From
the moment, the recent shock result of the EU referendum in the UK was
announced, much has been written on subject. There is considerable concern in
the business community in both the UK and the EU in regards to how Brexit will
affect their operations. In March 2017, the British Prime Minster Teresa May,
announced her plans to trigger Article 50 of the Lisbon Treaty.[1] This will initiate a
two-year period of negotiations with the EU on a ‘divorce’ arrangement between
the UK.[2] However, the UK will remain
a member of the EU in the interim period, subject to all EU legislation and
rules. With that said, as it currently stands we have no idea beyond the words
of “Brexit means Brexit” to help us begin to determine the outcome of these
negotiations.[3]
The legal opinion provided in this essay will be targeted at European companies
operating in the North of Ireland on the presumption of a ‘Hard Brexit’. This refers
to the UK exiting the EU Single Market bringing an end to the free movement of
goods, people, and services. The objective of this blog is to provide a
non-qualified legal opinion aimed at a
specific set of clients regarding how a ‘Hard Brexit’ could affect their
company’s business operations.
This will encompass two key issues; which will be addressed chronologically. Firstly, the impact of the UK exiting the European Single Market and its effects on our client’s ability to conduct business operations “as usual” will be examined. Secondly, the potential ramifications and threats to the rights of workers for our client’s employees will be scrutinised, this will include those employees who do not have UK citizenship. The non-qualified legal opinion will be provided by evaluating legislation, case law and other persuasive material and apply them potential impacts the withdrawal of the UK from the single market and the removal of the right to free movement.
This will encompass two key issues; which will be addressed chronologically. Firstly, the impact of the UK exiting the European Single Market and its effects on our client’s ability to conduct business operations “as usual” will be examined. Secondly, the potential ramifications and threats to the rights of workers for our client’s employees will be scrutinised, this will include those employees who do not have UK citizenship. The non-qualified legal opinion will be provided by evaluating legislation, case law and other persuasive material and apply them potential impacts the withdrawal of the UK from the single market and the removal of the right to free movement.
Firstly,
before we begin, it is important to outline the types of industries the bulk of
our clients operate in. This is to fully understand the specific needs of our
client’s. Currently, the North of Ireland as a part of the UK is in the EU
Single Market. That means companies can generally sell their goods, and to a
smaller extent services, throughout the EU without tariffs, quotas, or other
restrictions.[4]
A hard Brexit involves exiting this EU single market. European companies operating
in the North of Ireland depend on the benefits of the UK’s current membership
of the single market to survive and grow. A large proportion of our clients are
involved in the food production industry. These companies rely heavily on their
ability to move their products without tariffs and with relative ease into
other EU member states. Importantly, this includes the Republic of Ireland in
which the North of Ireland and the UK shares a land border. Another emerging difficulty
for this sector arises from a Hard Brexit is their ability to employ staff from
a large pool of workers from across the EU member states.
The Northern Ireland
Food and Drink Association has said that 60% of its workers in Northern Irish
food factories are from outside the UK, mainly eastern Europe.[5] Any hindrance or restrictions
on this ability to employ staff from eastern Europe or any measures that will
force its current workforce to return to the EU post-Brexit could significantly
impact on the food industry’s ability to survive. The chair of the Northern
Ireland Food and Drink Association emphasised this point, "Any
restrictions on access to labour could restrict our ability to stand still,
never mind grow" and added it was "not unlikely" that businesses
could relocate processing facilities across the Irish border where they would
have "free access to labour".[6] These types of
restrictions will also impact on other areas of trade. This essay will
therefore focus on the European food production companies operating in the North
of Ireland. The following paragraphs will examine in detail the potential legal
consequences for our clients, that would emerge from a Hard Brexit scenario.
Conducting business “as usual”
A
Hard Brexit could have significant consequences for our client’s ability to
operate business as usual across the EU. Therefore, there are many potential
challenges for these companies which currently rely on various EU treaties to
survive and expand across the European single market. One impact of a hard
Brexit is that it will remove the ability to rely on provisions of the treaties
which are crucial to the capability of moving goods or services with relative
ease across the EU. A food production company, for example, relies heavily on
its ability to move its products from the North of Ireland into the Republic of
Ireland and the continent without tariffs, quotas, or other restrictions.
Therefore, a key issue that needs to be addressed is the potential impacts of a
Hard Brexit scenario in regards to our client’s ability to move goods and services. The next two paragraphs will examine the law
that surrounds this issue in more detail.
The
European Communities Act 1972 gives domestic direct effect to all EU law in the
UK. This legislation paths the way for the achievement of the of the single
market in domestic law. With that said, there are two principal techniques used
to achieve this objective. Negative Integration involves the prohibition by the
EU of national rules that hinder cross-border trade.[7] On the other hand, Positive
Integration involves the use of EU directives to overcome barriers to trade by
harmonising diverse national laws to allow trade to flow more freely.[8] The 1992 Treaty on the
European Union[9]
(TEU) provides for a key objective of the EU. “The Union shall establish an
internal market” which importantly requires the abolition of barriers to trade
between member states.[10]
Furthermore, Article 26 of the 2007 Treaty on the Functioning of the European Union (TFEU) defines the internal market as “an area without internal frontiers in which the free movement of goods, persons, services, and capital is ensured in accordance with the provisions of the treaty.”[11] These are described in the EU as the four freedoms. In the landmark Van Gend en Loos[12] case, it was established that provisions of the treaties can create legal rights which could be enforced by both natural and legal persons before the courts of a EU Member State. As already mentioned Article 26(2) of the TFEU[13] defines the internal market as an area without internal frontiers. As to the ruling in Van Gend en Loos[14] these rights would be directly effective in the EU Member States. Therefore, the free movement of goods, persons, services, and capital can rely upon legal protection to move relatively easily within the single market area without quotas, or other restrictions. It is important to note, that once a goods has been imported into the EU from a third country and the appropriate customs duty paid, the TFEU[15] provides that the goods will be in ‘free circulation’ between the member states.[16] This means no further tariffs or taxes can be added.
Furthermore, Article 26 of the 2007 Treaty on the Functioning of the European Union (TFEU) defines the internal market as “an area without internal frontiers in which the free movement of goods, persons, services, and capital is ensured in accordance with the provisions of the treaty.”[11] These are described in the EU as the four freedoms. In the landmark Van Gend en Loos[12] case, it was established that provisions of the treaties can create legal rights which could be enforced by both natural and legal persons before the courts of a EU Member State. As already mentioned Article 26(2) of the TFEU[13] defines the internal market as an area without internal frontiers. As to the ruling in Van Gend en Loos[14] these rights would be directly effective in the EU Member States. Therefore, the free movement of goods, persons, services, and capital can rely upon legal protection to move relatively easily within the single market area without quotas, or other restrictions. It is important to note, that once a goods has been imported into the EU from a third country and the appropriate customs duty paid, the TFEU[15] provides that the goods will be in ‘free circulation’ between the member states.[16] This means no further tariffs or taxes can be added.
It
is important to note, that the European Court of Justice will interpret treaty
provisions purposefully and give them wide definitions in line with the
objectives of the treaties. Therefore, the EU courts will protect these rights
laid out in the treaties. In Commission v
Italy,[17]
it was held that goods are ‘products which can be valued in money and which are
capable as such, of forming the subject of commercial the subject of commercial
transactions’. Importantly, Article 30 of the TFEU[18] prohibits member states
from applying custom duties on imports and exports to other member states and
prohibits all charges that have an equivalent effect to a customs duty. Article
110 of the TFEU[19]
provides that “no Member State shall impose, directly or indirectly, on the
products of other member states any internal taxation of any kind more than
that imposed directly or indirectly on similar domestic products”.[20]
With that said, in Commission v France tax was defined as
“a general system of internal dues applied systematically to categories of product
in accordance with objective criteria irrespective of the origin of the
product”. Moreover, In Commission v
Belgium and Luxemburg[21]
a case involving a tax on the importation of gingerbread to compensate for a
domestic tax on wheat. It was held that a ‘duty’ whatever it is called, and
whatever its mode of application, may be considered having an equivalent effect
to a customs duty. It is important to note that it was emphasised in the above
ruling that ‘equivalent effect’ status is dependent on the ‘duty’ meeting a set
out three-part criteria. Moreover, the Articles 34 and 35 of the TFEU[22] also prohibits the use of
import and export quotas as a non-tariff barrier to the free movement of goods.
Meaning the Member States cannot restrict the amount of goods entering or
leaving their territory. However, Article 36 TFEU[23] provides for some
exceptions to public morality, public policy, public security, and other
grounds. It is clear from the above treaty provisions that attempts by a member
state to sneakily thwart Article 28 of the TFEU[24] would be challenged in the
courts. Article 28 also provided for a
common customs tariff for all member’s states in regards to third party states.[25] This heavily contributes
to harmonisation of imports and exports in the single market area in terms of
imports from third-party states. The next paragraph with evaluate the key
issues facing our client’s ability to operate ‘business as usual’ if the above
EU jurisprudence could not be relied upon in the aftermath of a hard Brexit.
When
the above law is applied to the facts of a ‘Hard Brexit’ scenario consisting of
the UK exiting the EU single market, potential consequences emerge for our
clients. These companies will no longer be able to rely on the multitude of EU
treaties provisions, regulations and case law that ensures their goods,
services, personnel, and capital move from member state to member state
smoothly. The British Prime Minister announced legislation to end the authority
of EU law. The ‘Great Repeal’ Bill’ will be introduced in the next
parliamentary session. The objective of the legislation will be to end the
authority of EU law by converting all its provisions into UK law, on the day of
exit from the EU. At the same time, the European Communities Act 1972 giving
direct effect to all EU law will be repealed.[26] Therefore, if this bill
comes to fruition, current EU laws will be transferred into UK law whilst the
legislation that gives direct effect to EU treaties provisions, regulations and
case law will be repealed. This will complete the ‘divorce’. A major
consequence of this will be the elimination our client’s ability to directly
rely upon EU jurisprudence in when conducting their operations from the North
of Ireland. Moreover, the EU could possibly impose tariffs on goods entering
the single market from the UK. This could include quotas and other restrictions
that the provisions of the treaties currently protect them against. In the run-up to the referendum,
several options were sounded. It is currently not clear what model of
relationship the UK will pursue in their negotiation strategy. Moreover, as it
stands, the public are left to speculate on what model the UK will seek and
whether this could be achieved in
a two-year period through the Article 50 process.[27] However, only two options
are possible in a Hard Brexit Scenario. The negotiation of a Free Trade
Agreement and World Trade Organisation membership. The former appears to be a
highly unlikely outcome.[28] The later would involve
tariffs and other barriers to trade that would be imposed on goods and services
traded between the UK and the EU.[29] Therefore, it can be
easily concluded that the UK leaving the EU single market and the removal of
the direct effect of EU law could have a massive impact on our client’s ability
to carry-out business operations ‘as usual’.
Ramifications
for Employees
As
already mentioned earlier our clients rely heavily on their ability to employ
staff from the EU. This is illustrated in the claim that sixty percent of the
workforce in the North of Ireland’s food and drink industries is obtained from
Eastern European workers. Currently, these workers can move between member
states. They can choose
to reside and work with relevant ease. Therefore, a key issue for our clients
and their employees is the capacity to maintain this flow of European workers
in a ‘Hard Brexit’ scenario. Another issue emerges surrounding our client’s
ability to travel into the EU to carry out business if the laws that protects
their right to free movement are revoked when the UK leaves the EU. The next
paragraph will outline the law that facilitates the free movement of workers
between member states so that the legal ramifications of a ‘Hard Brexit’ can be
evaluated.
The TFEU 2007 currently provides for the right of free movement of workers between the UK and other EU Member states.[30] It also states that “such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment.” It is important to note that the above freedoms or safeguards have horizontal effect meaning that direct effects against public bodies, is further extended to include private bodies.[31] Article 18 further cements this right “Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited.”[32] This means that an employee from another EU Member State can rely on these rights when they face discrimination when seeking employment in the EU.
However, there are a few
limitations to this rule that are justified on grounds of public policy, public
security, or public health.[33] Further rights are
protected by the Citizens Rights Directive[34] which has been
implemented in the UK.[35] The directive gives EU
and EEA citizens the right of free movement and residence across the European
Economic Area, provided they are not an undue burden on the resident country
and have comprehensive health insurance.[36] Controversially, this
right also extends to close family members that are not EEA citizens. After
five years, the right of residence becomes permanent, which means residency
will no longer not depend on preconditions. Moreover, EU regulation provides
that citizens residing in other member states will “enjoy the same social and
tax advantages as national workers”.[37]
This is demonstrated in O` Flynn v. Adjudication Office[38] were a grant provided to UK nationals that assisted funeral cost was extended to an Irish EU non-national. It is important to note that Under Article 20 of the TFEU, EU citizenships are conferred additional to national citizenships on every person who is a national of an EU member state.[39] This includes the right to move freely and reside within the territory of the Member States.[40] Moreover, the European Court of Justice is increasingly viewing cases in this area of EU law as a ‘citizen’ issue rather than an issue of ‘worker’s rights’. With that said, it is important to highlight EU anti-discrimination law which is an expanding area of EU law.[41] This includes treaty provisions that allow the EU to take action to tackle discrimination in regards to sex, racial or ethnic origin, religion or belief, disability, age, or sexual orientation.[42] Special emphasis has been placed on the goal of ensuring equal pay between men and woman within the EU.[43]
This is demonstrated in O` Flynn v. Adjudication Office[38] were a grant provided to UK nationals that assisted funeral cost was extended to an Irish EU non-national. It is important to note that Under Article 20 of the TFEU, EU citizenships are conferred additional to national citizenships on every person who is a national of an EU member state.[39] This includes the right to move freely and reside within the territory of the Member States.[40] Moreover, the European Court of Justice is increasingly viewing cases in this area of EU law as a ‘citizen’ issue rather than an issue of ‘worker’s rights’. With that said, it is important to highlight EU anti-discrimination law which is an expanding area of EU law.[41] This includes treaty provisions that allow the EU to take action to tackle discrimination in regards to sex, racial or ethnic origin, religion or belief, disability, age, or sexual orientation.[42] Special emphasis has been placed on the goal of ensuring equal pay between men and woman within the EU.[43]
When
the law above is applied to the impending removal of the right to free movement
in a ‘Hard Brexit’ scenario ramifications begin to emerge for our client’s
employees. Especially, those who do not have UK citizenship. In regards to
those who do they will lose their rights as EU citizens and those rights
provided by the treaties. There is no doubt this will affect their ability to
work and rely on protections in the EU if our clients have other bases across
the EU. Moreover, their ability to use the vertical or horizontal effects of
treaty provisions, regulations and directives in the Court of Justice would
cease. This would also include their ability to rely upon anti-discrimination
law. However, for those who are not UK citizens and work and reside in the North
of Ireland, the impact is more severe. Their right to free movement between the
UK and their home member state would be revoked with the UK leaving the
European Economic Area. Similarly, their rights to “enjoy the same social and
tax advantages as national workers”[44] would no longer be
protected by the treaties. Therefore, rights to benefits and grants such as in
the O` Flynn v.
Adjudication Office[45]
would cease to
exist post Hard Brexit. As the Court of Justice would no longer have authority
in a post Hard Brexit UK they would not be able to rely on EU treaty provisions
that currently protect their rights. As it currently stands The UK government
has declined to give firm assurances regarding the status of EU nationals
currently living in the UK.[46] Therefore, it would
possible to provide the opinion that a Hard Brexit scenario could have some
serious ramifications for our client’s staff.
In
conclusion, there is no doubt that the European companies we are advising are
at high risk of being extensively impacted by legal changes if a Hard Brexit is
the outcome of impending negotiations between the UK and EU. This blog
demonstrated through the evaluation of current laws against a Hard Brexit
scenario, that our client’s ability to move their goods freely and with little
inference will be significantly damaged if the UK leaves the Single Market.
Extra tariffs or taxes that have an equivalent effect could affect our client’s
ability to compete with the EU. Moreover, quotas and other restrictive measures
would further add to our client’s woes if the EU applies such measures. UK to
UK trade will be at lower risk suffering as an effect to changes. In regards to
the removal of the right to freedom of movement the impacts could also be
extensive. The removal of their EU Citizenship would have a serious impact on
their rights to be protected by the EU Court of Justice. With that said, those who failed to obtain UK
citizenship will face similar challenges as their right to reside in the UK is
under threat. Therefore, these employees are potentially at a greater risk.
What rights this group of employees could have is currently up in the air as no
official definition of what ‘Brexit means Brexit’ currently exists. With that
said, the challenges of the impact of Brexit whether it be ‘Hard or Soft’ will
no doubt have a wider impact on society in both the EU and the UK. The
consequences of EU negotiating its divorce with the UK with soft hands could
possibly lead to the downfall of the EU. Other member states that are currently
impacted by the rising of the euro scepticism could convince their citizens that
exciting the EU has more positives than negatives. For that reason, it would
not be beyond reason to speculate that a Hard Brexit is the most likely outcome
of the negotiations as the EU could seek to make an example of those who dare
to leave.
Ciaran Boyle Derry
Produced in November 2016
[1] Treaty on European
Union (2007) Article 50
[2] Ibid
[3] Mark Mardell,
'What Does 'Brexit Means Brexit' Mean? - BBC News' (BBC News, 2016)
<http://www.bbc.co.uk/news/uk-politics-36782922> accessed 3 December 2016.
[4] Treaty on the
Functioning of the European Union 2007 Article 26(2)
[5] John Campbell, 'Brexit: NI Food Firms Express Concern at
Impact of Immigration Clampdown - BBC News' (BBC News, 2016)
<http://www.bbc.co.uk/news/uk-northern-ireland-37680680> accessed 30
November 2016.
[7] P. P Craig and G
De Búrca, EU Law (Oxford University Press 2011). 582
[8] Ibid
[9] Treaty on European
Union 1992 Article 3(3)
[10] Ibid
[11] Treaty on the
Functioning of the European Union 2007 Article 26(2)
[12] Van Gend en Loos v
Nederlandse Administratie der Belastingen (1963) Case 26/62
[13] Ibid (n 4)
[14] Ibid (n 5)
[15] Ibid (n 11) Article
29
[16] Ibid
[17] (1968) Case 7/68
[18] Ibid (n 11) Article
30
[20] Ibid
[21] (1962) Cases 2 and
3/62
[22] Ibid (n 11)
Article 34 and 35
[23] Ibid Article 36
[24] Ibid (n 9) Article
28
[25] Ibid
[26] Rowena Mason,
'Theresa May's 'Great Repeal Bill': What's Going to Happen and When?' (The
Guardian, 2016)
<https://www.theguardian.com/politics/2016/oct/02/theresa-may-great-repeal-bill-eu-british-law>
accessed 30 November 2016.
[27]Simon Witty, 'The
Legal Consequences of Brexit' (Corpgov.law.harvard.edu, 2016)
<https://corpgov.law.harvard.edu/2016/06/27/the-legal-consequences-of-brexit/>
accessed 5 December 2016.
[28] Fredrik Erixon,
'The Canada-EU Trade Deal Is No Model for Brexit - Capx' (CapX, 2016)
<https://capx.co/the-canada-eu-trade-deal-is-no-model-for-brexit/>
accessed 5 December 2016.
[29] Ibid (n 24)
[30] Ibid (n 11) Article
45
[33] Ibid (n 11) Article
45(3)
[34] Directive
2004/38/EC
[35] Statutory
Instrument 2006 No. 1003 - The Immigration (European Economic Area) Regulations
2006
[36]Directive
2004/38/EC Article 7(1)
[37] Regulation
492/2011, Article 7(2)
[38] (1994) C-237/94
[39] Ibid (n 11)
Article 20(1)
[40] Ibid (n 11) Article
20(3)b
[41] Ibid (n 11)
Article 19
[42] Ibid
[44]Regulation
492/2011, Article 7(2)
[45] Ibid (n 38)
[46] Alex Hunt and Brian Wheeler, 'Brexit: All You Need To Know
About The UK Leaving The EU - BBC News' (BBC News, 2016) <http://www.bbc.co.uk/news/uk-politics-32810887>
accessed 7 December 2016.
