Despite this, the chances of the UK leaving the EU without an agreement is still a serious possibility because the agreement will need parliamentary approval. So what are the consequences of a no-deal Brexit and what can you do to minimise disruption to you and your business if it does happen? Our team at EM Law can help mitigate the risks you may be facing with Brexit – please get in touch if you need any help.
What is a no-deal Brexit?
As stated in Article 50, there will be a no-deal exit if the UK and the EU fail to reach a withdrawal agreement. If there is no withdrawal agreement, there will be no transition period, and EU law will stop applying to the UK at 11pm (UK time) on 29 March 2019. While it may seem easier to wait and see how everything works out, putting a plan in place now could make a big difference to how your business copes with the changes to come.
Movement of goods
The key concern for most businesses will be ensuring that they are legally permitted to continue to supply their products and services or can continue to be supplied with the products and services that they need for their business. If the UK leaves the EU without a deal there would be immediate changes to trading with the EU. The free circulation of goods between the UK and EU would cease and the UK would fall back on World Trade Organisation (WTO) rules. There would be no preferential tariffs, goods would have to meet each jurisdiction’s regulatory requirements, and the UK and the EU would treat each other as ‘third countries for services.’ The cost and administrative burden of doing business with the EU is therefore likely to rise. The exact nature of how your business should prepare for this will differ depending on the nature of the business’s operations.
For goods entering the UK from the EU an import declaration will also be required, customs checks may be carried out and any customs duties must be paid. Businesses exporting goods to the EU will be required to follow customs procedures in the same way that they currently do when exporting goods to a non-EU country. Businesses should consider registering for a UK EORI number, ensuring that their International Terms and Conditions of Service reflect that they are now an exporter, and using a customs procedure. A customs broker, freight forwarder or logistics provider can advise whether one of these procedures would be suitable for your business.
Movement of people
If the UK leaves the EU without a deal, there will also be consequences for the free movement of people. If you are a British passport holder, you will be considered a third country national under the Schengen Border Code and will need to comply with different rules to enter and travel around the Schengen area. According to the Schengen Border Code, third country passports must have been issued within the last 10 years on the date of arrival and have at least 3 months validity remaining on the date of intended departure from the last country visited in the Schengen area. If you plan on travelling to the Schengen area after 29 March 2019, it is worth checking that your passport complies with the new validity rules.
Despite departure day being less than 5 months away, for those who don’t have British passports, the future is less clear. When asked recently what would happen in the event of a no-deal, the government was unable to answer whether free movement of people would immediately cease on 29 March 2019.
Brexit planning is likely to identify specific aspects of existing contracts that need to be risk assessed or amended. There will also be implications for new contracts being negotiated to continue after Brexit. For example, definitions or clauses defined by reference to the EU will need to be amended. Contractual terms also commonly include references to EU legislation and this will need to be able to be interpreted to include that EU legislation incorporated into UK law.
Rather than relying on force majeure or material adverse clauses in your contract, you should consider including express provisions that cover specific consequences of Brexit. A bespoke Brexit clause has the advantage of being capable of being drafted to cover a wide range of potential future relationship outcomes.
If your business-critical suppliers are over-exposed to currency risk or price increases, they may also try and pass these onto you, re-negotiate their terms, or be unable to fulfil their obligations. You should check whether your existing contract gives you the right to adjust pricing to cater for the effects of tariffs and inflation.
If the UK leaves the EU without an agreement in place, there would be no immediate change in the UK’s own data protection standards. This is because the Data Protection Act 2018 would remain in place and the EU Withdrawal Act would incorporate the GDPR into UK law to sit alongside it.
Transfers of personal data from the UK to the EU would continue without interruption. In recognition of the unprecedented degree of alignment between the UK and the EU’s data protection regimes, the UK would continue to allow the free flow of personal data from the UK to the EU.
However, the framework governing transfers of personal data from the EU to the UK would change on exit. In the event of a no deal Brexit, the UK will cease to be part of the EU. For data protection purposes, it will be a ‘third country’ and be subject to the same restrictions that apply to any other non-EU country. The European Commission has stated that if it deems the UK’s level of personal data protection essentially equivalent to that of the EU, it would make an adequacy decision allowing the transfer of personal data to the UK without restrictions.
However, given that this adequacy decision is not certain, it may be wise to identify an alternative legal basis for those transfers. For the majority of businesses, the most relevant alternative legal basis would be adopting EU-approved model contractual clauses for the transfer of data. Either way, this is something to start thinking about now.
If you have any questions around Brexit or would like us to carry out a quick health check on your business please contact Neil Williamson.