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Brexit Webinar Series 1

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Context and Consequences

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Brexit Webinar Series 1

  1. 1. © Allen & Overy 2016 Brexit: Understanding the context and consequences of the UK referendum vote Richard Cranfield, Marc Feider and Sarah Garvey 18 October 2016 Brexit Webinar Series Presented in partnership with the U.S. Chamber of Commerce
  2. 2. © Allen & Overy 2016 222 Brexit webinar series 2016 – Programme Agenda 6 2 3 1 Brexit: Understanding the context and consequences of the UK referendum vote Tuesday, 18 October 2016 Trade, tariffs, and taxes Tuesday, 25 October 2016 Employment, data protection, and data transfers Tuesday, 1 November 2016 Securing the best legal frame work for your businesses Thursday, 17 November 2016 4 Antitrust, intellectual property, and environmental regulations Tuesday, 8 November 2016 5 Commercial contracts Tuesday, 15 November 2016
  3. 3. © Allen & Overy 2016 333 23rd June 2016 – 51.9% of UK electorate vote in referendum for UK to leave the EU Brexit – an historic moment
  4. 4. © Allen & Overy 2016 444 The European Union – a recap Map from The Economist – European Union is a club of 28 countries – UK originally joined in 1973 – UK is not in the eurozone (common currency) – EU members apply common laws and regulations overseen by a European Court of Justice – EU members make financial contributions – EU members agree 4 fundamental freedoms: – free movement of goods – free movement of services and establishment – free movement of citizens and workers – free movement of capital – Other groupings European Economic Area (EEA) includes Iceland, Norway, and Liechtenstein; European Free Trade Association (EFTA) includes Switzerland
  5. 5. © Allen & Overy 2016 555 An historic moment - retreat from globalisation? David Cameron resigned the next day, and Tory party leadership context commenced Theresa May (who was on the ‘Remain’ side) won the contest and on 11 July 2016 became the UK’s second female PM 23 June 2016 - UK electorate surprise vote to leave the EU 51.9% – free movement (immigration) and sovereignty (‘taking back control’) key issues
  6. 6. © Allen & Overy 2016 666 The Brexit process – straight forward in theory Under the EU Treaties, the UK must serve a notice (Article 50 notice) to start formal exit process After service of the Article 50 Notice, the UK and EU 27 have two years to negotiate a withdrawal agreement UK and EU 27 may also enter a separate agreement about the future relationship
  7. 7. © Allen & Overy 2016 777 The Brexit process – an uncertain path with lots of variables Legal challenges over Article 50 Notice may delay exit (see below) What deal will be negotiated? EU 27 will not want to set a precedent. Soft Brexit (status quo) or hard Brexit (no access to single market/WTO arrangements)? PM May wants a “bespoke deal” What impact will the German and French elections in 2017 have on the process? When will Article 50 Notice be served? UK PM Theresa May now suggests March 2017, meaning exit 19 March 2019? How do businesses contingency plan in this context?
  8. 8. © Allen & Overy 2016 888 Legal challenges Judicial review proceedings brought against the UK Government re Article 50 EU treaty provides that a member “may decide to withdraw in accordance with its own constitutional requirements” Claimants argue that Parliament should pre-approve service of Article 50 Notice, the Government argues that it is a matter of the royal prerogative and its decision alone UK has a largely unwritten constitution Referendum Act silent on what happens after the vote and referenda advisory under UK law
  9. 9. © Allen & Overy 2016 999 Legal challenges (cont’d) Further legal challenge against the UK Government brought in Northern Ireland Also legal challenge against Mr Juncker in Luxembourg re his prohibition of Commission officials from negotiating with UK prior to service of Article 50 Majority pro Remain MPs in Parliament but many have constituencies that voted Leave Potential to delay the process but maybe not halt it
  10. 10. © Allen & Overy 2016 10 The Brexit negotiators: “Brexit means Brexit”
  11. 11. © Allen & Overy 2016 111111 Sharing of sovereigntyMarket access Swiss model Norwegian model Turkish model (customs union) − Significant market access − EEA membership − Extensive application of EU laws − Significant financial contribution − Only consultation in legislative process − Access to parts of market (depending on outcome of negotiations) − Complex array of agreements − EFTA membership − Application of many EU laws − Partial financial contribution − Only consultation in legislative process − Access to goods market − Some EU law applied − No financial contribution − No say in legislative process Canadian model − Deep free trade agreement − Access to market in goods and certain services − UK remains in control of tariff arrangements with other (non-EU) countries − Not bound by EU law − No financial contribution WTO model − No application of EU law − No financial contribution − Reduced tariffs on goods − General Agreement on Trade in Services Post-Brexit models – Hard Brexit v Soft Brexit
  12. 12. © Allen & Overy 2016 121212 The scale of the task – the biggest de-merger in history 40+ years of EU legislation deeply entrenched in legal landscape – directly applicable Regulations/UK enactment of Directives, plus ‘soft’ law, eg case law Much depends on the model, but even the Norwegian model likely to involve some “repatriation” of EU laws Former head of UK civil service quoted as saying “the job is vast” and as an administrative venture it would be “absolutely all consuming” Need to address impact on EU and non-EU trading relations Impact on EU post UK exit – reshaping of world’s biggest trading block PM May said she will enact “Great Repeal Act” transposing EU law into UK domestic law and then pruning but many uncertainties EU27 have said no informal negotiation before Article 50 Notice served
  13. 13. © Allen & Overy 2016 131313 There are certain assumptions that can be made Largely consensual process (unilateral exit in breach of Treaties would be highly controversial) UK will remain a Member State until Brexit and be bound by EU law UK influence on new EU law is already decreasing The impact will extend beyond the UK’s relationships with the EU – global relationships will be affected
  14. 14. © Allen & Overy 2016 14 Overview of post-Brexit implications for business − Finance − Employees − Tax − R&D and other EU funding − Sterling drop means imports more expensive, but exports cheaper for UK companies − UK targets - more M&A activity? − Derivatives − Pension schemes − Public procurement − Intellectual property − Data protection − UK-incorporated group entities − Contracts − Insurance − Law and regulation − Product safety − Environment and climate change
  15. 15. © Allen & Overy 2016 151515 Trade – there could be a big impact on market in goods and services Freedom of access to EU single market from the UK may well be restricted (although extent difficult to predict until “model” is chosen/agreed) UK company access to non-EU markets may also be affected if current access is via Free Trade agreements (FTAs) with the EU (although there may be workarounds via sister companies in continental Europe) or other jurisdictions 2 Europe to UK UK to 3rd state with EU FTA 1 UK to Europe 3 e.g. South Korea
  16. 16. © Allen & Overy 2016 16 Dual regulation as new norm EU regulation significant in following areas, what happens on Brexit? Product safety Exit arrangements should clarify the position and the UK may well retain much of the existing regimes Environment Antitrust Public procurement IP/Data protection
  17. 17. © Allen & Overy 2016 171717 An era of greater complexity Financial sector – ‘passporting’ rights from UK into EU 27 may not be maintained Dual regulation (UK and rest of EU) likely to become the norm in many areas (see above) May be more difficult to recruit or move employees from UK into EU (and vice versa) – possible skills gaps EU R&D funding likely to switch to UK Government BUT impact on commercial contracts likely to be limited - English contract law largely unaffected by EU law and no need to change English law/courts selection
  18. 18. © Allen & Overy 2016 181818 Does Brexit offer any opportunities for U.S. investors? Sterling fallen to lowest level against USD for 30 years - UK assets may look attractive Uncertainty and market volatility can present opportunities Possible introduction of favourable corporate tax rates in UK (at a time of harmonisation in Europe)? New trade deals signed by the Brexiteers?
  19. 19. © Allen & Overy 2016 191919 US reaction We respect the choice the people of the United Kingdom have made. Our first task has to be to make sure that the economic uncertainty created by these events does not hurt working families here in America. We also have to make clear America's steadfast commitment to the special relationship with Britain and the transatlantic alliance with Europe – Hillary Clinton “ ” "great thing" that the people of the UK have "taken back their country" in voting to leave the EU. – Donald Trump“ ” I think it’s fair to say that maybe some point down the line there might be a UK-US trade agreement, but it’s not going to happen any time soon because our focus is in negotiating with a big bloc, the European Union, to get a trade agreement done - The UK is going to be in the back of the queue. – Barack Obama “ ”
  20. 20. © Allen & Overy 2016 202020 If you have a UK base / exposure - steps to be taken Identify aspects of the business most affected by Brexit – mapping Consider approach to lobbying or contributing to government or industry consultations on post-Brexit regime • How can you best make your voice heard? Will lobbying continental EU governments be more effective than lobbying at a UK level? • Note antitrust/lobbying rules Prepare strategy for responding to employee and other stakeholder queries and to enquiries from the media. Every investment decision seen through eyes of Brexit vote by UK media Take a view on timing – when do you need to take any necessary steps?
  21. 21. © Allen & Overy 2016 212121 Brexit webinar series 2016 – Programme Agenda Brexit: Understanding the context and consequences of the UK referendum vote Tuesday, 18 October 2016 Brexit: Trade, tariffs, and taxes Tuesday, 25 October 2016 Brexit: Employment, data protection, and data transfers Tuesday, 1 November 2016 Brexit: Securing the best legal framer work for your businesses Thursday, 17 November 2016 Brexit: Antitrust, intellectual property, and environmental regulations Tuesday, 8 November 2016 Brexit: Commercial contracts Tuesday, 15 November 2016
  22. 22. © Allen & Overy 2016 Contacts 22 Richard Cranfield Partner Corporate – London Tel +44 (0)20 3088 200 richard.cranfield@allenovery.com Richard is global chairman of A&O's Corporate practice and co-head of A&O's financial institutions group. He has over 30 years' experience in mergers and acquisitions, and in capital markets (both international and domestic) for equity financings. His corporate client base includes FTSE 100 and FTSE 250 companies and banks in the UK and large public and private corporations and financial institutions outside the UK.
  23. 23. © Allen & Overy 2016 Contacts 23 Marc Feider Partner Corporate – Luxembourg Tel +352 44 44 5 5411 marc.feider@allenovery.com Marc heads the Luxembourg corporate practice. He specialises in private equity, mergers and acquisitions, securities and stock exchange-related work, takeovers and joint ventures. He has 30 years of experience advising clients across all sectors, particularly financial institutions, private equity, insurance, energy, communications, media and technology.
  24. 24. © Allen & Overy 2016 Contacts 24 Sarah Garvey Counsel Litigation – London Tel +44 (0)20 3088 3710 sarah.garvey@allenovery.com Sarah is an experienced litigator with particular expertise in conflict of laws, state immunity issues and EU laws. She regularly advises clients on topics such as governing law, jurisdiction, immunity and arbitration. Sarah is part of Allen & Overy's core Brexit team and has been heavily involved in advising clients on the legal implications of Brexit. Sarah is Chair of the Law Society's EU Committee and sits on the Lord Chancellor's Advisory Committee on Private International Law. Sarah edits the Forum Chapter of Butterworths' Encyclopaedia of Banking and is secretary to Allen & Overy's Global Legal Opinions Committee. Sarah is a Board Member of the London Women's Forum.
  25. 25. © Allen & Overy 2016 Contacts 25 Marjorie Chorlins Vice President, European Affairs +1 202-463-5305 mchorlins@uschamber.com Garrett Workman Director, European Affairs +1 202-463-5639 gworkman@uschamber.com The U.S. Chamber of Commerce's European Affairs team champions a pro-business agenda across Europe and in Washington to expand commercial opportunities for members by advancing open and competitive markets, economic growth, and transatlantic cooperation.
  26. 26. © Allen & Overy 2016 262626 Questions? These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP’s affiliated undertakings.