International Trade Council assesses the post-Brexit world

The International Trade Council (ITC), the Brussels, Belgium-based organisation serving the international business community, has issued a commentary from specialist regulatory barrister Christopher Hopkins on the potential effects on regulation and doing business in the UK, following the referendum vote on June 23 for the country to leave the European Union (EU).

Background

Reduced business regulation or “red tape” has long been a target of the UK government. Following election in 2010, the previous coalition government launched its “Red Tape Challenge” to reduce the overall burden of regulation. This touched upon a multitude of different “themes” including health and safety, the environment, employment and manufacturing. By the end of 2014, the coalition claimed to have saved businesses £10bn.

The coalition’s aims were undoubtedly frustrated by the UK’s membership of the EU. For instance, it is estimated that between 80-90% of the UK’s environmental legislation is derived from EU legislation making it difficult – if not impossible – for the UK government to alter. New construction site safety rules, the Construction (Design and Management) Regulations 2015 were introduced in part because the previous legislation exempted homeowners from many of the requirements that commercial clients were subjected to and this was not thought to comply with the EU’s underlying Temporary Mobile Construction Directive.

The drive to limit red tape has continued under the new conservative government elected in 2015. Given that Brexit could ultimately oust or at least limit the reach of EU legislation (and we will have to wait and see what, if anything, the UK is required to keep or adopt when it comes to negotiate trade deals with the EU and others), it will be of interest to both UK and foreign businesses how Brexit could impact upon key areas of regulation associated with doing business in the UK – economic crime, export and sanctions controls, health and safety, and the environment.

Economic crime

The UK has one of the strictest anti-bribery laws, thanks to The Bribery Act 2010. This is a product of domestic – not EU – law so is unlikely to change although proposals for a new corporate offence of failure to prevent economic crime may be withdrawn. Likewise, the UK’s anti-money laundering (AML) legislation ultimately stems from international agreements that the UK is party to so is unlikely to be affected by Brexit.

What may change, however, is how these laws are enforced since there will be pressure to ensure that UK businesses remain competitive and are not unduly restricted in doing business abroad. The EU currently facilitates intelligence sharing between regulators in different member states and concerns have been raised that the UK authorities will in future miss out making it more difficult to detect bribery and corruption.

However, the UK already shares information with non-UK countries including the US and it is difficult to see what could be gained through non-cooperation. Therefore, it seems unlikely that Brexit will lead to the UK becoming a soft touch on economic crime.

Export and sanctions controls

In principle, Brexit could lead to a divergence between the UK and EU on export and sanctions controls similar to that which already exists between the US and EU in respect of Iran.

However, notwithstanding that military export controls are already the responsibility of individual member states a level of harmonisation has been achieved through the adoption of a “Code of Conduct of Arms Exports” and it seems unlikely that the UK will seek to move away from the EU position on non-military export controls any time soon (even less so if harmonisation becomes a condition of any trade agreement).

Also, the UK is already (along with the EU) directly party to a number of key international agreements which will continue to determine its approach post-Brexit. One more general but important change could be that the UK becomes a “third country” for EU purposes, so exports moving from the UK to the EU become subject to import value-added tax (VAT).

Although the EU has imposed some recent sanctions autonomously, many have been borne out of binding resolutions of the UN Security Council of which the UK will continue to be bound as a member and to have influence.

Health and safety (H&S)

The Health and Safety at Work etc. Act 1974 remains the primary UK legislation on H&S and is unlikely to change post-Brexit. Over time, it has been supplemented by a series of regulations derived both from the UK and EU directives including the Framework Directive (89/391/EEC) which is implemented in the UK by the Management of Health and Safety at Work Regulations 1999.

The UK is proud to have one of the best H&S records in the world and this has been reinforced by recent guidelines issued to the courts in England and Wales, which increased the recommended penalties for H&S offences. Brexit is unlikely, therefore, to result in any dilution of H&S requirements in the UK and it is of note that Norway’s H&S legislation accords with the Framework Directive despite its being outside the EU.

More complicated is what might happen to UK food safety and hygiene regulation. The current enforcement provisions in England and Wales both refer directly back to the EU Hygiene Regulations so this is an area that will clearly require consideration post-Brexit with a view to possible new UK requirements being implemented. However, UK businesses looking to export food (and indeed other products into the EU) are still likely to have to comply with EU safety requirements.

Environment

High energy prices (caused, in part, by climate change legislation and targets) have long been a concern for UK manufacturers and have an obvious effect upon their ability to remain competitive, so will Brexit bring any reduction in the cost of energy or other green taxes?

The UK will of course remain committed to meeting its climate change targets under international treaties and agreements (and the UK’s own Climate Change Act 2008) so may well wish to continue within the EU emissions trading scheme in the same way that Norway now does.

Likewise, the UK may choose to retain its current waste management laws because those standards will be required of businesses exporting waste into the EU. It is unlikely that the existing environmental permitting regime will change any time soon since the EU requirements were largely based on the UK model.

The likelihood is, therefore, that Brexit will have no immediate impact on UK environmental regulation – although one downside may be that the UK can no longer as readily influence EU environmental policy.

Conclusion

It is important to remember that any eventual Brexit will not be immediate and existing regulatory requirements will remain in place until the UK withdraws from the EU and the European Communities Act 1972 is repealed.

It is likely that future UK requirements will be influenced by what is agreed by way of any trade deals with the EU and others (including the US) notwithstanding the UK government’s ongoing wish to limit “red tape.”

At present, it seems unlikely that the UK will want (or be able) to adopt a significantly different approach on the areas highlighted above at least for the foreseeable future. One downside could be, however, that the UK will no longer able to exert the same influence over policy that current EU membership affords it.

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