BREXIT AND EU LAW

Article 50 TEU provides the following:

1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the 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 negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It 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.
4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it. A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.

Article 50 TEU appears to define the following stages of a negotiated and presumably amicable withdrawal:

1. Formal notice: The withdrawing Member State must first send a formal notice to the European Council.
2. Adoption of negotiating guidelines: The European Council issues guidelines on the basis of which the Council negotiates the terms of exit and future relationship between the EU and that Member State.
3. Negotiated arrangement: The terms of exit and post-exit relationship are negotiated by the EU on the basis of recommendations by the Commission
4. (Article  218(3) TFEU) and the Council decides by a qualified majority after receiving the consent of the European Parliament.

In Article 50 TEU, the Council decides without having to consult the Commission. The Commission only provides recommendations with respect to the ‘opening of negotiations’ (Article 218(3) TFEU). Second, whereas the Commission has always negotiated with candidate countries on behalf of the EU, Article 50 TEU refers to Article 218(3) TFEU which provides that the Council nominates the ‘Union negotiator’. Third, withdrawal negotiations must be concluded within two years. Fourth, exit of an existing Member State will be decided by the Council according to qualified majority. Fifth, an exit only requires the consent of Parliament. Article  50 TEU does not explicitly stipulate a majority of component members, so consent would require only the majority of votes cast. Lastly, with the exception of the withdrawing Member State itself, there is no reference to ratification of the result of the exit negotiations.

Legal impact

1. Suspension of directly applicable EU Law: The most immediate manifestation of the ceasing of the application of EU law will be the suspension of all regulations which have direct effect. The withdrawing country will be relieved from many obligations that have a ‘nuisance’ element, such as the provision of statistics to Eurostat, the submission of economic programmes in the framework of macro-economic coordination or the preparation of annual reports on the amount of state aid granted.
2. Ending Rights of Access: The most extensive impact of exit is likely to be the ending of the right of access to the internal EU market and the corresponding ending of the obligation of the withdrawing Member State to offer unrestricted access to its own market. Given their respective WTO memberships, the withdrawing Member State and the EU will be delegated to MFN status.
3. Differential Treatment: Given the extent of integration between the economies of Member States, withdrawal will not mean the end of the presence of nationals and companies from other Member States in the economy of the withdrawing Member State and vice versa. Companies normally establish local presence through subsidiaries or registered offices. These legal forms of commercial presence give them legal rights that can be exercised even after the ceasing of the application of EU law. The same presumably will apply to nationals of other Member States and the nationals of the withdrawing Member State working abroad who are employed on the basis of temporary or permanent contracts. As long as these contracts remain valid, they will be able to exercise acquired rights that emanate from them. However, this will also create a situation of differential treatment between established and newly arrived nationals and companies who will not be able to draw on rights conferred by EU law. Presumably, the nationals and companies of the withdrawing Member State who are newly arrived in other Member States will receive equivalent treatment.
4. Annulment or maintenance of transposed EU law: In the case of EU rules which are applied through enabling national law, as for example in the case of transposed directives, the withdrawing country will have to decide whether to leave them in place or delete them. Withdrawal does not entail either an obligation to remove all vestiges of EU law or that continued enforcement of transposed EU rules is necessarily contrary to the interests of the withdrawing country.
5. Replacement of EU law or legal lacunae: Since withdrawal does not mean that all rules emanating from Brussels must necessarily be discarded, the withdrawing country will have to decide whether to replace with its own. For example, a withdrawing country will not have to carry out the EU-mandated environmental impact assessments, but why would it be in its interests not to protect its environment? Perhaps ironically, the ceasing of the application of EU law will in all likelihood lead to substantial increase in legislative activity. The following examples indicate the dilemmas that will face the withdrawing country. They are taken from policy areas where the EU enjoys exclusive competence. This suggests that at minimum the withdrawing Member State will have to re-legislate in these fields.

Example 1: Trade defence

 In the field of trade, Regulation 1225/2009 lays down the EU anti-dumping rules. No Member State maintains its own anti-dumping rules. The withdrawing Member State will have to decide whether to adopt its own rules, possibly copying those of the EU. In that eventuality, it will also have to assign to a domestic authority the investigative tasks currently carried out by the Commission.

Example 2:  Trade and other international agreements

The withdrawing country will also have to decide whether to assume any of the obligations that emanate from trade agreements between the EU and third countries and secure them through the negotiation of bilateral agreements with those third countries. Given that the EU has probably the largest network of trade agreements in the world, the task for the withdrawing country will be daunting. But in other fields too there will be need for either re-negotiation or establishment of completely new arrangements (for example, air transport rights negotiated by the EU). Withdrawal from the EU will certainly affect non-EU countries as well.

Example 3: National state aid control In the field of state aid

Article  108(3) TFEU and Regulation 659/99 require public authorities to notify all new state aid to the Commission for approval.  No Member State has any national authority responsible for authorizing aid precisely because the Commission has the exclusive power to assess the compatibility of aid with the internal market (Member States have authorities for coordinating state aid but not for authorizing). If a Member State leaves the EU, it will not have to comply with EU state aid rules, but it will have to decide whether to allow its public authorities to compete against each other via state aid. If it would decide to impose a conditional prohibition such as that of Article 107(1) TFEU, then it would have to designate an authority to take over the role of the Commission and would still have to decide whether to adopt rules on compatibility which are similar to those of Commission guidelines.

6. New National Policies: The three most expensive EU policies are the common agricultural policy, the regional/ cohesion policy and the research policy. The withdrawing country will not have to contribute to the EU budget to support these three policies, but at the same time its farmers, poor regions and researchers in universities and companies will not be eligible for EU funds. The withdrawing Member State will have to decide whether to replace those policies and, if yes, at which modalities and rates of support.

7. New national institutions: New national laws and policies will require new institutions to enforce them or new competences to be granted to existing institutions. If, for example, the withdrawing Member State introduces state aid rules of its own, an authority will have to be made responsible to assess new state aid measures.

8. Managing European public goods: Even in the extreme case where a Member State would not want to retain a preferential relationship with the EU after it leaves the EU, it would still have to face the geographic, economic and political reality of its proximity to the EU. There are genuine public goods shared by EU Member States and significant cross-border externalities. The point here is not whether a withdrawing country would want to maintain close economic and political links with the EU. Rather, it is about the management of resources that will necessarily have to be done even after exit from the EU and the tackling of problems that cannot be avoided even after withdrawing from the EU. The examples that immediately spring to mind are fisheries, atmospheric pollution and ceilings on CO2 emissions, cross-border interconnection of trans-European transport, energy and communication networks, battling of money laundering, arms trafficking and other forms of cross-border illegal activities.

9. National currency: A withdrawing Member State that is also a member of the Eurozone will have to adopt a new national currency. The exchange rate between the new currency and the euro will depend on whether the withdrawing Member State has healthy public finances or whether it is debt laden. In the latter case, its new currency will almost certainly depreciate signifi cantly against the euro. Then the servicing of euro-denominated debt will become costlier and perhaps impossible. This is the reason why a Eurozone member is unlikely to leave voluntarily and if it leaves it is likely at the same time to default on its obligations. Since this has never happened in the EU, the legal consequences are unimaginable. It certainly cannot be the subject of protracted withdrawal negotiations because markets will react instantaneously and, therefore, any agreement is likely to be hasty and incomplete.

10. Future interpretation of law which is based on EU principles: In addition to the above problems that will arise immediately upon exit from the EU, there will be other problems linked to the interpretation and evolution of EU law. Even where Member States have their own laws, such as competition, or rules such as the precautionary principle in risk prevention, they follow the interpretation of the Court of Justice to prevent conflicts between EU and domestic law. Suppose a Member State leaves the EU and then soon afterwards the Court of Justice delivers a new judgment that departs substantially from previous case law. How should the courts in the former Member State respond to the new interpretation? Ignore it or adopt it? It would be sensible to adopt it unless there are overwhelming considerations to the contrary.

Final Remark

Withdrawal is a formal act that is unlikely to sever all links with the EU or confer real policy independence to the withdrawing country. It is neither possible, not desirable for a withdrawing country to get rid of all EU-based legislation. Moreover, non-application of EU law will require substantial re-legislation in the withdrawing country. Lastly, the fact that a country formally leaves the EU will not mean that it will stop being affected by developments in EU law.