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14 July 2016

Referendum on Brexit Terms: Worst-case WTO rules are the only way to avoid it

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Graham Bishop sets out scenarios why the European Union Act 2011 will probably require a referendum on the UK’s exit trade deal with the EU, against a background highly influenced by the British current account deficit.

InFacts published an article on 6 July arguing that a second Brexit referendum probably will be required legally. Reading the European Union Act 2011(EU2011) and considering only the potential financial regulation rules flowing from a trade deal that gives either membership of the Single Market or an EEA-based model, there seems little alternative to a second referendum to approve the Treaty that gives legal force to the agreed terms.

Financial service regulations certainly do not trump any broader consideration of the political future of the United Kingdom. However, they are an easily-observed microcosm of the interaction of the technical detail of modern economies (especially service-based ones) and the `rule of law’ that states must observe in their dealings with each other, and with their own citizens.

The argument is simple, though the Act is highly convoluted. EU2011 states:

·        Clause 2:Treaties amending or replacing TEU or TFEU: (1) A treaty which amends or replaces TEU or TFEU is not to be ratified unless—“there has been a referendum to approve it. However, there may be “exempt” Treaty changes but any exemption must be stated explicitly in the enabling Act of Parliament.

·        Clause 4:Cases where treaty or Article 48(6) decision attracts a referendum… (I) the conferring on an EU institution or body of power to impose a requirement or obligation on the United Kingdom…”

There may be other instances in the EU2011 Act that might require a referendum but it is only necessary to demonstrate a single instance to make a referendum mandatory – unless Parliament decides to repeal/amend this Act.

The regulation of financial services is a particularly important example as the industry is vital to the UK’s finances – through its massive contribution to taxes and foreign exchange earnings. If there is a significant reduction in either of these, the consequences for the UK economy are likely to be dire. (These are detailed in the Appendix– taken from my recent publication “Insoluble Contradictions of the Leavers’ Policies: A Scenario for Timeline to Reality” (linkto summary)).

The fundamental problem facing Prime Minister May in this area is that much of the EU regulatory framework operates in the UK via the direct effect of EU “Regulations” – which do not have to be enacted into UK law. At the moment when the UK finally severs legal relations with the EU and the Treaties do not apply in the UK, then neither will these Regulations. That will leave a major gap in the UK’s system of financial regulation – unless the UK’s Parliament takes steps to import the entirety of the EU’s detailed rules directly into UK law. Superficially, this seems to contradict the concept of “Vote Leave – take control” that underpinned the public’s vote to leave the EU.

Full article available for consultancy clients here

© Graham Bishop

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