Kyran Fitzgerald imagines the economic repercussions of the UK choosing to leave the EU. It would be a process rather than a sudden event, but businesses need to be prepared for it.
It is daybreak on June 24. The supporters of a British exit from the EU are ecstatic.
They have pulled off a referendum win that is causing major ructions in the financial markets.
The victory has been made possible, in large part, by blue collar votes, and those of the elderly, in areas such as Yorkshire, the Midlands and the coastal towns. It is one in the eye to those cosmopolitan Londoners and Scots.
Such an outcome is still considered unlikely in the City and in the betting markets, but with the polls pointing to a tight result, it is one that certainly cannot be ruled out.
Belatedly, people in business are waking up to the possibility of a Brexit vote which could cause great legal uncertainty, adding to the general sense of heightened economic crisis that would come to the fore in the event of such a vote.
One leading Irish expert, John Cooke SC, a former High Court and European Court judge, and a leading expert on European law, this week cautioned that “no one really knows what things will be like if the UK withdraws.”
Speaking at an event in Dublin, organised by the Irish Council of European Lawyers, he added that “there is a frightening lack of information about what possibly could happen. You almost get the impression in London that there is a delicate policy of not going into any detail, on the mechanism of a withdrawal.”
There are signs of belated activity on the part of top UK law firms, many of which stand to suffer heavily in the longer term from a withdrawal. These firms have operations in Brussels. They have benefited from the boom in the City of London which has resulted — at least in part — from the completion, in large part, of the single European market.
Big business, too, is stirring from its state of slumber on this defining issue.
Some firms have appointed teams, reporting to senior management, to assess the impact of a vote to leave on their business. The impacts could be felt right across the board, but with some of the early impact occurring in the employment arena.
According to the leading UK firm, Allen & Overy, businesses, particularly those with operations in both the UK and the rest of the EU, should start auditing their workforce.
This, the firm insists, “will be essential to help you plan for the labour mobility restrictions and shortages that could result from a Brexit.”
In theory, UK and other EU nationals working in the EU (as currently constituted) outside their country of origin would, in theory, lose their automatic right to travel and work freely across the Union. In practice, transitional arrangements and concessions are likely to be negotiated. Indeed, failure to do so would be an act of great folly.
Speaking in Dublin, last week, Prof Derrick Wyatt QC said that “withdrawal would be a process rather than an event. That process would take between two and five or more years.”
Alongside a withdrawal agreement, there would have to be an agreement on future trading relations between the UK and the REU (rest of the EU). The withdrawal agreement would deal with issues such as the acquired rights of migrants in the UK and ‘REU’.
Transitional arrangements would have to be put in place for those migrants whose rights of residence might be phased out.
However, he added, such issues would be unlikely to affect directly Irish citizens resident in the UK, or UK citizens living in Ireland as their rights are not dependent on EU law.
In such negotiations in the lead up to a withdrawal, the UK would be keen to secure a deal on free trade in goods and in services, with the preservation of current ‘passporting rights’ for banks and insurance companies, which allow them to set up branches in other member states without further authorisation by a national body, or additional capital requirements.
As a quid pro quo, the rest of the EU will seek concessions on free movement of people and a continuation of at least some financial contribution towards the running of the EU.
If the talks process were to extend beyond the two-years provided for in Article 50 of the EU Treaty, then all member states would have to agree unanimously to an extension of those talks. You could well imagine how certain States, driven by opportunism and their own voter base, might try to place this.
Professor Wyatt warns that a sense of ill will could complicate the process. He also warns that any free trade agreement is likely to be confined to goods originating in the UK or EU, with non-originating goods being subject to whatever external tariff applies.
This could present a real challenge to exporters, given that many goods are merely finished in the country of export and contain inputs which have been previously imported from elsewhere.
Prof Wyatt also warns that, for this reason, border checks between the Republic and Northern Ireland would appear to be inevitable as otherwise it would be used by those seeking to circumvent EU and UK import restrictions.
He suggests, however, that border checks could be “fairly light touch”, with the use of mobile check points and exemptions for private cars. The need to control the flow of illegal immigrants would also appear to mean that the reintroduction of passport checks is on the cards.
It is clear that the vote on June 23 will be remembered more as the trigger for a chain of events rather than the culmination of a long battle. In fact, the war will continue regardless of who triumphs in this battle. The Tory party is set to remain divided as it was over the repeal of the Corn laws in the mid-19th century.
Vincent Power a partner with solicitors A&L Goodbody, for one, does not see June 23 as the finishing line. He draws a parallel with the Irish votes on the Nice and Lisbon treaties suggesting that in the event of a vote to leave, a new package could be put on the table.
One has to wonder whether such a renegotiation could really be possible, given the entrenched position of the supporters of Brexit.
It is worth recalling an interesting observation this week by the Guardian political writer, Michael White: “Those who live on an island, especially one with a nostalgic imperial culture and a centralised state, have a much less subtle sense of ‘sovereignty.”
Many of Britain’s top economists have signed a letter pleading with the voters to opt to remain. It would seem that the ‘Remain’ group have won the economic debate, but there is another debate, one of the heart and the gut rather than the mind, that is going on.
If gut feeling were to win out then the dislocation, in terms of commercial relationships, would be considerable. European laws are deeply embedded in the British legal system after more than 40 years of membership.
Dismantling such a tapestry could prove difficult to the point of being destructive.
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