Dentons, the global law firm, recently released its Global Regulatory Trends to Watch in 2017. In this five-part series, we are publishing excerpts from the report focusing on public affairs and economic sanctions and trade across the world, including the US, Europe, the UK, China, Canada and Mexico. Authors for these excerpts are Andrew Cheung, Joseph Lougheed, Adrian Magnus, James Moore, Kenneth Nunnenkamp, Michael Zolandz, and Richard Jenkinson.

The UK Prime Minister, Theresa May, who was appointed to succeed David Cameron, has made it clear in a speech made on January 17, 2017, that she does not see a future for the UK in the Single Market. Although she has not made it clear, it appears likely that she also wishes to exit the EU Customs Union. However, while on the one hand suggesting a complete extrication from all of the international agreements that hold EU Member States together (along with certain other European countries that are party to some agreements but not others) she has also said that she would like this to be accompanied by a comprehensive free trade agreement with the EU.

The points made in May’s speech were reiterated in a White Paper (a UK Government policy document) published on February 2, 2017. Although the White Paper was hailed as a plan for Brexit, it contains very little new information on the UK Government’s intentions and does not address the mechanics of Brexit in any substantive detail.

Crucial issues remain unresolved by the White Paper. For example there is, as yet, no detailed UK Government proposal for the management of the border between Northern Ireland and the Republic of Ireland (which is and will remain an EU Member State) upon Brexit. This is a highly contentious issue given the troubled history of Anglo-Irish relations and likely problems a hard border will create for the peace process.

May’s plans for the UK are no longer necessarily the UK’s plans. The UK’s Supreme Court ruled on January 24, 2017 in the Miller case that the triggering of Article 50 of the Treaty of European Union (TEU) (a recently-inserted exit mechanism in the EU treaties) could not be triggered by the UK government without primary legislation by Parliament authorizing it to do so. The UK Government has responded by publishing a very short bill which would do just that. After passing the House of Commons, some members of the House of Lords are now in the process of proposing amendments which either try to specify “softer” Brexit terms (e.g. retention of the Single Market) or the ability to approve/reject a deal (with rejection resulting in remaining in the EU). While May has already conceded a vote in Parliament on the final deal with the EU prior to Brexit, it appears that Parliament’s alternative to accepting this deal would not be the UK remaining in the EU but rather exiting without a deal. This would subject the UK to the economic shock of crashing out of every free trade agreement to which it had signed up to at the same time. It is therefore difficult to envisage a deal which would be bad enough to justify a vote  for exiting the EU with no deal.

Adding further uncertainty is the ambiguity on the revocability of the UK’s notice to leave the EU under Article 50. A key reason the UK Government lost in Miller was because of its concession for the purposes of the case that Article 50 was irreversible. It did so in order to avoid Miller being decided ultimately by the European Court, which has the final say on the interpretation of TEU. An EU court telling the UK how it could leave the EU would have been extremely contentious politically. A case has been launched with the support of crowdfunding to bring the question of the revocability of notice under Article 50 before the European Court via a reference from the Irish courts.

Yet another ambiguity is whether or not the exit of the UK from the EU also means its exit from the Single Market. The Single Market is also known as the EEA, and is held together by the EEA Agreement. This agreement has its own exit clause. It has been suggested that the exit of an EU Member State from the EU would trigger its automatic exit from the EEA; however, a separate mechanism for exit in the EEA Agreement implies otherwise.

If the UK enters a transitional deal, it is possible its exit from the network of agreements binding it to its fellow EU Member States will stall. The UK has an immense task ahead of it in extricating itself from the EU, one which many have suggested it is simply not capable of achieving. The UK’s civil service has been shrinking for many years and decades of having the European Commission negotiate international trade agreements on its behalf have left the UK short of the expertise it needs to negotiate its own deals. Additionally, the UK’s negotiating partners in the rest of Europe have indicated that they will take a hard line in negotiations. It is therefore unlikely that, by this time next year, a clear road map to the UK’s final destination will be in place.

Dentons, the global law firm, recently released its Global Regulatory Trends to Watch in 2017. In this five-part series, we are publishing excerpts from the report focusing on public affairs and economic sanctions and trade across the world, including the US, Europe, the UK, China, Canada, and Mexico. Authors for these excerpts are Andrew Cheung, Joseph Lougheed, Adrian Magnus, James Moore, Kenneth Nunnenkamp, Michael Zolandz, and Richard Jenkinson.

Six months on from the EU referendum result, the UK Government has opted for “hard” Brexit but it has not laid out much detail of how it proposes to get there or what (if anything) might make it change its position. The vote is now spoken of in the same breath as the election of Donald Trump and the “No” vote in the Italian constitutional referendum, and is referred to as the beginning of the “populist wave” of “anti-establishment” votes.

The referendum question put to British voters was: “Should the United Kingdom remain a member of the European Union or leave the European Union?” with “Remain a member of the European Union” and “Leave the European Union” as the only options. The referendum was silent on the UK’s membership of other international agreements entered into by European countries, which (for the most part) layer themselves around the EU like an onion.

Within the EU, at the core, is the Eurozone and the Schengen Agreement (the latter, confusingly, also contains non-EU members), though the UK has never been a part of either of these. The EU itself sits within the EU Customs Union and the European Economic Area (EEA), the latter of which is also referred to as the Single Market.

The lack of clarity on the UK’s future relationship with these other bodies in the original referendum question has caused a logjam in the UK political process, exacerbated in part by the narrowness of the result (52 percent voted to Leave, 48 percent to Remain: there was no “supermajority” threshold).

Supporters of what has become known as “hard Brexit” suggest that the Leave vote has also created a mandate for the UK to extricate itself from the entire “onion” and join Kosovo, Kazakhstan, and Belarus as the only European countries outside the network of agreements centered on the EU (or as some “hard Brexit” advocates, including some of those in Government, suggest, create a series of completely new but as yet undefined bilateral agreements).

Supporters of what has become known as “soft Brexit” (who consist primarily of Remain voters) advocate keeping the UK in a similar place to where it is now, but for its EU membership. Under a soft Brexit, the UK would move out a layer and come to rest either alongside Norway (which is in the EEA but not the EU Customs Union) or Turkey (which is in the EU Customs Union but not the EEA). Others still would like a second referendum on whatever arrangement the UK enters into for the most part because they believe that enough Leave voters will have changed their minds (or even died, given the significant difference in the average age of each side’s voters) to tip the balance in favor of Remain in the event of a rematch.

The questions for the UK include:

1. Where in the “European onion” it wants to end up; and
2. Where the UK will be allowed to go by the co-signatories to the agreements that will need to be amended to accommodate a non-EU UK.

The UK may take up a position beside Turkey and remain in the EU Customs Union (a “soft Brexit” position occasionally espoused by the opposition Labour Party) as a permanent or temporary measure post-Brexit.

The UK’s current customs infrastructure is designed for an environment where around half the UK’s imports do not require customs clearance (coming from elsewhere in the EU Customs Union). Without a dramatic expansion, the UK’s customs infrastructure would be overwhelmed by the need for additional checks on goods imported from the EU. Multinational supply chains, which rely on an absence of customs checks between the UK and the other EU Customs Union countries, would also have to make allowances for the additional waiting time for products to clear customs when entering the UK from another EU Customs Union country and vice versa.

The UK remaining in the Customs Union (at least on a transitional basis) would be the simplest way of avoiding these issues.