, principal and minor, and, in the event of amendment of a certain piece of law, provides for differing levels of scrutiny dependent on that piece of law’s category.  However, the Act does not specify precisely which pieces of European Law fall into which category, which will make post-Brexit legal review tricky for both litigants and judges.

Another problem is that, although the Explanatory Notes to the Act inform us that where Treaty rights are retained, it is the right which is retained, not the text of the Treaty Article itself, this rule does not seem to be consistently applied by Ministers in drafting the amending legislation.  Thus, in some statutory instruments, the Treaty provision itself is revoked, while in others, it is only the rights deriving thereunder which are terminated.

A third problem concerns EU directives, which are not going to enter UK Law themselves, but rather have already been implemented in domestic legislation, either wholesale by the Westminster Parliament on behalf of the entire UK, or piecemeal by each of the constituent nations separately.  It will be quite easy for central or devolved government to alter this implementing legislation after Brexit, but it may be difficult to keep tabs on these alterations, particularly for businesses in the EU used to dealing with a single piece of legislation applying equally across 28 different countries.

Perhaps the biggest problem is that, once amended, it will be particularly difficult to tell the new UK version (or, if a devolved matter, versions) of the relevant law from its current and subsisting EU version.  The good news is that exciting plans are afoot at the National Archive to take a ‘snapshot’ of the European statute book as it stands at one minute to Brexit, and subscription-only legal databases such as Westlaw are already carrying lists of retained EU Law.

However there is also perhaps room for a more hands-on, user-driven website mapping the changes as they happen.  It is for this reason that I am launching the British Amendments to European Law (BAEL) Tracker later this year; anyone interested in knowing more about, helping to build or sponsoring the BAEL Tracker is welcome to get in touch.

With so many of the consequences above driven by contingency (‘if x, then y’), and therefore predominantly speculative, it would certainly be a shame if the actual changes in business behaviour, necessitated by the actual Brexit, are mishandled (or the need for them missed altogether) due to lack of awareness-raising around the changes in the law by which they are compelled.

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