U.K. leaves European Union

Brexit takes place at 11 p.m. London time on January 31, 2020

The European Union goes from 28 member countries to 27 at the end of January 31st as the British referendum to withdraw from the EU is brought to fruition by votes in the EU Parliament (621 votes in favor, 49 against, 13 abstentions) on January 29 and the European Council (unanimous) on January 30. The provisional text voted on by the Parliament is embedded below.

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While the votes were not in doubt, withdrawal from the EU does not establish what the relationship with the EU will be after the interim period of 2020. What is clear is that by Saturday, February 1, the U.K. is no longer part of the EU and will be treated as a third country under EU laws and regulations.

There was a debate in the European Parliament on January 29th ahead of the vote which provides some clues as to the challenges facing the U.K. in the coming months. For example, while the EU is willing to consider an FTA with the U.K. with zero tariffs and quotas, it is dependent on the U.K. adhering to EU regulations (level playing field concept in Europe). While some U.K. industries (auto and aerospace) have urged their government to adhere to EU standards, it is not clear that the U.K. has the intention to do so across the board. Protecting the rights of Europeans in the U.K. (and of U.K. citizens in the EU) was reviewed at length by various Parliamentarians and representatives from the European Commission. It is obviously an important issue for the EU. As is dealing with climate change through aggressive actions by EU governments and any government wishing a special or close relationship. A number of speakers reviewed the challenges likely based on the short interim period and the complexity of negotiations anticipated.

The debate had many Parliamentarians from the remaining 27 member countries and the European Commissioners who spoke thanking their colleagues in the U.K. for the U.K.’s contribution over the 47 years of the U.K.’s membership in the EU, expressing regrets on the decision to leave but looking forward to working with the U.K. going forward, with some hoping that future generations of citizens in the U.K. will decide to rejoin.

There were some comments made on lessons to be learned from Brexit with some focusing on the need for EU reform, for member countries accepting all obligations versus a system of exceptions, and a general belief that the EU needs to be able to take action more quickly.

A number of Parliamentarians from the U.K. and Scotland spoke. A number representing constituents who voted against Brexit in the referendum expressed their concern with the withdrawal and indicated they would vote against the document.

A large group of U.K. Parliamentarians seemed to agree with the harsh words of Nigel Farage, a strong Brexit proponent and, by his own words, anti-EU. His views were that the U.K. had joined a common market not a political union. He opposes the expansion of the EU into traditional national issues and its push to become a super-nation with all the trappings of a nation (Parliament, Council, Court, etc.). He also views the EU as undemocratic and antidemocratic using as an example the failure of the EU to honor referendums in various countries that opposed the constitution (2005). His description of the U.K. feelings towards the rest of Europe was summed by his statement “We love Europe, we simply hate the European Union.” Mr. Farage reviewed that the new British Prime Minster Boris Johnson had indicated that there would be no “level playing field” agreed to in negotiations with the EU.

For access to the videos of the debate see https://www.europarl.europa.eu/news/en/press-room/20200128IPR71204/brexit-deal-approved-by-the-european-parliament

As noted above, the level of ambition in any new U.K.-EU relationship will depend in part on whether there is a “level playing field” in the regulatory arena. Prime Minister Johnson’s comments simply suggest that the next eleven months will be difficult for the parties as they see if they can find a new relationship acceptable to both sides or whether the U.K. assumes the status of any other third party without a Free Trade Agreement (“FTA”) with the EU.

The U.K. will also be under pressure from the U.S. to abandon various EU regulations to facilitate an FTA with the U.S.

So the U.K. will not be part of the EU in just over 24 hours. But the road ahead with the EU will likely keep markets uncertain for months to come.