Brexit: Be careful what you vote for

Antony Smith senior partner at Beale&Co looks at the legal implications for the UK leaving the EU and what the impact will be on construction.

This article will look at two areas:

1.the legal implications of withdrawing from the EU; and

2.the potential impacts on the construction industry of withdrawing from the EU.

So starting with the law and let us assume there is a ‘No’ vote.  What happens?

The process of withdrawal is set out in Article 50 of the Treaty of the European Union.  The UK must give two year’s notice of its intention to exit.  During that two year period the UK and the EU will negotiate the terms of their future relationship.  It is fascinating that none of the politicians are looking as far ahead but just talk in terms of sovereignty and the borders.  Perhaps the reason for that is that when you look at the choices available to the UK they won’t satisfy many of the ‘No’ voters.  So what are the choices?

The first option is a European Economic Area – an EEA.  This is the arrangement that Norway, Lichtenstein and Iceland have chosen.  The UK would remain bound by much of the EU law on employment and competition so the free movement laws would still apply.  We would probably pay less to the EU budget but we would still make a significant contribution in order to be able to continue trading. 

On the downside we would no longer have any direct influence on European legislation as we would no longer send representatives to the European Parliament and the government could not send representatives to the European Commission.  So you can see why the ‘No’ campaign would not want us to enter in to an EEA as we would still have to abide by EU law; have freedom of movement and still contribute to the EU.

The second option is to join a European Free Trade Association but be outside the European Economic Area.  This is the model that Switzerland has adopted.  This would enable the UK to enter a Bilateral Trade Agreement with the EU.  The UK would not be bound by EU legislation but would have to allow freedom of movement.

The other options are a Customs Union like Turkey has adopted.  This would allow us to trade in goods on favourable terms but not services without Customs Duties.  We could enter a Free Trade Agreement with the EU but commentators believe that the EU would not agree such a deal without freedom of movement for workers.  The final option is a World Trade Organisation relationship only. 

We would leave the EU but trade with them on the same basis as the US and China do now.  This is the opposite end of the spectrum to the EEA and we would not be subject to EU laws; we would have complete control of our borders but we would have to negotiate a Trade Agreement. 

 Clearly countries like Germany and France like to trade with the UK and we are an important export market for them so we probably could negotiate that trade deal.  

We should not forget this in that we export 50% of our total exports to Europe.

So you can see that although the Referendum will be on an ‘In/Out’ vote – an ‘Out’ vote will mean a number of options arise right through from an EEA which is very similar to being members to cutting ourselves off completely from EU influence.  There is a view that some recent entrants to the leave team believe that we should have more than one Referendum.  In other words we vote ‘No’ initially in order to use this as a negotiating weapon against the EU and then negotiate better terms with a further Referendum where hopefully the country will agree to stay in the EU.  Very dangerous politically and you can see how that could easily backfire.  Nevertheless that’s all months away and we have to wait and see what the country decides.  

The impact of a no vote on construction?

Against that background it is impossible to be able to predict the impact of a ‘No’ vote on construction.  

What we can do is look at the benefits of the current system that could be lost/reduced if the country votes ‘No’.  I would emphasise that these are my personal views and are very much crystal ball gazing as far as I am concerned.  The main points I can foresee coming important are as follows:

Procurement

At the moment we apply the EU Procurement Directives meaning that we are part of the club and can bid for OGA EU work.  If we join an EEA that is likely to be the same but if we don’t then we will not have the same benefits as our competitors when bidding for OGA work.  It will mean however that the government could subsidise domestic projects here without being sued for unfair competition by others in Europe.

Environmental Law

This could also be affected.  We have implemented a series of EU directives on environmental issues.  Although we don’t like some of the targets that are imposed on us with regard to bathing waters, habitats, birds and the like they benefit the environment.  Large parts of the UK law on waste are derived from the EU particularly on landfill waste and recycling.  If we leave the EU what will happen to our environmental laws?  

At the moment we have brought them into being through statutory instruments in acting the EU directives.  Can you imagine the political battles that will take place if all of a sudden those EU directives are no longer in force and we have to write our own legislation.  All of these political battles will come to the fore in the two years of renegotiation that will happen in the two year notice period.

Freedom of Movement

We are all very well aware of the skill shortage in this country.  This means that many consultancies depend on engineers and architects from other EU countries.  I am sure if we do leave then we would end up with some form of quota arrangements similar to Australia.   We will want to welcome with open arms engineers, doctors, dentists etc but will they want to come to such a closed country if we have stopped or greatly restricted the free movement of labour.

Euro Codes

These are now part of our heritage.  Will we go back to the old British Standards?  Will be as welcome on the Euro Code drafting committees?  This means that we could lose influence on the future for Standards of design.

Health & Safety Legislation

We will be free of European influence – no more red tape – yippee but will our Standards be acceptable when doing business in Europe? 

All these questions and many others won’t be answered until the two year period of negotiation that follows a ‘No’ vote will happen so we will be entering a very long period of uncertainty for our businesses.  

It is well known that the markets react badly to uncertainty.  We not only have the four month period leading up to 23 June to cope with but we could have a two year period where there is lots of political wrangling over the terms of renewed membership or some form of trading agreement outside the EU.  

We could also have a lot of domestic wrangling about our legislation.  During this period one could anticipate poor economic conditions.  The CBI predicts a 4 – 5% drop in GBP if we vote ‘No’.  Others are more pessimistic as to the impact on GBP.  Not good news for our businesses.  

My personal view is that any business which trades outside the UK must want to stay in the European Union so that it can continue to trade in a settled and regulated market that it knows well.

For those businesses who are smaller and only operate in the UK the benefits are the freedom of movement of labour which helps with the skill shortage.  Also if everybody begins to look inwardly as trading is less favourable in Europe then there will be much greater competition for the domestic business!  

So there you have it my campaign for the vote ‘In’ is actually for the benefit of the whole construction industry.