Brexit: Close to a deal, but what's at stake?

11.15.2018

UK and EU officials have agreed on the draft text of a Brexit-deal and Theresa May's cabinet has approved. However, the deal has yet to be approved by the European Council and UK Parliament.

Brexit date closing in

The UK is scheduled to leave the EU at 11pm GMT on March 29, 2019. As of present, the UK and EU have agreed on a set of terms on a technical level and the deal has (just barely) been approved by Theresa May's cabinet. 

The deal will now be put before the European Council (leaders of the remaining 27 member states – "EU27") where it must be approved by a qualified majority, meaning it must be backed by at least 20 countries representing 65% of the EU27 population.

After the Brexit-deal is accepted by a qualified majority of the EU 27, but before the deal is ratified by the European Parliament, the deal must be approved by UK parliament (also known as the "meaningful vote" in accordance with the "UK's 2018 EU (Withdrawal) Act)"). The "meaningful vote" is by many considered to be the biggest obstacle to a Brexit-deal.

If the Brexit-deal should pass the "meaningful vote", the deal must be passed into UK law as a new piece of legislation as well as be ratified by the European Parliament. 

Even if everything goes according to plan the UK is subject to a very tight schedule, where there will be little time to spare.

As a part of the Brexit-deal, the UK and EU have agreed to a 21-month transition period, which will allow businesses as well as the UK government to prepare for the UK's definitive exit from the EU. The transition agreement is however contingent on the parties entering into an overall deal regarding Brexit. 

Without a Brexit-deal the UK will therefore cease to be a member of the EU as of March 29, 2019 without a transition period until end of 2020.

What happens if no Brexit-deal is reached?

Without a Brexit-deal or the initiation of a transition period, the UK will cease to be a part of the EU's single market on March 29, 2019. For companies' who have business interests within or with the UK, this typically leads to at least two initial main concerns; how the import and export of goods to and from the UK will be affected, as well as how EU citizens' right to live and work in the UK will be affected.

Import/Export
If the UK and EU do not agree on a Brexit-deal, the UK believes that it will be able to fall back on its membership of the World Trade Organisation ("WTO") and apply the WTO's rules for future trading. Falling back on UK WTO membership will likely entail both customs checks and tariffs on goods imported and exported from the UK as well as shipping delays. 

Falling back on WTO membership will require the UK to strike deals regarding tariffs and quotas with other member countries. The head of the WTO has stated that is it "very unlikely" that the UK government will be able to have the necessary deals in place by March 29, 2019 and therefore warns that a no-deal Brexit may lead to a potential disruption of trade to and from the UK.

EU Workers
It seems that EU citizens will not have to leave the UK after Brexit. Those EU citizens, who have lived in the UK for 5 years before December 31, 2020, can apply for 'settled-status'. Those EU citizens, who have arrived in the UK by December 31, 2020, but have not yet lived in the UK for 5 years, can apply for 'pre-settled-status' until they fulfill the requirement of 5 years. Thereafter they can apply for 'settled-status'.

With both 'pre- and settled-status' the EU citizens may continue to work in the UK.

What should companies do in the mean time?

The UK and EU are aiming to close the Brexit-deal late November with a special summit of European leaders. Initially, we therefore recommend staying up to date regarding whether the deal is approved by the European Council, while at the same time keeping a watchful eye the UK political scene regarding the coming "meaningful vote". If the deal is approved, companies should begin preparing for the end of the transition period. 

Generally, we recommend that Danish companies with business interests within or with the UK take a proactive approach to Brexit and devise a plan for the company. The company's plan should take into consideration the Brexit risks imposed on the company's business model in both a 'deal' and 'no-deal' scenario, both from a legal and business-oriented stand point.

If you have questions regarding devising a plan or which risks your company is exposed to, we are happy to elaborate further.