With the UK referendum on a so-called “Brexit” set to take place in under two months, businesses should start considering what effect leaving the European Union (“EU“) will have for them. In our previous Blog post we set out general considerations for businesses in the lead-up to the referendum on 23 June 2016, which would help them establish whether or not the UK’s membership of the EU is an overall benefit to them or not.
If the UK left the EU, things will change, at least in the short term. It is a safe assumption that the European Communities Act 1972 (“ECA“) will be repealed, but what this means in practice is far from certain.
For businesses with a focus on customs and export controls, and businesses which frequently encounter sanctions issues as part of their day-to-day trade, we have compiled a more focused list of questions, to which consideration should be given when determining whether or not to remain in the EU, and what to do in the event of a Brexit.
EXPORT CONTROLS
· What statutory powers would permit export controls by UK?
A priority is likely to be determining whether the UK could create its own export regime in the wake of a Brexit. Even if the ECA 1972 were to be repealed, by virtue of the Export Control Act 2002 the Secretary of State would have the statutory power to make impose export controls in relation to goods of any description. The UK could therefore, reconstitute its own, UK-specific export controls regime in the event of a Brexit.
· Will the UK remain part of all relevant international agreements?
The UK is currently a member of relevant international agreements (i.e. Wassenaar, MTCR, Australia Group and NSG) in its own right; not by virtue of being a member of the EU. In the event of a Brexit, the UK would therefore remain a member of these agreements even if it were to leave the EU.
· Would the UK adopt a Union General Export Authorisation (“UGEA”) equivalent for the EU, or just add various Member States (“MS”) to OGELs?
If the UK were to leave the EU, there would be a question as to whether the UK would want to control any of its exports to the EU-27, and whether the UK would adopt a ‘one size fits all’ UGEA for the EU, or simply add various Member States (“MS“) to OGELs. Administratively, a UGEA-type licence for EU-27 would be much easier.
· Would all EU MS given equal status as “UK UGEA” or “OGEL” beneficiaries, or would some EU MS be preferred?
It is likely that the UK would not want to grant the same status to all the MS of the EU, but rather that it would grant preference to some MS over others, due to possible end-use concerns that may be more prevalent with regard to some MS than others.
· How would the EU-27 treat the UK? Would it add the UK to a UGEA? Would the EU-27 permit UK to a participate in any discussions around policy/coordination?
It is unlikely that the EU-27 would refuse to grant a UGEA to the UK, but in order to maximise the chances of the UK being added to the EU’s UGEA, it would make sense for the UK to coordinate and align with the EU with regard to its export control policy.
· Would the UK now need more export control specialists at the operational level, or at the policy level?
If the ECO were required to audit every export to the EU-27, it is likely that it will need more staff to cope with the increased volume of exports that require scrutiny. In addition, as the UK’s own export control policy starts to develop, it is also likely that more specialists will be required at the policy level.
· Potential issue if Scotland withdraws from the UK to stay in EU?
If Scotland held another referendum in the wake of a Brexit and voted to leave the UK in order to stay in the EU, then the UK would need a border with Scotland for export control purposes. This would mean increased export controls and customs issues when trading with Scotland, which could pose issues especially in the oil and gas sector.
SANCTIONS
· Will UK be able to become part of all relevant international systems?
The UK is already part of the United Nations (“UN“) and a permanent member of the UN Security Council (“UNSC“). It therefore should not have issues regarding influencing sanctions-related decisions at an international level, even if it left the EU.
· In the event of a Brexit, will the UK keep EU measures that it has implemented into national law, or undo them?
If the UK repeals the ECA 1972, in principle all EU law (such as EC Regulations and CFSP Decisions) will no longer be binding and, even if implemented into national law, could technically be repealed. Any EU sanctions measures would therefore become discretionary in the UK.
· What sanctions policy would the UK adopt in the event of a Brexit?
In terms of a UK sanctions policy post-Brexit, it is difficult to say whether they UK would want to coordinate with the EU-27, create its own separate UK policy, or look towards the U.S. for direction on its sanctions policy. Ideas of sovereignty would suggest that the UK may want to create its own, independent policy, but security needs may push the UK to align itself with the U.S. or continue to coordinate with the EU-27.
· What statutory powers would permit imposition of sanctions by the UK? Do we need new primary legislation?
UK statutory instruments (“SIs“) implementing EU sanctions legislation state that the ECA 1972 confers the power on the UK Treasury to create the UK sanctions legislation. In the event of a Brexit, if the ECA 1972 were to be repealed, the UK would therefore need to create new primary legislation in order to permit imposition of sanctions.
· Is the Office Of Financial Sanctions Implementation (“OFSI”) optimised to be a coordinator of sanctions in the UK?
Whilst OFSI ensures that financial sanctions are properly understood, implemented, and enforced in the UK, it does not specialise in goods and products controls contained in many EU sanctions. It is therefore likely that the Foreign and Commonwealth Office (“FCO“) or the UK Department for Business Innovation and Skills (“BIS“) would need to provide some input in coordinating implementation of sanctions in the UK post-Brexit.
Should you want to talk through the issues in more detail and discuss the possible implications for your business then we can help. We will also be hosting a webinar on 18 May 2016 which will look at the possible implications of a Brexit vote. If you would like further details on this, please contact kate.bullard@bakermckenzie.com.
