1

Introduction

Brexit is a combination of Britain and exit and has become the shorthand
name for Thursdays referendum. Brexit is the withdrawal of the United
Kingdom (UK) from the European Union (EU). It has been the goal of various
individuals, advocacy groups, and political parties since the UK joined the
European Economic Community (EEC), the predecessor of the EU, in 1973.
Continued membership of the EEC was approved in a 1975 referendum by
67% of voters. In the June 2016 referendum on EU membership, 52% voted to
leave, resulting in the complex process of withdrawal being initiated and
political and economic changes in the UK and other countries.
2.0 What is Brexit.

For decades, the United Kingdom has had an ambivalent and

sometimes contentious relationship with the European Union.
London has kept its distance from Brussels' authority by
negotiating opt-outs from some of the EU's central policies,
including the common euro currency and the border-free Schengen
area. Even still, the EU's faltering response to recent crises has
fueled a renewed euroskepticism. Advocates for a British exit, or
Brexit, from the union argued that by reclaiming its national
sovereignty, the UK would be better able to manage immigration,
free itself from onerous regulations, and spark more dynamic
growth.
After the victory of the Leave campaign in a June 2016
referendum on the UK's future in the bloc, the risks of separating
from the EU became clearer. With financial markets in tumult and
the resignation of Prime Minister David Cameron, the UK now faces
the possibility of losing preferential access to its largest trading
partner, the disruption of its large financial sector, a protracted
period of political uncertainty, and the breakup of the UK itself.
Meanwhile, Brexit could accelerate nationalist movements across
the continent, from Scotland to Hungary, with unpredictable
consequences for the European project.

What is the history of the UK's membership in the EU?

The UK remained aloof from the continents first postwar efforts

toward integration, theEuropean Coal and Steel Community
(ECSC) and the the European Economic Community (EEC),
formed in the hopes of avoiding another devastating war. We did
not enter the EU with the same political imperatives [as France and
Germany], Robin Niblett, head of the London-based think tank
Chatham House, has argued. We had not been invaded, we did
not lose the war, and we have historical connections to all sorts of
other parts of the world from our empire and commonwealth.
The UK didn't join the EEC until 1973. The British people
approved membership in a 1975 referendum, but suspicion of
political union with the rest of Europe remained strong. Critics
argued that the European project was already moving beyond mere
economic integration and toward a European superstate.
As integration deepened throughout the 1980s and 1990s, the UKs
leaders pushed for opt-outs. The UK didn't join the single currency
or the border-free Schengen area and it negotiated a reduced
budget contribution. Prime Minister Margaret Thatcher declared in
1988 that we have not successfully rolled back the frontiers of the
state in Britain only to see them reimposed at a European level.
Why did Prime Minister David Cameron try to change the terms
of membership?
Many conservatives never reconciled with membership in the EU,

and discontent rose in particular over immigration. The issue of

migration from within the EU is fraught, as the UK is currently
required to accept the free movement of EU citizens.
Economic migration from eastern Europe spiked after the EU
expansions of 2004 and 2007 (PDF), pushing net migration to
over 300,000 people a year by 2015. Conservative Prime Minister
Cameron called the situation unsustainable: It was never
envisaged that free movement would trigger quite such vast

numbers of people moving across our continent, he said in 2015.

Drawing on this anger, in 2014, the anti-EU UK Independence
Party (UKIP) surged, winning the most votes in the UK's European
parliamentary elections with an anti-immigration platform.
The

wave

of

non-EU

asylum

seekers

involved

in

the

continents escalating migration crisis has also driven tensions.

The UK is exempt from the EUs 2015 plans to resettlehundreds
of thousands of migrants from the Middle East and Africa, thanks
to opt-outsfrom EU immigration policy. But for euroskeptics, the
EU's faltering response has highlighted its dysfunction while UK
policymakers have bristled at suggestions that EU asylum policy
might be altered to make it harder to deport migrants to other EU
countries. (Under the current system, non-EU asylum seekers are
supposed to remain in the first EU country they enter.)
The eurozone crisis also created strains after the EU proposed an
unprecedented fiscal compact to coordinate budget policy. In
2012, Cameron rejected the idea as harmful to the UK financial
sector and chafed at the possibility of an additional treaty change.
In a 2013 speech, Cameron attacked the flaws in the eurozone
and what he called the EU's excessive bureaucracy and lack of
democratic accountability. He also promised to hold a referendum
on the UKs EU membership if his Conservative Party won the 2015
elections, which it subsequently did.
In

November

2015,

Cameron announced that

before

the

referendum, he would seek EU reform in four major areas: national

sovereignty, immigration policy, financial and economic regulation,
and competitiveness. In February 2016, EU leaders agreed to
anumber of changes, including protections for non-euro
currencies within the EU, new limits on migrant benefits, a
commitment to reducing EU regulation, and official recognition
that the push for ever closer union does not apply to the UK.
With these reforms, Cameron hoped to quell the country's
euroskepticism, but the specter of mass migration, combined with
several major European terrorist attacks, gave the Leave camp new

ammunition. What he didnt bargain for was that the migration

crisis would get very bad, says CFR Senior Fellow Sebastian
Mallaby. EU leaders have made clear that the subsequent Leave
win invalidated this deal.
What was on the ballot?

In the referendum that took place on June 23, 2016, voters in the
UK made a choice on the following question: Should the United
Kingdom remain a member of the European Union or leave the
European Union?
While the Left largely supported remaining in the EU, the Leave
camp included a wide swath of anti-establishment ideologies,
from disaffected Labourites to UKIP on the far right. Meanwhile,
the referendum deeply split the UKs mainstream conservatives.
Cameron staked his political future on the Remain position,
announcing his resignation in the wake of its defeat, but about
half of his Conservative Party, including several of his cabinet
ministers, supported Leave. High-profile Conservative defectors
included former Mayor of London Boris Johnson, former party
leader Iain Duncan Smith, Justice Minister Michael Gove, and
Employment Minister Priti Patel.
Despite late polls showing Remain gaining a lead, the British
people voted Leave by a margin of 52 to 48 percent on a robust 72
percent turnout, shocking the UK's political establishment.
What happens now that the British people have voted Leave?

The UKs situation is unprecedented: No full member of the EU has

ever left. (Greenland, a territory of Denmark, left in 1982.)
Under Article 50 of the 2009 Lisbon Treaty, the UK has a two-year
period to negotiate its withdrawal. However, despite the Leave vote
the UK government has yet to invoke Article 50, fostering deep
uncertainty over the Brexit timeline. Cameron has left the
responsibility of officially invoking Article 50 to his successor, who
might not be chosen for months.

Once negotiations begin, they will be extremely complex. The UK

will need to determine numerous transitional procedures (PDF)
for disentangling itself from EU regulations, settling the status of
the millions of UK citizens residing in the EU and non-UK EU
citizens in the UK, and deciding the future of UK-EU security
cooperation. The final withdrawal deal must be approved by a
supermajority of EU countries, as well as by the European
Parliament.

Separately but simultaneously, the UK will need to negotiate the

terms of its future association with the EU. It's unclear what such a
relationship would look like, but several non-EU countries offer
potential models (PDF). Norway, for instance, is a part of
the European Economic Area (EEA), which gives it partial access
to the Single Market in goods and services. However, it has no say
in making EU law even though it has to contribute to the EU budget
and abide by EU regulations.
Switzerland is not part of the EEA, but it has partial access to the
Single Market through a web of bilateral agreements on goods
though not for services, which are almost 80 percent of the UK
economy. Both Norway and Switzerland must also accept the free
movement of people from anywhere in the EU, one of the Leave
campaign's primary complaints. Meanwhile, Turkey has only a
customs union, meaning a free market of goods but not services.
If negotiations fail to produce some form of special arrangement or
EU-UK trade deal, UK exports would be subject to the EU external
tariff. The UK would be shut out of any EU-U.S. free-trade deal
(known as TTIP) and would also need to renegotiate trade access
with the fifty-three countries with which the EU currently
has trade agreements.
What were the arguments for leaving the EU?

Reclaiming sovereignty was at the forefront of the Leave campaign.

For Leave supporters, European institutions have changed
beyond recognition since 1973, and they accuse the EU of
becoming

suffocating

bureaucracy

with

ever-expanding

regulations. Laws which govern citizens in this country are decided

by politicians from other nations who we never elected and cant
throw out, argued Justice Minister Michael Gove.
Immigration was the leading complaint. The number of EU
migrants in the UK nearly tripled (PDF) between 2004 and 2015,
from about one million to over three million, almost totally due to
an influx of citizens from newer members including Poland,
Bulgaria, and Romania.
At the same time, terror attacks in Paris and Brussels involving EU
citizens raised fearsthat the free movement of people leaves the
UK vulnerable. With over three thousand EU nationals having
traveled to Syria to fight with the self-proclaimed Islamic State, the
former head of UK intelligence, Richard Dearlove, argued that
controlling immigration would be the primary security benefit of
a Brexit. (On the contrary, critics said Brexit would hurt
intelligence cooperation.)
The immigration issue powerfully combines anxieties over identity,
economic security, and terrorism, says Matthew Goodwin, an
expert on UK politics at the University of Kent. The referendum is
as much about immigration as it is about Britains relationship with
Europe, he says.
For some analysts, European institutions are ill-equipped to
address the economic challenges of the modern world. Economist
Roger Bootle, author of The Trouble With Europe, argues that
the

EUs

focus

on

harmonizationthe

continent-wide

standardization of everything from labor regulations to the size of

olive oil containersthreatens Europe with persistent low growth
and high unemployment.

Leaving will spark economic dynamism, according to Dominic

Cummings, director of the Vote Leave campaign. The EU is
extraordinarily opaque, extraordinarily slow, extraordinarily
bureaucratic, he says. Leave supporters believes that without that
burden, the UK can reduce regulation, improve competitiveness,
and forge trade deals with fast-growing emerging economies. To
Cummings, the reforms Cameron negotiated were trivial, leaving
the UK no choice but to eject from a dysfunctional union.

How has the UK benefited from

membership, and what are the risks of
leaving?
The UK is highly integrated with the rest of the EU in terms of
trade, investment, migration, and financial services (see graphic).
The Remain side cautioned against risking that relationship:
Cameron warned about a leap into the dark while Finance
Minister George Osborne foresaw a convulsive shock. In the
hours and days after the Brexit vote, global markets shook, with the
British pound falling to its lowest level in three decades.
For Adam Posen, president of the Peterson Institute for
International Economics and former voting member of the Bank of
England, the pro-Brexit economic arguments were a fantasy. He
says productivity growth (PDF) has been lower in the UK than in
Germany and Spain, which are subject to more EU regulation, and
that immigration drives growth. He also argues that belonging to
the EU has allowed the UK to punch above its weight in trade
since the larger bloc can negotiate more favorable market access
deals.
Other U.S. observers have warned that a Brexit would damage the
UK's special relationship with the United States. On an April 2016
state visit, President Barack Obama argued that membership in the
EU

enhances

the

UK's

global

influence

and

aids

U.S.

interests, writing that the tens of thousands of Americans who

rest in Europes cemeteries are a silent testament to just how
intertwined our prosperity and security truly are.

Much still depends on the post-Brexit relationship with the EU. As

the Remain website InFacts.org argues, the most important factor
is barrier-free access to the Single Market, with its more than 500
million consumers and over $18 trillion worth of GDP. Without it,
trade would suffer and foreign investors could pull out of major
industries like the UKs thriving automotive sector. A separate
analysis by the UK treasury released in April 2016 estimates that a
Brexit could cost the economy $6,200 a year per household and
would reduce GDP by 6.2 percent after fifteen years.
Particularly hard hit, argues InFacts founder Hugo Dixon, will
be financial services. They currently enjoy passporting,
meaning UK-based financial institutions can operate freely
anywhere in the EU. If that is lost, many firms are likely to move
officesand thus, jobsout of the UK to elsewhere in Europe.
Whats more, Dixon writes, the alternatives come with few of the
benefits and most of the costs of the UKs current position. A postBrexit UK will lose its influence within the EU, but will still have to
accept most EU regulations, including free movement of people, if it
hopes to retain access to the Single Market.

How could the Leave vote affect the rest

of Europe?
The most immediate consequence could be the breakup of the UK
itself. Scotland, which held an unsuccessful independence
referendum in 2014, voted to remain in the EU. Observers worry
that Brexit will give Scotlands governing nationalist party an
excuse to try again to break away. [A leave vote] would certainly
underscore the fragile constitutional makeup of the United
Kingdom, says the University of Kents Goodwin.
Ireland, too, will face a dilemma, as a country strongly committed
to the EU but with an economy tightly intertwined with the UK.
Ireland's government has also warned that a Brexit could upend

Northern Ireland's peace settlement and complicate the currently

open border between Ireland and Northern Ireland.
Elsewhere, Brexit may embolden euroskeptics by providing a
template for leaving, says CFRs Mallaby. The younger
generation

of

Italians,

Portuguese,

and

Greeks

associate

membership of the eurozone, and by extension the European

Union, with a terrible depression, he says. That has translated into
electoral gains for anti-EU partiesincluding Frances National
Front,

Germanys Alternative

fr

Deutschland,

and

Hungary's Jobbik. Polling has found that a majority of French

citizens want their own EU referendum.
The ultimate fear around the continent is that Brexitespecially
if the UK economy performs well in the aftermathcould unravel
the rest of the EU. Even barring that, Brexit will be a heavy blow for
a union that has struggled to maintain a united front onsanctions
against Russia and the unprecedented wave of migrants. And
in the wake of 2015 terror attacks in Paris, as France invoked the
EU's mutual defense clause for the first time, Brexit threatens to
end Europe's hopes for a truly common security and defense
policy once and for all.
What are the issues.

who gets to vote? While the deadline to register to vote has already passed,
anyone registered to vote in the U.K. is eligible to take part in the referendum.
Commonwealth citizens living in the U.K. as well as Gibraltar, British citizens
living overseas who have registered to vote in the last 15 years and Irish
citizens who were born in Northern Ireland are all eligible to cast a ballot.
While voting by post and proxy are both possibilities, budget airline Ryanair
ran a Fly Home to Vote Remain sales campaign (the airline supports
Britain staying in the EU). [The] seat sale proved extremely popular, so much
so that we extended it for 24 hours, Ryanair told International Business Times
in an email.

What has the campaign looked like and what are the
issues? Campaigning has been intense over the last several months.
The leave camp has argued that the referendum presents the opportunity for
Britain to take back control it has lost in the large EU bureaucracy and has
highlighted the amount of money sent every week to Brussels, the capital of
the EU. Immigration has also been in the spotlight with the leave camp
arguing, We will control our borders. The leave camp has argued Britain
would have greater control over its own economy outside of the EU.
The remain camp has argued that the U.K. is stronger, safer and better off
in Europe. While admitting to problems with the EU, the remain camp has
focused its energy on the economic argument, stressing that British jobs and trade
are tied to the EU and that the EU adds billions of dollars to the British economy
every year. Staying in the EU is the status quo choice that many business
executives have called for.
Who are the biggest leave and remain supporters? From retired soccer
player David Beckham (remain) to British-born American TV host John Oliver
(remain) and actress Elizabeth Hurley (leave), celebrities, CEOs and political
leaders have been taking stands on which way they want to the vote to go.
On the political front, Cameron is leading the remain side while UKIP party leader
Nigel Farage has been rallying the leave side. Business leaders from Coca-Cola to
JPMorgan Chase, fearing economic implications of Britain outside of the EU, have
come out urging voters to choose remain.

What happens if the U.K. votes to leave? The short answer is no one really
knows. If the U.K. does vote to leave, it would be the first country to do so. Experts
estimate it could take several years for the country to work out new trade relations
with the EU. The U.K. is the worlds fifth-largest economyand many businesses use it
as a jumping-off point to the Europeanwide market. That has economists and
business owners worried about trade arrangements, currency fluctuations and
slower economic growth in the U.K. If the leave vote wins, economists have
predicted the British pound could weaken against the dollar. The Bank of England

has warned that uncertainty over the referendum is the largest immediate risk to
financial markets around the globe.

Is the vote binding?

No, it is not legally binding. Parliament will still have to pass laws for the U.K.
to exit the EU, but it is unlikely Parliament would go against the peoples
decision. There is no minimum turnout needed, and to win the vote a simple
majority is needed.
When will we know the results?

Polls will close at 10 p.m. GMT (6 p.m. EDT)and local results will be declared
as they come in. Around 4 a.m. local time it should start to become clear
which side has the lead, the BBC reported. The final result will be announced
at the Manchester Town Hall.
3.0 Discuss the consequences that may arise due to BREXIT

On June 23, 2016 voters in the United Kingdom were asked in a referendum
whether the UK should remain a member of the European Union or leave the EU.
By a vote of 51.9% to 48.1%, the voters opted to leave.
The UK is now in uncharted territory. No nation has ever left the EU. There is a
clear procedure in the Treaty on European Union for doing so, but it has never
been invoked. The economic consequences of leaving the EU - often referred to
as "Brexit" - have been projected by the IMF to be, in the words of IMF Managing
Director Christine Lagarde, "pretty bad to very, very bad," but those adverse
effects are likely to fall more on some firms and individuals than on others. And
the political consequences of Brexit are tearing at the fabric of both the UK and
the EU, in both cases presenting what may constitute an existential crisis.
This memorandum outlines possible legal, institutional and political
consequences of Brexit. Because there are at present so many variables at play,
in many cases the memorandum can offer only speculation on possible

outcomes. It concludes by summarizing the potential impact of Brexit on non-UK

companies and other persons with investments, operations or subsidiaries in the
UK. Specifically, we cover:

the referendum and the campaign that accompanied it;

the process of leaving the EU;

the possible outcomes of the UK's negotiation of an agreement with the

EU governing its future relationship with the EU;

the impact of Brexit on the UK's relations with non-EU countries;

the effects of Brexit on UK law;

the effects of Brexit on the future of the UK; and

the likely legal impact of Brexit on financial institutions, companies and

investors in selected areas.

Executive Summary
The referendum has had a deeply divisive impact on UK politics, splitting young
and old, and London, Scotland and Northern Ireland from the rest of England and
Wales. It has also split, and given rise to leadership contests in, both the
Conservative and Labour parties.
The formal process for leaving the EU entails the Prime Minister giving written
notice under Article 50 of the Treaty on European Union. This starts an up to
two-year negotiation period on the terms of exit and the relationship between
the UK and the EU following exit. The two-year period can only be extended with
the unanimous approval of the other 27 member states of the EU. There is no
other way to leave the EU.
David Cameron has declined to give the notice, leaving that task to his
successor as Prime Minister. There are an increasing number of commentators
who are saying that the notice may never be given.

There are several "models" for what the relationship between the UK and the EU
might be following the UK's exit. Some of these would be politically
unacceptable to the UK; others would be politically unacceptable to some or all
of the other 27 member states of the EU. Several are highly unlikely to be put in
place within the two-year period contemplated by Article 50. In the absence of
an agreement, following Brexit the UK's trade relationship with the EU would be
protected only by the rules of the World Trade Organization (WTO), which should
be viewed as a worst case outcome.
The UK will also need to negotiate trade agreements with 30-50 non-EU
countries with which it has no trade agreements, because its trade relations with
those countries are now governed by treaties with the EU. Its ability to handle
this huge challenge will be limited, as the UK has virtually no experienced trade
negotiators.
Much of UK law is now rooted in EU law, either EU regulations that have direct
effect in the UK or EU directives that have been implemented by UK legislation.
The UK government will need to review the estimated 6,000 pieces of legislation
and regulations that are potentially affected by Brexit to decide what to keep,
what to repeal, and what to amend. This is likely to be a multi-year project.
Assuming notice is given under Article 50, Brexit is likely to cause significant
uncertainty concerning a wide range of issues for at least the next two, and
perhaps many more, years. This is likely to reduce investment into the UK, result
in the relocation of some businesses from the UK, and heighten volatility in
currency and other markets. Some sectors - such as financial services - are likely
to be particularly hard hit. On the other hand, non-UK companies and investors
may find that Brexit provides unusual opportunities to create value by finding
creative ways to reduce or cushion these risks, or by responding more quickly
than others to the evolving situation.
Brexit may also present existential crises in both Scotland and Northern Ireland.
Senior Scottish politicians have already called for a rerun of the referendum on
Scottish independence, and current opinion polls suggest that those backing
independence might win this time. The imposition of a "hard border" between
the Republic of Ireland and Northern Ireland, which Brexit might necessitate,

may cause serious disruption to the fragile peace in Northern Ireland. Brexit also
threatens to have a fundamental, and highly negative, impact on the EU itself,
weakening it both economically and politically.
The balance of this memorandum provides more detailed explanations of each
of these points.
The Referendum
Click here to view image.
The Conservative (or "Tory") Party in the UK promised voters that it would hold
the referendum as a part of its election manifesto for the general election held
in May 2015, largely as a way to blunt the feared growing appeal of the UK
Independence Party, or UKIP, to Tory voters. Neither of the other major parties in
the UK - Labour and Liberal Democrats - had any interest in the referendum. To
the surprise of pollsters and perhaps the Conservative Party itself, the Tories
won a majority of seats in Parliament, and David Cameron was re-elected as
Prime Minister, this time not as a coalition leader but with a clear but narrow
majority.
Cameron made good on the Tories' promise to hold the referendum, after a
frantic bid to negotiate changes to the UK's "deal" in the EU to address some of
the issues that had motivated criticism. Thinking it best to call the question
quickly, and reportedly motivated in part by a concern over the impact of a
second wave of migration into the EU during the summer months, he scheduled
the vote for June 23, presumably on the assumption that "Remain" would win
and the UK could get back to business more rapidly.
The contest between the Remain and Leave campaigns became increasingly
bitter as the date for the referendum drew close. Leave campaigners, led by
former London Mayor Boris Johnson and Michael Gove, egged on by UKIP's
leader Nigel Farage, attacked the EU and urged Brexit on three primary grounds:
the threat of continued high immigration levels by EU nationals into the UK; the
net financial contribution to other EU countries that EU membership imposes on
the UK; and the loss of "sovereignty" over the making of laws in the UK that
membership in the EU has entailed, and the consequent ability of "bureaucrats

in Brussels" to make rules and regulations to which UK companies and persons

are subject.
A fourth complaint, articulated in the Conservative Party's manifesto and echoed
even by some Remain supporters such as the Home Secretary Theresa May, was
that the UK's adherence to the European Convention on Human Rights subjects
the UK to the judgments of the European Court of Human Rights in Strasbourg,
resulting in the UK being bound by court decisions that restrict the extradition of
persons who would be subject to torture in their home country, require the UK to
consider whether prisoners who have served their time in jail should have the
possibility of regaining their voting rights if they have been fully rehabilitated,
and grant other similar rights that offended those who viewed the Strasbourg
court's rulings as an impermissible encroachment on the sovereignty of
Parliament.
The Remain camp campaigned largely on economic grounds, trotting out a
parade of economists and other experts who predicted - probably accurately that Brexit would adversely affect the economy, cause a loss of jobs, lead to the
relocation of some businesses out of the UK, reduce the value of the pound, etc.
In these efforts, the Remain camp received the de facto support of both the
Bank of England, which warned that a Leave vote would cause sterling to fall
and might trigger a recession in the UK, and the IMF, which said that a vote for
Leave could cause "severe regional and global damage."
In the end, perhaps to the surprise of both camps, Leave prevailed. Voter turnout was high: 72.2%. London, Scotland and Northern Ireland all voted Remain,
by fairly wide margins. These votes were offset and narrowly surpassed by
support for Leave in the small cities and towns of middle and northern England
and, to a lesser extent, Wales, where polls suggest many people felt that the
globalization process inherent in the progressive expansion of the EU had
offered them little benefit or value.
Younger voters - those under 35 - voted overwhelmingly to Remain, those in the
35-44 age cohort voted by a 2% margin to Remain, but those 45 and over voted
by increasing percentages to Leave.

The vote showed a nation deeply divided, by region and age cohort, and nearly
evenly divided - but favoring Brexit by a narrow but unmistakable margin.
Click here to view image.
Leaving the EU
The referendum is advisory and not legally binding in the UK. As a political
matter, however, the UK now has little choice but to start down the path of
withdrawing from the EU.
The process for withdrawing from the EU is, in its inception, deceptively simple.
The rules for exit are set out in Article 50 of the Treaty on European Union. Prime
Minister Cameron said to the House of Commons in February 2016 that "if the
British people vote to leave, there is only way to bring that about, namely to
trigger Article 50 of the Treaties and begin the process of exit, and the British
people would rightly expect that to start right away."
In any event, David Cameron was unwilling to pull that trigger. Instead, on the
morning of June 24 he announced his resignation as Prime Minister, effective (in
accordance with the Cabinet Manual) upon the selection of his replacement. By
doing this he in effect postponed delivering of the Article 50 notice by handing
the next leader of the Conservative Party (as Prime Minister) that dubious
distinction. It is expected that the Tories will select the next Prime Minister by
October, if not sooner, and possibly as early as the beginning of September.
Article 50 provides (in part) that:
(2) A Member State which decides to withdraw shall notify the European Council
of its intention. In light of the guidelines provided by the European Council, the
Union shall negotiate and conclude an agreement with that State, setting out
the arrangements for its withdrawal, taking account of the framework for its
future relationship with the Union. That agreement shall be concluded on
behalf of the Union by the Council, acting by a qualified majority, after obtaining
the consent of the European Parliament.
(3) The Treaties shall cease to apply to the State in question from the date of
entry into force of the withdrawal agreement or, failing that, two years after the

notification referred to in paragraph 2, unless the European Council, in

agreement with the Member State concerned, unanimously decides to extend
this period.
As the Secretary of State for Foreign and Commonwealth Affairs reported to
Parliament, "This is the only lawful route available to withdraw from the EU."
When the UK gives notice under Article 50, it will lose nearly all of its bargaining
power in negotiating its relationship with the EU following its exit. In effect it will
be saying "I am leaving; please tell me what are the terms of my departure."
Presumably for this reason even the leading Leave campaigner Boris Johnson
announced, in his first statement after the referendum, that "there's no rush" to
invoke Article 50.
Many EU leaders have called for the UK to deliver its Article 50 notice promptly,
but there is nothing in the Treaties that obligates the UK to do so. EU leaders are
reported to be disinclined to commence even informal discussions on a
withdrawal until the Article 50 notification has been served. Prime Minister
Cameron seems unwilling to do serve the notice, and neither Boris Johnson nor
Michael Gove seems in a hurry to give the notice. The other person most touted
as a possible Prime Minister, Theresa May, supported Remain. Only the Prime
Minister can deliver the Article 50 notice, and he (or she) cannot be forced to do
so (although there is some debate over whether the Prime Minister should seek
the advice and consent of Parliament before doing so). Still, in the absence of
some intervening decisive event, it seems hard to believe that the UK will not
continue along the path to Brexit.
The two-year deadline imposed by Article 50(3) will present a formidable
challenge to the UK and EU negotiators. In a report to Parliament delivered in
February 2016, the UK government stated that it is "probable that it would take
up to a decade or more to negotiate firstly our exit from the EU, secondly our
future arrangements with the EU, and thirdly our trade deals with countries
outside the EU, on any terms that would be acceptable to the UK." The daunting
nature of this task is magnified by the failure, or perhaps inability, of the Leave
campaign to articulate a clear vision of the desired future relationship between

the UK and EU. There is, in fact, considerable debate about what that
relationship should be, even among the leadership of the Leave camp.
Since the referendum, over 3 million people have signed an online petition for a
rerun (although there have been allegations that the numbers have been
boosted by bots), but David Cameron has ruled out the possibility of a second
referendum.
In view of the political turmoil besetting both the Conservative and Labour
parties, neither seems eager for a snap election, but the possibility of an
election cannot be excluded. Indeed, if the Conservatives are too deeply divided,
or if the next Prime Minister selected by the Conservatives is unwilling to deliver
notice under Article 50, a snap election might become inevitable. Under these
circumstances one can imagine circumstances in which the notice is never
given.
A number of EU leaders and legal commentators have claimed that a notice
given under Article 50 is irrevocable, but Article 50 does not actually say that.
Clause 5 of the Article does say that if a state which has withdrawn from the
Union asks to rejoin, its request will e subject to the procedure applicable to new
entrants. But that does not clarify what happens if a member state that has not
yet withdrawn from the EU decides that it would prefer to remain and withdraws
its Article 50 notice. It is not inconceivable that this issue will one day be a
matter for the relevant EU authorities to consider.
Future relationship between the UK and the EU
There is no clarity on the nature of the future relationship between the UK and
the EU. There are several "models" that have been discussed as possible
templates for that relationship. Upon analysis, none of them seems to offer an
easy, or in some cases even minimally desirable, path forward. The alternative
"models" are:
The Norwegian model: Norway is a member of the European Economic Area, or
EEA, which was established in 1994 to give European countries that do not wish
to be members of the EU a way to enjoy the benefits of the EU's "Single Market."
The EEA comprises all members of the EU plus Norway, Iceland and

Lichtenstein, each of which is also a member of the European Free Trade

Association (EFTA).
Members of the EEA are afforded access to most of the Single Market, so there is
free movement of goods, services, people and capital within the EEA. Members
must implement EU rules concerning the Single Market, including legislation
regarding employment, consumer protection, environmental and competition
policy. Norway is not a member of the EU customs union, however, so
Norwegian firms must comply with certain additional (and, in the aggregate,
costly) procedures when trading with the EU.
EEA members also in effect pay a fee to be part of the Single Market. They do
this by contributing to the EU's regional development funds and contributing to
the costs of the EU programs in which they participate. Norway's per capita net
contribution to the EU budget in 2015 has been estimated to be only about 25%
lower than the UK's for the same period.
+Members of the EEA that are not also members of the EU play no role in EU
rulemaking. By exiting the EU but becoming a member of the EEA, the UK would
relinquish virtually all influence over the preparation or modification of the
multiplicity of laws and regulations that would govern many aspects of its
economic life.
Although the EU might well be willing to agree to the UK following this so-called
Norwegian model, it seems inconceivable that those who have campaigned for
Brexit would find it acceptable. The UK would be required to allow the free
movement of non-UK citizens into the UK, to pay substantial amounts into the
EU budget, and to abide by most EU laws and regulations, while having virtually
no say in in the process of formulating those laws and regulations. As this
involves accepting most of the things that the Leave campaigners highlighted as
the objectionable aspects of EU membership, the Norwegian model would seem
to offer the UK nothing but a step backwards on nearly all issues.
The Swiss model: Bilateral treaties. Switzerland is not a member of the EU or of
the EEA. Instead, it has negotiated a web of well over 100 bilateral treaties
providing it with full access to the EU market in specific sectors, in effect joining

up to aspects of the EU on an la carte basis. Switzerland is also a member of

the EFTA, which provides for free trade with the EU in all non-agricultural goods.
Switzerland allows free movement of EU citizens into the country, although in
February 2014 the country voted in a referendum to limit EU immigration, which
if implemented would violate its agreement with the EU on this issue. It makes a
net per capita financial contribution to the EU that has been estimated to be a
little over 40% of the UK's annual net contribution. Like the EEA member states,
Switzerland has no influence over the formulation of EU policies and rules.
While the "Swiss model" may be more appealing to Brexiters than the
Norwegian model, in that it might allow the UK to sidestep or limit its adherence
to certain aspects of EU membership that they find most objectionable, it still
suffers from many of the same drawbacks: continued free movement (perhaps
with limits to be negotiated); continued financial support (at a level to be
negotiated); and the need to abide by a suite of EU rules (scope to be
negotiated) over which the UK will have no future influence. The Swiss model
also offers far less than full integration in relation to financial and other services,
which are a critical component of both the Swiss and the UK economies.
Perhaps the biggest impediment to the UK seeking to follow the Swiss model,
however, is that it may not be an option, particularly not in the short run.
Several in the EU have already signaled that the "Swiss model" is not one that
the EU is likely to follow ever again, and in any event it seems unlikely that the
UK and the EU could negotiate the multiplicity of bilateral treaties that it would
likely entail in the two-year time period that Article 50 contemplates.
Free Trade Agreement: the Canadian model. Recent press reports suggest that
Boris Johnson hopes that the UK can negotiate a comprehensive bilateral free
trade agreement with the EU, perhaps along the lines of the recently negotiated
free trade agreement with Canada. Such an agreement could cover both goods
and services, and address non-tariff barriers to the extent negotiated. The UK
might have to contribute towards the EU budget, but at a reduced level
reflecting its participation in EU-related initiatives and projects (and the fact that
the EU would terminate its substantial funding of UK agriculture - under the socalled Common Agricultural Policy - and research projects). Products exported to

the EU would still need to meet EU standards, but this requirement is likely to
apply in almost any model.
Another key question in considering the utility of a free trade agreement is its
scope. The pending agreement with Canada does not fully extend to financial
services, for example, and this would be a critical issue for the UK in light of the
centrality of that sector to the UK economy. The Canadian-EU agreement also
does not cover other service sectors, including the majority of air transport and
audio-visual services, and permits quotas on some agricultural products.
The primary impediment to this "model" is timing. It took Canada and the EU
seven years to negotiate this free trade agreement, and the accord is still not in
effect. Moreover, the UK's ability to move swiftly to negotiate a comprehensive
free trade agreement is likely to be undermined by the nearly complete lack of
experienced UK trade negotiators, as the UK has had little need for trade
negotiators for over 40 years (when responsibility for negotiating trade
agreements was shifted to Brussels).
On the EU side, many EU member states - particularly those with their own
domestic "exit" movements, such as France and the Netherlands - will see no
benefit to allowing the UK to exit the EU with a good, quickly negotiated
comprehensive free trade agreement. And a new agreement on trade and wider
cooperation would require approval by each of the remaining 27 member states
of the EU, which in turn will in some cases require ratification by national
parliaments such as the French National Assembly, the German Bundestag and
possibly all seven Belgian parliamentary chambers.
A comprehensive free trade agreement is highly unlikely to be agreed within the
Article 50 timeframe.
EFTA-plus. If none of the Norwegian, Swiss or Canadian models are realistic
alternatives for the UK-EU relationship post-Brexit, at least not within the twoyear period contemplated by Article 50, the most likely outcome is that the UK
would revert to membership in the EFTA, assuming its application for
membership is accepted by the four current member states, Norway,
Switzerland, Iceland and Liechtenstein. When the UK opted out of joining the

European Economic Community, or EEC, as the EU was then called, in 1957, it

founded the EFTA as its alternative.
The EFTA is a free trade area covering all non-agricultural goods. The EFTA has
free trade agreements with the EU and numerous other countries. Membership
in the EFTA does not provide for free trade in services and does not protect
against many non-tariff barriers, so the UK would also wish to augment the
benefits of EFTA membership by negotiating a number of bilateral agreements
covering financial services, agriculture (likely to be very hard hit by Brexit,
unless aggressive steps are taken to ameliorate the impact), and the more
significant non-tariff barriers.
The UK would presumably need to accept being subject to a range EU laws and
regulations, and may need to offer some financial support, in order to strike
these additional bilateral deals, but the cost of these concessions is likely to be
easily justifiable, if reasonable compromises can be reached. Whatever bilateral
deals can be reached by the two-year deadline can come into effect on that
date. Those that are still being negotiated will come into effect when they are
agreed.
This alternative - which might be termed either EFTA-plus or Swiss-lite - is the
most likely path forward for the UK. Its drawback is that it will require extensive
negotiations over the coming years and during that period the uncertainty
surrounding the outcome of the negotiations is likely to stifle investment and
make planning difficult.
WTO: the default position. If the UK leaves the EU without succeeding in
negotiating any agreement(s) with the EU in relation to the matters noted
above, it will still have the benefit of the protections afforded by the World Trade
Organization, or WTO. As a member of the WTO, the UK's exports to the EU and
other WTO members would be subject to the importing countries' most favored
nation (MFN) tariffs. Compared with EU or EFTA membership, this would raise
the cost of exporting to the EU for UK firms, and would also subject those firms
to significant non-tariff barriers. Because the WTO's rules on trade in services
are relatively undeveloped, compared with its rules on trade in goods, and are
far less protective than the protections of trade in services that exists within the

Single Market, this would also leave the UK's export of services at a significant
disadvantage compared with the situation today.
While a complete disengagement from the EU, and reliance on the WTO rules as
the default "safety net," has been embraced by some Brexiters as the best
means of reasserting the UK's "sovereignty," this outcome would from an
economic standpoint be the least attractive. The "WTO option" should therefore
be viewed for planning purposes less as an option and more as the worst-case
scenario.
Many analyses of the various "models" that may provide a template for the
future relationship between the UK and the EU have focused primarily on their
efficacy in ameliorating adverse effects on the trade in goods and, to a lesser
extent, services. As will be discussed in further detail below, however, the web
of directives, regulations and other rules that apply within the EU cover much
wider terrain. These include, for example, rules:

regulating financial services firms (including banks, insurance companies

and asset managers) and permitting the "passporting" of financial service
activities throughout the EU;

on the taxation of multi-national corporate groups and the remittance of

interest and dividends;

that give EU-wide effect to corporate insolvency proceedings and financial

sector bail-outs;

that coordinate environmental policies and the EU's response to the

challenge of climate change; and

that facilitate the enforcement of judgments and security across the EU.

As a result, except where the UK can find a work-around by joining a pre-existing

convention that addresses the relevant issue, it will have to negotiate
agreements with the EU (or, in theory, bilateral agreements with its remaining
member states) to avoid the disruption or uncertainty that would otherwise arise

upon these rules ceasing to apply upon the formal withdrawal of the UK from the
EU. EU approval of these non-trade agreements may require unanimity among
the 27 remaining member states of the EU.
Relations with non-EU countries
The EU is the UK's largest trading partner, with exports to the EU comprising
approximately 44% of total exports and imports from the EU comprising about
53% of all imports in 2015. Aggregate trade with the US and other non-EU
countries however remains critically important to the continued economic health
of the UK.
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As a member of the EU, the UK benefits from preferential market access to over
50 countries outside the EU, based on 36 free trade agreements between the EU
and those countries covering trade, investment, or both. Although the multilateral trade agreements underlying the WTO generally provide MFN tariff rates
with non-EU countries, these agreements are often critical in reducing or
eliminating non-tariff barriers not prohibited by the multi-lateral accords or
addressing trade in services or investment issues not addressed by them.
In order to replicate, or at least enjoy a subset of the benefits of, these many
agreements, the UK will need to negotiate new bilateral trade and/or investment
agreements with each of these trading partners (excluding any members of the
Commonwealth with whom it may already have an acceptable trade or
investment agreement in place).
The UK's top 15 non-EU trading partners in 2015 were, in order magnitude of
exports, the United States, Switzerland, China, Hong Kong, the UAE, Japan, Saudi
Arabia, Singapore, Canada, Turkey, South Korea, Australia, India, Norway and
Qatar. Negotiating bilateral trade agreements with these countries, including if
possible interim arrangements to be put in place at the time of Brexit, will be
critical to avoid disruptions in trade flows. Unfortunately the UK will face three
serious challenges in negotiating these agreements. The first is that it has
virtually no experienced trade agreement negotiators. The second is that its
negotiating leverage, compared with that of the EU as a whole, is significantly

weaker. The UK's 2015 GDP was about 1.79 trillion, or about $2.85 trillion at
the exchange rate then in effect. The EU's GDP (including the UK) was about
$18.5 trillion.
The third challenge is that there are already a number of very large international
trade negotiations ongoing - the politically controversial Trans-Pacific Partnership
and the Transatlantic Trade and Investment Partnership among them - that are
occupying many of these countries, in many instances against the backdrop of
public and political skepticism. President Obama may have been exaggerating
for dramatic effect when he declared recently that the UK would be at the "back
of the queue" in any future trade agreement negotiations, but neither should the
UK expect to skip to the front.
With limited negotiation experience, sharply diminished economic clout, and the
distraction of other ongoing trade negotiations, it is hard to see how the UK will
have in place replacement trade deals with many of its key trading partners by
the time the Article 50 deadline arrives.
Impact on UK law
A significant number of areas of UK law are either wholly or largely based on EU
law. These include laws and regulations governing:

banks, insurance companies and other financial services firms;

the issuance, listing and trading of securities, including the content and
review of prospectuses, and the offering of interests in alternative
investment funds;

employment and the transfer of employees;

competition and merger review;

the protection of the environment;

the choice of law and forum, and the enforcement of judgments (including
in insolvency proceedings);

takeover bids and cross-border mergers;

intellectual property; and

data protection.

In some cases, EU law has emanated from "directives," which are incorporated
into UK law by implementing legislation at the member state level. In other
cases, EU law arises as a result of "regulations," which have direct effect in
member states without the need for implementing legislation. By some
estimates there are over 6,000 pieces of legislation in the UK that will have to be
affirmatively retained, repealed, or modified, upon Brexit.
This will prove a daunting task. In some cases incorporating EU law into UK law,
or confirming that UK law that reflects EU standards is not in need of any
substantive amendment, will be rather easy. In other cases, the freedom to
amend will create substantial domestic debate over the proposed changes, and
in others an entirely new or greatly expanded UK legal regime and bureaucracy
may be needed to take over functions now performed by the EU Commission
(e.g., review of mergers and acquisitions from a competition standpoint). In all
cases a massive review of existing UK and EU legislation will be needed in order
to make judgments about what to do with each law and regulation, and in many
cases the UK bureaucracy will need to be created or significantly expanded in
order to handle the repatriation of functions currently handled in Brussels.
The starting point for this review is arguably the European Communities Act
1972, which (to some extent) gave EU law supremacy over UK law. Simply
repealing that law would however cause legal chaos, particularly as it would
create large gaps in the legal and regulatory landscape in the UK. On the other
hand incorporating all EU law into UK law (to the extent implementing legislation
has not already done so) unless and until a decision is made to amend or repeal
it might be politically embarrassing, if sensible.
This process is likely to give rise to yet another political problem. Until now
"Brussels" has played a useful role as the alleged source of all senseless or
overly bureaucratic regulation, in much the same way as many Americans like to

blame "Washington." Except to the extent that the UK agrees (or is required) to
maintain EU laws and standards as part of a trade deal, that excuse will
evaporate upon Brexit. Admitting that many of the laws and regulations made in
Brussels that have irritated the British are actually needed, at least in some
form, will be politically difficult.
Risks to the UK
Brexit also presents at least two existential risks to the UK.
Scotland. On September 18, 2014 Scotland held a referendum on the question
"Should Scotland be an independent country?" In that vote 84.6% of the
electorate participated, and 55.3% voted No (i.e., to remain within the UK).
Shortly after the results of the UK referendum were announced, in which 62% of
Scottish voters supported Remain, Nicola Sturgeon, leader of the Scottish
National Party (which has a controlling position in the Scottish parliament) and
Scottish first minister announced that it was a "democratic outrage" that
Scotland would be taken out of the EU against its will, and requested that
legislation be drafted providing a basis for a second referendum on the
independence of Scotland. At the same time, she is appealing to EU member
states directly for support for Scotland to remain in the EU, presumably by
exiting from the UK upon Brexit.
Scottish fears about the difficulty of applying for EU membership if it were to
exit from the UK were among the considerations that tilted its voters to vote
"No" in the Scottish referendum. Now these arguments are reversed, and recent
polls suggest that a majority of Scots would vote for independence, in light of
the Brexit vote. Scotland's path out of the UK is complicated however. There will
be questions about what currency it should adopt. The collapse in oil prices has
damaged the Scottish economy, which is as a result somewhat reliant
economically upon support from England. And the prospect of a "hard border"
between EU member Scotland and non-member England would adversely affect
the economic performance of both, but perhaps injure Scotland more. The
likelihood of Scottish independence has, however, clearly increased as a result
of the Brexit vote.

Click here to view image.

Northern Ireland. Northern Ireland - 55.8% of whose voters chose Remain - also
faces serious issues. The imposition of border controls between Northern Ireland
(which upon Brexit would cease to be part of the EU) and the Republic of Ireland
(which is and would remain part of the EU) would be practically unwieldy,
perhaps to the point of unworkability, and economically injurious, but most
importantly it would undermine one of the key underpinnings of the (fragile)
peace that still holds in Northern Ireland. The fact that the Irish and their goods
and services can move from the Republic to Northern Ireland and vice versa not
only without hindrance but without there being any visible border has
contributed significantly to the peace. On the other hand, if no border controls
are imposed it will be easy for residents of any EU country to enter the Republic
and then the UK by passing through Northern Ireland. And the practical solution
- to impose border controls around the island of Ireland, instead of at the border
between the two Irelands - will risk enraging at least some Unionists, in light of
the symbolism of a border between Northern Ireland and the rest of the UK.
A second challenge lies in the risk that the UK will elect to exit not only from the
EU but also from the European Convention on Human Rights (ECHR) and the
jurisdiction of the European Court of Human Rights in Strasbourg. The ECHR and
the Court, which were to some extent the postwar creation of Winston Churchill
and the British government, would be harmful to the cause of human rights in
Europe, particularly in those countries - such as Turkey and Russia - that are
most often on receiving end of its criticism. But for Northern Ireland the
withdrawal - which was one of the points included in the Tories' 2015 election
manifesto - would undermine one element in the 1998 "Good Friday" accord
that, with enormous effort, signified the end of the Troubles in Northern Ireland
and inaugurated the current fragile peace. That agreement provides that the
ECHR would be incorporated in its entirety into the laws of Northern Ireland,
established a Human Rights Commission charged with a variety of
responsibilities, and includes multiple provisions designed to ensure that the
legislation and decisions of the government of Northern Ireland remain
consistent with the rights set out in the ECHR.

Removing two of the fundamental building blocks of the Good Friday accord
presents risks to the peace process that should not be underestimated.
Since the EU referendum, Martin McGuinness, Northern Ireland's Deputy First
Minister and leader of Republican party Sinn Fein, has called for a referendum on
the unification of Ireland. At present it is somewhat unlikely that the result of
such a referendum would satisfy the conditions for unification imposed by the
Good Friday accord, but the situation could evolve.
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Legal impact: What does Brexit mean in practical terms?
Financial services and regulation
Brexit may present a significant challenge to UK-based financial services firms,
and result in some movement of personnel and operations (including possibly
European headquarters operations) by multinational financial services firms
from London to cities within the EU. The UK's departure from the EU will also
weaken substantially its ability to influence the direction and drafting of EU rules
in relation to financial regulatory matters, an area in which the UK historically
has been very active and often persuasive.
Since 1999 the EU has implemented a series of regulatory initiatives designed to
develop a "single rulebook" for the EU banking, insurance and investment
sectors, and to develop a framework that facilitates cooperation among national
regulators in relation to financial services firms that are operating in multiple EU
countries. As a result of these initiatives, financial services firms authorized in
one member state (their home state) are able to carry on business in all other
member states without the need for separate authorization, a process called
"passporting." It will be critical to UK-based financial services firms that they
continue to operate under this passport system, so as to avoid duplicative
regulation of their operations within Europe. This may be a challenge, however,
as services - and particularly financial services - are not covered by any of the
most likely models for the post-Brexit UK-EU relationship, and one can anticipate
a number of contentious issues that may arise in any attempt to negotiate a
stand-alone agreement dealing with financial services.

Most of the UK's laws relating to financial services are now rooted in EU
directives or apply by reason of EU regulations. To date, the UK has played a
very active role in structuring and drafting these laws within the EU's rulemaking processes. The result of Brexit may be to put UK financial services sector
in the highly undesirable position of having to agree, in any UK-EU financial
services accord, to continue to follow EU directives and regulations, while having
either no, or sharply diminished, influence over their terms.
If the UK is unable to negotiate a bilateral agreement in relation to banking,
insurance and/or other financial services, financial sector companies may need
to obtain a "passport" based on a company and operations in another EU
country. Beyond the legal restructuring that this will entail, this is likely to cause
some firms to relocate from the UK, or to move overall or regional headquarters
and/or back office staff from the UK to an EU jurisdiction. (Recent press reports
suggest this is a process that is already beginning.) Related issues under, for
example, the recast Markets in Financial Instruments Directive (MiFID) directive
and regulation, the European Markets Infrastructure Regulation (EMIR) and data
privacy laws may provide further incentives to relocate or shift operations. The
uncertainty regarding these matters is likely to last for some time, and may
result in global firms relocating staff or operations in anticipation of Brexit long
before it is clear whether those moves will be necessary.
One factor that may ameliorate the risk to UK-based financial sector firms is the
fact that many EU financial services laws are derived in large part from
international standards agreed by global bodies of which the UK is a member,
such as the Financial Stability Board and the Basel Committee on Banking
Supervision. Both the EU and the UK will remain bound by such standards
(including also those adopted by the G20, the International Organization of
Securities Commissions and the International Association of Insurance
Supervisors). The reduction in the UK's ability to influence the instruments
implementing international standards into EU law will, however, be undesirable.
Private equity
Although many private equity fund managers have criticized the cost and
complexity of complying with the Alternative Investment Fund Managers

Directive (or AIFMD), the regime provides the ability for EU alternative fund
managers to market funds throughout the EU. Unless a bilateral agreement to
the contrary is reached, following Brexit, UK alternative investment fund
managers are likely to be treated as non-EU managers and therefore may only
able to market to EU investors under national private placement regimes. There
is an expectation that the passport regime for alternative asset managers will be
extended to non-EU managers domiciled in jurisdictions in respect of which the
European Securities and Markets Authority (ESMA) has made an equivalence
assessment. As a practical matter, this may mean that UK regulation of
alternative investment fund managers will have to remain aligned with the
AIFMD and its implementing rules.
M&A deal structuring
In recent years the UK has been recognized as a good place to select as the
jurisdiction to locate the parent in a European group, in part because of EU
directives that ensure that intra-group dividends, interest and royalties may
move free of withholding taxes. Although the UK has an extensive network of
double-tax treaties and an income tax treaty with each EU member state, not all
treaties provide for 0% withholding and several are less protective than the
equivalent provisions under the relevant directives. As a result, the
attractiveness of corporate structures with an English parent company may be
reduced by Brexit. Those planning new investments may therefore wish to select
a different EU jurisdiction for this purpose, and in appropriate situations
consideration should be given to migrating an existing English company parent
structure into another EU jurisdiction.
EU law in relation to the acquisition of listed companies has been largely
harmonized as a result of the Directive on Takeover Bids adopted in 2004 and
subsequently implemented by conforming legislation in every EU member state.
The possibility of cross-border mergers was facilitated by a directive adopted in
2005. The Takeover Bid Directive was based primarily on the UK's Takeover
Code, so the exit of the UK from the EU is unlikely to have any immediate impact
on takeover laws in either the UK or the EU. On the other hand, as the crossborder merger directive applies only to mergers between companies from

different EU countries, it appears that after the UK leaves the EU, English
companies would no longer be able to take advantage of that directive to merge
with EU companies.
Capital markets
Brexit is likely to lead to significant market volatility in the capital markets,
particularly for UK and other European issuers. Companies considering
accessing the markets are likely to face challenges given the concerns of
investors driven largely by the uncertainty that the referendum has produced.
Those with any choice are likely to postpone capital raising activities.
Companies with public reporting obligations will need to consider quickly
whether they need to make public statements as to the implications of, or risks
surrounding, Brexit and its impact on their business and financial performance.
Companies with US reporting obligations should also expect comments from the
Securities and Exchange Commission on their quarterly or annual filings as to
whether they have considered the impact of Brexit on their financial condition
and results of operations.
The EU capital markets regime already provides the potential for 'passporting'
from a non-EEA prospectus regime if it is determined to be equivalent to EU
requirements (which should be the case at the time of Brexit). The UK
historically has been a thought leader on EU capital markets regulation, having
had a significant hand in shaping the directives and regulations that today
underpin the EU capital markets regime. As a result, it seems likely that
equivalency would continue for the foreseeable future, mitigating risk in this
area. The more awkward question is whether the UK will still be able to play as
influential role in any evolution of the prospectus and other capital market rules
after it is no longer part of the EU.
Dispute resolution
English law is often selected in international contracts, in part because it is the
standard choice in many financing contexts and because it is a standard
compromise in contracts between parties from different EU countries. An explicit
choice of English law will be respected throughout the EU as a result of the so-

called Rome I regulation, and the selection of English courts to resolve a dispute
will be respected throughout the EU under the recast Brussels Regulation. Upon
its withdrawal from the EU, these regulations would cease to cover the UK,
unless the UK separately accedes to them by agreement. Enforcement of UK
judgments in Europe might then become somewhat less certain. The UK may,
however, mitigate or eliminate this risk by becoming a party to the Lugano
Convention 2007 and/or the Hague Convention on Choice of Court Agreements
2005. In light of the importance of this issue to UK financial institutions and law
firms, it should be assumed that the UK will take timely and appropriate steps to
ensure the continued attractiveness of English choice of law and courts. It may
be, however, that the propensity of parties to agree to English law as a
compromise EU law will decline to some extent if the UK is no longer part of the
EU.
Brexit should have no impact on the selection of London as the seat of
arbitrations. The enforcement of arbitral awards is governed by the New York
Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
which will continue to apply both in the UK and in each member state of the EU,
regardless of a Brexit.
Insolvency and restructuring
More complicated questions may arise in relation to the enforcement of other
judgments, including those arising in insolvency proceedings or financial
institution resolutions. Within the EU, the Regulation on Insolvency Proceedings,
the Credit Institutions (Reorganization and Winding Up) Regulations 2004, the
Insurers (Reorganization and Winding Up) Regulations 2004 and the Cross
Border Insolvency Regulations 2006 are all directly applicable in EU member
states, but would cease to apply within the UK upon its exit from the EU.
Although judgments in insolvency proceedings in the UK might be enforceable in
other EU member states, and vice versa, in accordance with the Lugano
Convention and/or national legislation in relation to cross-border bankruptcy
proceedings, without an agreement to the contrary the reciprocal enforcement
afforded by these regulations would no longer apply.

Similar issues might arise in connection with the enforceability of schemes of

arrangement, as the European Judgments Regulation would no longer apply and
enforcement across the EU would therefore need to rely on national rules of
private law or perhaps the Lugano Convention.
In addition, the harmonization of European insolvency laws is currently under
discussion, and proposals for minimum standards throughout the EU may be put
forward later this year. By leaving the EU, the UK is likely to lose its seat at the
table in the development of these proposals. In light of the central role played in
the past by UK insolvency professionals in the development of EU law in this
area, their absence going forward is likely to be unfortunate.
Uncertainty
Britain today faces an unprecedented domestic political and constitutional crisis.
Both the Conservative and Labour parties are in disarray. The Conservatives
must appoint a successor Prime Minister, while the leader of the Labour Party is
facing calls to resign. Until a new Prime Minister is appointed, no action under
Article 50 will be taken. Political leaders in Scotland and Northern Ireland are
weighing their options. Leaders in the EU are expressing a range of positions,
some urging a speedy notification, others calling for a calm and considered
process.
International and British financial institutions, companies and investors, as well
as expatriates in the UK and UK nationals resident in the rest of the EU, are
seeking in this confusing environment to assess the potential consequences of
an event that until recently seemed hypothetical and remote. While many of the
consequences will be triggered only when the UK actually withdraws, the
magnitude of those consequences means that planning must begin
immediately, and the uncertainty regarding the future may be as destabilizing
as the outcomes themselves.
conclision
Brexit a losing deal for everybody
One hot topic in the pre-election discussion in the United Kingdom (UK) is the
question whether the UK should stay in the European Union (EU) or not. From
a purely economic point of view a possible British exit from the EUthe so

called Brexitwould cause more economic damage for the UK than benefits.
The rest of Europe would suffer from lower economic growth, too. However
the economic losses they face would be much lower. These are the main
results of a recent study conducted by the Ifo Institute on behalf of
Bertelsmann Stiftung.
Measuring the possible impacts of a Brexit on the economic development in Europe is
extremely difficult because nobody knows how the relations between the UK and the EU
would be organized after a Brexit. Therefore, we worked with different scenarios. In the
most favourable case for the UK, the country would receive a status similar to Norway
or Switzerland. If so, there would be only minor increases in non-tariff barriers, but the
cross-border trade between the UK and the remaining EU-27 would remain exempt
from tariffs (soft exit). In the most unfavourable scenario, the UK would lose all trade
privileges arising from EU membership (isolation of the UK).
What are the economic consequences of these different scenarios? In each case,
leaving the EU would increase prices for British exports and hence reduce the level of
economic activities and production. Furthermore, prices for imported goods and
services would rise for British consumers and companies. Both developments would
reduce real GDP in the UK. The extent to which a Brexit would lower economic growth
in the UK depends on the degree of trade reduction with the EU. In the soft exit
scenario, our simulations conclude that the British real GDP would be about 0.6% lower
in 2030 compared to what it could have been if the UK had remained in the EU. The full
effects of trade policy measures occur 10 to 12 years after they are introduced.
Therefore, all our calculations provide long-term effects which arise in 2030. In the
isolation scenario, the UK would be hit harder. In that case, we calculate a real GDP
which is about 3% lower in 2030.
On the positive side, the UK would save its annual payments to the EU budget. In 2013,
the net contribution to the EU was around 0.5% of the British GDP. Compared to the
calculated losses in real GDP, even in the most favourable case these savings do not
compensate the reduction in real GDP due to less trade activities. Hence, in economic
terms the UK would not benefit from leaving the EU.
Less cross-border trade activities are not only harmful to economic development of the
United Kingdom, but to economic growth in the entire EU and the rest of the world. For
the EU-27 (EU without the UK), we calculate GDP losses between 0.1% (soft exit) and
0.36% (isolation of the UK) in 2030. These losses would differ significantly within the
EU: Ireland would be hit particular hard due to the strong economic ties with the UK.
The calculated losses for Ireland range from 0.8% with a soft Brexit to almost 2.7% in
case of an isolation of the UK. Other countries with losses above the EU-27 average are
Luxembourg, Malta, Cyprus, Belgium and Sweden. In addition, the remaining 27 EU
countries will have to compensate the missing British payments to the EU budget.
According to our calculation, Germany and France are supposed to increase their annual
gross payments by 2.5 billion and 1.9 billion respectively.
Things get even worse if we take into account the dynamic effects of a reduction in
cross-border trade activities: Less trade implies less pressure from international
competition. Hence, companies have less need to improve their productivity through
investments and innovation. And a lower increase in productivity reduces the long-term

rate of economic growth. Based on studies estimating the impact of less trade activities
on economic growth, we derive a long-term drop of real GDP in the UK ranging from
2% (soft exit) to 14% (isolation of the UK) in 2030, should the UK should leave the
EU in 2018.
In summary, we come to the conclusion that a Brexit would have damaging effects on
the economic development in the entire EU. Apart from these economic disadvantages,
a Brexit would also cause severe political damage and would weaken Europe
geopolitically. Therefore, we are deeply convinced that a Brexit should be avoided
because it would create no winners, only losers.
5.0 Reference

http://www.cfr.org/united-kingdom/debate-over-brexit/p37747?cid=ppcGoogle_grant-brexit_backgrounder-061315&gclid=CKPVgfijoM4CFcsPaAodjC0J9g
http://www.ibtimes.com/what-brexit-key-issues-explained-how-get-resultseverything-else-you-need-know-2384999
http://www.lexology.com/library/detail.aspx?g=a8cfa844-4a09-41dc-ad39e6b705e61283
http://esharp.eu/debates/the-uk-and-europe/brexit-a-losing-deal-for-everybody