The UK government intends to trigger Article 50 to leave the EU by March 2017 – and , while Brexit is pending Parliamentary approval, co-ops are beginning to explore its impact on their businesses.
Colin Murray, partner at DWF Solicitors, tried to answer some of the questions around the implications of Brexit for co-ops in a session at the Practitioners Forum in Manchester.
Mr Murray has experience working for public and private sector bodies on EU procurement and public law and has previously worked for central government.
In his presentation he looked at the “known knowns”, such as procedure and possible trading models and the “known unknowns” – for example, the shape of the exit agreements and its broad impact.
A third category consists of “unknown unknowns”, which he described as “the things we don’t know we don’t know”. This classification was first used in 2002 by Donald Rumsfeld, then the US Secretary of Defense.
Trade and tariffs
A key issue that co-ops should analyse, says Mr Murray, is the potential trade deal secured by the UK after leaving the block of 28 member states.
While the UK could opt for different trading models to define its new relationship with the EU, Mr Murray believes the most likely outcome is that the country leaves the single market – aka “hard Brexit”. In this case, the UK will cease to contribute financially to the EU or have a say over the EU’s decision making. The country will also regain control over its borders.
If talks with the EU and other states do not reach a deal before Brexit takes effect, trade rules would default to those of the World Trade Organisation (WTO), of which the UK has been a member since 1995.
The UK allowed the EU to make trade deals on its behalf and these will also have to be renegotiated after Brexit. Mr Murray highlighted that negotiating trade deals can take long periods of time and it is unlikely that the UK will achieve an agreement that will be voted by all EU member states in just two years.
Implications for co-ops
For co-ops, one implication would be facing tariffs when exporting to the EU.
In addition, all UK imports to, and exports from, the EU will work in a similar way to how the UK currently trades with third-party countries.
Goods of UK co-ops will face import tariffs per product class on arrival in EU and it is likely that there will be more delays at border points.
Regulation – the Great Repeal Bill
Brexit Secretary David Davis has confirmed that EU law will be transposed into domestic law after EU law ceases to apply. This will be done through the Great Repeal Bill. The legislation, which will be introduced in the next parliamentary session, will be prepared by Whitehall and debated by MPs and peers at the same time as negotiations take place in Brussels. The bill is designed to end the authority of the European Communities Act in the UK on day one of Brexit.
Mr Murray pointed out that “EU and UK law have become so close it’s impossible to untangle in the given time frame”. He explained how the Great Repeal Bill would instead preserve and carry over into UK law the full body of EU law not already implemented in national law. Otherwise, given the many EU provisions applicable in the UK, there would be a risk of huge gaps in UK law on the date of withdrawal, he added.
The Act would also incorporate current applicable EU law into an Act of Parliament and then allow the government to decide if/when to repeal, amend or retain individual measures in the future, following Brexit.
The UK government can seek power to fast-track repeal of EU laws, which apply in the form of secondary legislation, and those which are implemented by means of Acts of Parliament. This means the executive could have a key role in deciding environment, consumer, railways, energy and other legislation that might affect co-ops.
Implications for co-ops
The regulatory framework for telecoms, railways, energy, airports and air traffic all stem from European law. All of this legislation will have to be reviewed and replaced in the post-Brexit world.
There could be an opportunity to lobby the government for amendments to current regulations.
Implications for agri co-ops
With 50-60% of UK farm income coming from EU farm subsidies, agriculture is likely to be one of the most affected sectors by Brexit.
Co-ops will cease to have access to EU funding through the Common Agricultural Policy.
Another issue that co-ops could face is labour shortage. Mr Murray added that around 65% of UK farmworkers are EU nationals. Agri co-ops will need to consider who will replace these seasonal workers.
There will also be new tariffs on exports and imports of machinery.
New trade deals could also mean fiercer competition for co-ops from international agribusinesses. In addition, trade agreements between UK and EU will not commence until exit negotiations are completed, which could put at risk exports by agricultural co-ops.
In terms of regulation, Mr Murray thinks that generically modified foods rules could be relaxed post Brexit – and asked “Is there a market for co-ops in this?”
He argued there could be a potential for greater deregulation and innovation outside CAP, through a simpler and more targeted approach, without disallowance fines for incorrect CAP payments.
Implications for energy co-ops
With Brexit, UK energy schemes, including renewable energy co-ops, will lose access to EU programmes to support and fund energy infrastructure and research. These are European Energy Programme for Recovery (€3.98bn), Connecting Europe Facility (€33bn for cross-border projects) and Horizon 2020 (€5.931bn for cleaner energy).
The government has not revealed whether it would replace these EU programmes.
Implications for retail co-ops
Another consequence of Brexit could be that imports rise in cost, which could affect retail co-ops.
Mr Murray said there could be an opportunity for retail co-ops to lobby the government in terms of tariffs. If the UK leaves the EU, UK retailers should re-examine their supply chain, he said.
Asked what advice he would give to a co-op sourcing from overseas but selling in the UK, Mr Murray said the board should know the timetable of the Article 50 process and the potential implications of the Great Repeal Bill.
The co-op would have to look at what impact hard Brexit would have on price, and what it would mean for its competitors, he added.
His four tips for co-operatives are:
- Prepare for what can happen next – consider the worst-case scenario: anything short of this is a benefit.
- What can co-ops contribute to the economy post Brexit?
- What are the co-op’s priorities in the Brexit negotiations?
- Do you need a co-op negotiating committee to raise issues with Government?