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31 July 2019 / article

Brexit Blog 11: Things are heating up

Temperatures are rising in Europe, not just on the European beaches, but even more in the political houses throughout the European Union (EU), with the Brexit date of 31 October closing in.

What will Brexit bring for international private clients?

When we published our Brexit Blog 10 on the 29 March deadline, hopes were high that the UK was on a quiet road towards an agreement that would provide for an orderly Brexit on the (then) extended Brexit date. The road ahead however seems far from quiet. The last four months brought the UK a new Prime Minister, dozens of new ministers, change in political landscapes and a UK pound sterling that has plummeted to the lowest point since the Brexit-vote. This in itself is more than enough reason for us to pick up where we left with the eleventh Brexit Blog.

How did this happen?

The road to 29 March has been reflected in our previous Brexit Blogs and the period ended with an extension of the Brexit date to (in the end) 31 October 2019. Yet again, the UK made the same mistake they made throughout the whole Brexit-saga in the extension period; the UK did not plan nor prepare for things to come.

This behavior already started when Prime Minister Cameron called for the Brexit-vote, without having a Plan B or Brexit preparation in place, in case things would not turn out the way he expected, which we know they didn’t as the Brexit-vote resulted in an unplanned and unprepared ‘yes’-vote. The following Prime Minister May swiftly followed up on the ‘yes’-vote and fairly unprepared announced the ‘art. 50-notification’, triggering a two-year timer for the negotiations for the exit from the EU.

During the negotiations the UK found out that its expectations of an easy negotiation were unfounded. Rather than the expected typical EU-negotiation between all 28 Member States (where a deal is always reached when the pressure is on) the reality was that the negotiations were done by a strong and united EU-delegation. The UK was also way too confident in making minimum demands such as a no Irish-border, the exit from the internal market and an exclusion from EU-rules. When Prime Minister May came back with a draft withdrawal agreement late 2018 (with a backstop, transitional period and rules subjecting the UK to EU rules without its formal representation in the EU) the chaos in the UK Parliament started to take flight. Still, on several occasions a breakthrough was nearly reached, but was prevented, amongst others, by formal rules invoked by the Speaker of the House of Commons and miscalculations and misrepresentations in voting sessions.

Still, in the end the UK Parliament prevented a ‘No-deal Brexit’ through a vote ruling out that scenario. In a sort of a political stalemate, the decision was made to postpone the Brexit, firstly to half April, and ultimately to its current date of 31 October 2019. In the meantime,  new Tory Prime Minister, Boris Johnson, has taken office and is supposed to lead the UK through Brexit.

What is going to happen?

31 October is the end date of the delay for Brexit. Several options are still possible, such as an orderly Brexit with a withdrawal agreement (and transitional arrangements), which can be in the form of either the existing or an amended agreement. Other options include another delay of the Brexit date no Brexit at all or a ‘No-deal Brexit’, which is becoming more and more likely. If on 31 October no agreement, cancellation or delay is achieved a ‘No-deal Brexit’ will take place. In our view, there are three actors at play.

First of all, the new Prime Minister Johnson, who is the person to take the UK through the coming three months. . Prime Minister Johnson is a ‘hardline Brexiteer’ and has vigorously campaigned in favor of the Brexit during the vote in 2016. Also, his rhetoric during the period thereafter included harsh criticism of the EU. Where former Prime Minister May definitely had credit with the EU and its negotiators, this remains to be seen for Prime Minister Johnson. This does not benefit him, since he already promised to make some fundamental amendments (such as a removal of the ‘backstop’ for the Irish border-issue and amendments to the political declaration) to the draft withdrawal agreement before any agreement on Brexit can be reached. Johnson even indicated that, as long as the EU does not indicate to be willing to change its views, further negotiations are not useful (and will not happen).

Secondly, on the other side of the Channel, the EU is busy reorganizing itself after the elections in May of this year as the new European Commission is being formed and installed. Although Brussels is generally quiet in August (save for Belgians and tourists), the stance of the EU with respect to the Brexit can be derived to some extent from the individual Member States. For instance, both Irish and French officials have indicated that a deal without a backstop is not happening and have even suggested that the current withdrawal agreement is a ‘take it or leave it’-proposal.

Third, the UK Parliament has adopted motions in March indicating that a ‘No-deal Brexit’ is ruled out. Some ‘MPs’ already announced they are not accepting a ‘No-deal Brexit’. However, some changes and shifting of positions occurred in the UK Parliament. We will have to see how the UK Parliament shall act as the pressure rises (closing in on 31 October). Prime Minister Johnson already warned his Parliament that he would not rule out a (medieval) option to ‘prorogue’ Parliament, literally asking the Queen to suspend Parliament (including all votes and debates), in order to prevent any vote for a delay of the Brexit to be passed. Such a nuclear option would effectively even bring the Queen herself into the Brexit-debate, as denying such request is only theoretically possible.

What are the odds?

Prime Minister Johnson’s main credo has been to have a Brexit on 31 October 2019 ‘come what may’. His demands for changes to the withdrawal agreement will not go well with the EU, which is currently also in ‘stand-by’-modus during the summer and pending the formation of the new European Commission. The risk of a ‘No-deal Brexit’ is bigger than ever – with Prime Minister Johnson even urging the people and businesses of the UK to prepare for a No-deal Brexit. The only force to stop this scenario is the UK Parliament but its course of action is, as we have seen over the last three years, as ever very hard to predict.

Companies on both sides of the Channel will have to seriously consider putting into effect a contingency plan for a Brexit. Especially the UK-side appears to be ill-prepared for such a situation, which only increases the risk of major disruptions to EU-UK trade. We will keep you updated the following weeks on the legal developments and implications for your business. Stay tuned!

If you have questions about the consequences of Brexit for your company, please feel free to contact our Competition & Regulatory department.

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