Brexit: The Possibilities

Francisco A. Laguna & Amy Turner

 This week, we conclude our Brexit series with an examination of the possibilities of how the withdrawal process may take shape. Since the 23 June 2016 Brexit vote, several questions have arisen. Within Europe, a dispute has started about whether the decision to invoke Article 50 is the prerogative of the UK government, or if it requires Parliamentary assent. Government lawyers advised that invoking Article 50 is a government prerogative. However, the repeal of the European Communities Act by Parliament is a prerequisite, which automatically involves the UK parliament.

Another question is the extent to which the Northern Ireland Executive, Scottish Government and Welsh Government will have to be involved in the process. In this regard, Scottish Prime Minister Nicola Sturgeon has stated that legislative assent to act to implement withdrawal from the EU would be given by the Scottish Parliament.

According to Article 50, the negotiations concerning changes over budgets, voting allocations and policies due to the withdrawal of member states are the responsibility of the remaining members of the EU. However, as we discussed last week, since Article 50 has not been official invoked, official negotiations the UK, the other states and the European Commission cannot yet begin.

The decision was made to forgo any discussions until the UK formally invokes Article 50 during a meeting of Heads of States. Indeed, President of the European Commission Jean-Claude Juncker took a strong stance and ordered that EU members not engage with UK parties regarding Brexit. This lead to Donald Tusk, the president of the European Council, to state that access to the European Single Market would not be given to the UK until they accept its “four freedoms of goods, capital, services, and people”.

The changing relationship with the UK and the remaining EU members could evolve several ways. For example, the UK could remain in the European Economic Area (EEA) as a European Free Trade Association (EFTA) member (alongside Iceland, Liechtenstein, Norway and Switzerland). The UK could attempt to join the EEA as an EFTA member. Under this plan the UK would be required to follow EU internal market legislation without being able to participate in its development or vote on its content. However, the EU is required to conduct extensive consultations with non-EU members beforehand via its many committees and cooperative bodies.

Under the EEA Agreement, certain policy areas are not apply to EFTA members such as: Common Agriculture and Fisheries Policies; Customs Union; Common Trade Policy; Common Foreign and Security Policy; direct and indirect taxation; and Police and Judicial Co-operation in Criminal Matters. This allows the EFTA members to set their own policies in those areas. Common Agriculture and Fisheries Policies, Customs Union, Common Trade Policy, Common Foreign and Security Policy, direct and indirect taxation, and Police and Judicial Co-operation in Criminal Matters. In order to access the internal market, EFTA countries must contribute to the EU budget.

Another option could be that the UK would use the Swiss model and seek to negotiate bilateral terms via a series of interdependent sectoral agreements. The Swiss agreements contain free movement for EU citizens. Interestingly, the Swiss immigration referendum of February 2014 voted narrowly in favor of an end to the “free movement” agreement by February 2017. If this path is chosen, Britain must keep in mind that the bilateral treaties between Switzerland and the European Union are all co-dependent. This means that if one is terminated, then all are terminated. Barring a compromise, Switzerland’s unilateral choice to end the “free movement” agreement by Switzerland could cause all EU and Swiss agreements to become invalid.

Despite the fact that many politicians had weighed in on how they think a plan should work, no real plan has been established.  However, it is very clear that membership rights require input from every individual member, and many few the Brexit vote as a snub and the UK’s failure to invoke Article 50 as a means of continuing to benefit from its membership in the EU for as long as possible.

Contact TransLegal with your questions concerning Brexit and how it may impact your business.

Brexit: Article 50 of the Treaty on European Union

Francisco A. Laguna & Amy Turner

This week, we continue our series on Brexit looking at the withdrawal provisions of the Treaty on European Union.  Article 50 controls the process for the exit of countries from the EU. Withdrawal under Article 50 is an untested procedure, and the UK’s decision has caused a debate throughout Europe as to how it should be invoked.

European Parliament in Brussels by Zinneke - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=4421689

European Parliament in Brussels by Zinneke – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=4421689

Article 50 states:

  1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
  2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
  3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

Notice of withdrawal under Article 50 is a formal, proactive act the British government should undertake. The Brexit vote on June 23, 2016 does not constitute Article 50 notice. On June 26, 2016, three days after the UK vote, the EU issued a statement regretting but respecting Britain’s decision and asking it to proceed quickly in accordance with Article 50, stating “We stand ready to launch negotiations swiftly with the United Kingdom regarding the terms and conditions of its withdrawal from the European Union.” On 28 June 2016, the EU Parliament passed a motion calling for the “immediate” triggering of Article 50.  In contrast, in the UK, the growing consensus is that Article 50 notice should be given at, or near the end of, the end of the maximum two-year. Despite the pressure, however, the reality is that there is no mechanism to compel a state to withdraw from the European Union.

uk_parliamentNewly appointed PM Theresa May has stated that negotiations with the EU required a “UK-wide approach”. “I have already said that I won’t be triggering article 50 until I think that we have a UK approach and objectives for negotiations – I think it is important that we establish that before we trigger article 50.” She has also stated “All of us will need time to prepare for these negotiations and the United Kingdom will not invoke article 50 until our objectives are clear.”

Although there are many questions that will need to be addressed, timing is the most important. Presently the European Commission is operating under the assumption that Article 50 notification may not be made before September 2017, a sign suggesting that the government of the UK may be regretting the vote. Next in the series, we will discuss the possible plans for withdraw.

Contact TransLegal with your questions concerning Brexit and how it may impact your business.

Brexit Generates New Business Opportunities in 3 Major European Capitals

Francisco A. Laguna & Wojciech Kornacki

After our August break, today, we begin a series on Brexit.  This post focuses on potential opportunities in Europe resulting from Brexit.

Following the shocking and unexpected United Kingdom vote to exit the European Union, London is no longer considered the gateway to the European Union, and its future role in the European financial and technology markets is uncertain.  Many tech companies and international banks have begun exploring the possibility of moving to a capital on the continent to continue to enjoy the benefits of the Common European Market. This creates new business opportunities for companies seeking to re-establish certainty, cut costs and relocate to a European capital. Berlin, Warsaw and Paris each possess different qualities that make them attractive to these companies and institutions which are presently located in the UK.

Post-Brexit Aftershocks

 Right now, the UK has approximately 2 years to complete its negotiations to leave the European Union. Negotiations are expected to be very difficult, and the European Union has already made clear that it will not allow the UK to “cherry pick” only the best that the European Union has to offer. The UK’s financial sector, labor, farming and other sectors could be seriously affected by the negotiations. In order to avoid the uncertainty, some businesses have begun implementing the contingency plans to relocate to other European capitals.

Berlin

With its modern offices, low prices, and positive investment climate, Berlin seeks to replace London as the official gateway for tech companies to the European Union. Courtesy of http:// http://en.wikipedia.org

With its modern offices, low prices, and positive investment climate, Berlin seeks to replace London as the official gateway for tech companies to the European Union. Courtesy of http:// http://en.wikipedia.org

Berlin is actively seeking to replace London as a global center for financial technology. Berlin touts that it offers outstanding infrastructure and transportation capabilities, positive investment climate, substantial talent pool and office space that is cheaper than London’s. In addition, the Berlin-Brandenburg Metropolitan area alone has approximately 6 million residents from 180 nations, making it a perfect location for any international company.

As of 2015, Berlin surpassed London in venture capital investments.  It is ready to assume London’s role and be the next gateway to the European Union for tech companies and international banks. Berlin reported that it has already received numerous inquiries from many companies currently located in London.

Paris

Paris offers the largest business district in Europe that is only 3 hours away from Brussels. With its highly trained workforce and high quality life, many businesses seriously consider relocating to Paris. Courtesy of http:// http://en.wikipedia.org

Paris offers the largest business district in Europe that is only 3 hours away from Brussels. With its highly trained workforce and high quality life, many businesses seriously consider relocating to Paris. Courtesy of http:// http://en.wikipedia.org

Paris is located in the heart of the European Union and it is one of the top business destinations for some of the world’s largest international companies, offering some of the best research and development tax credits in Europe. The city also provides highly skilled professionals and a superior quality life right in the center of the European Union. Paris has already been running marketing campaigns to attract many companies currently located in the UK.

Warsaw

Many international companies that have already opened their branch offices in Warsaw are now considering whether they should establish their headquarters there. Warsaw offers an investor friendly environment with premium business locations at highly competitive prices, and with highly trained professionals. Courtesy of http:// http://en.wikipedia.org

Many international companies that have already opened their branch offices in Warsaw are now considering whether they should establish their headquarters there. Warsaw offers an investor friendly environment with premium business locations at highly competitive prices, and with highly trained professionals. Courtesy of http:// http://en.wikipedia.org

Warsaw is one of the fastest growing cities in the European Union. It already hosts many international banks and companies including the Google Campus Warsaw, opened in 2015. Warsaw’s scientific and information technology pool of professionals and innovators is well recognized around the world.

Warsaw is superbly positioned to attract many tech companies because of its business-friendly posture, low-cost modern office space and infrastructure and dynamic stock exchange. In addition to being well-positioned within the European Union, Warsaw also offers the potential to be the gateway to many countries bordering the European Union.

 

Next week, we continue our discussion of Brexit, talking about possible repercussions of the UK’s vote.

If you are interested in learning more about the Brexit, what it means for your business and the rest of the European Union, contact TransLegal or call 703-566-9427.

The African Growth and Opportunity Act Continues to Grow Trade

Francisco A. Laguna & Wojciech Kornacki

In 2000, the United States opened its domestic markets to sub-Saharan African nations. At that point, no one expected that within 14 years, Africa would be exporting over $400 billion in goods and services to the United States. Currently, with the increased competition from the European Union and China, the US and its African partners are developing new trade and training opportunities that could benefit your business.

Background

Africa

Africa

 In 2000, the United States decided to expand, simplify and diversify its trade relations with sub-Saharan African countries. In part, this was in response to the trade agreements the EU signed with 79 countries in Africa, the Caribbean and Pacific during the same period. Through the African Growth and Opportunity Act, the United States unilaterally opened its domestic markets to the African countries in the sub-Sahara so long as the African countries reformed their economies and made them more transparent, among other requirements.

The benefit for US companies was that this created many new opportunities to provide credit and technical expertise to various sector in Africa. It also allowed many American companies to benefit from new business-to-business opportunities with the African businesses. Continue reading

New Free Trade Zone between the EU and Ukraine

Francisco A. Laguna & Wojciech Kornacki

 On June 27, 2014, the European Union (EU) and Ukraine signed the Deep and Comprehensive Free Trade Area (DCFTA) agreement. This agreement established a brand new free trade zone between the EU and Ukraine. Following the continuing hostilities in Eastern Ukraine, the ratification of this agreement will be put on a fast track in the EU and the Ukrainian parliament. The DCFTA will remove customs, tariffs, quotas, and harmonize Ukrainian regulations with EU regulations. The agreement revolutionizes current trade relations between the EU and Ukraine and is likely to generate hundreds of millions of dollars in revenue and result in economic development in Ukraine.

 The European Union

The Ukrainian Assembly called ‘Verhovna Rada’ or ‘Upper House’ will have to ratify the Deep and Comprehensive Free Trade Area (DCFTA).  The agreement is expected to dramatically increase trade, but on the other hand, it will decrease proceeds from duties and tariffs.   Courtesy of http:// http://en.wikipedia.org

The Ukrainian Assembly called ‘Verhovna Rada’ or ‘Upper House’ will have to ratify the Deep and Comprehensive Free Trade Area (DCFTA). The agreement is expected to dramatically increase trade, but on the other hand, it will decrease proceeds from duties and tariffs. Courtesy of http:// http://en.wikipedia.org

Besides militarily, the EU is important to the Ukraine for obvious economic reasons. It is a supranational organization of 28 countries across the European continent. Its current population stands at over 500,000,000, which places it third behind China and India in terms of the population size. It is a single market with free movement of goods, services, labor, and capital and largely enjoys a common currency. The EU also has numerous Association Agreements with other countries, including Ukraine and Turkey. Its GDP stands at almost $16 trillion (2013), making it the second largest economy, behind the United States. According to its own statistics, the EU’s economy is bigger than that of the United States, and it accounts for 20% of all global exports and imports, exporting more than China and the United States.

Ukraine Continue reading

Sanctions Equal New Business Opportunities

Francisco A. Laguna & Wojciech Kornacki

International consumers and entrepreneurs benefit from free and unimpeded flows of goods, information, and services around the world. This allows access to the latest information to purchase the most competitive products without artificial trade barriers, embargoes, sanctions, additional taxes, duties or outright prohibitions. This also results in lower costs, more competition and innovation. The new international sanctions stemming from the crisis in Ukraine offer new business opportunities because they re-direct the flow of goods, information and services between the US, EU and the Russian Federation to other States. This post discusses the current state of globalization, the international sanctions, and how the changes in the flows of commerce may benefit other countries and businesses.

 Globalization

Recently the European Union signed new international trade agreements with Ukraine, Moldova and Georgia.  These three States have been previously included in the EU’s Eastern Partnership program, as shown on the map here.  The agreements reduce international trade barriers between the EU and the three States, and will re-direct some of the goods banned by the Russian Federation.   Courtesy of http:// http://en.wikipedia.org

Recently the European Union signed new international trade agreements with Ukraine, Moldova and Georgia. These three States have been previously included in the EU’s Eastern Partnership program, as shown on the map here. The agreements reduce international trade barriers between the EU and the three States, and will re-direct some of the goods banned by the Russian Federation. Courtesy of http:// http://en.wikipedia.org

After the end of the Cold War, many new markets emerged allowing for an international trade bonanza. The rise of the Chinese industrial and consumer market economy is the most widely known example. However, at around the same time, critics of globalization argued that globalization was only about outsourcing labor intensive products to developing countries and the so-called “brain drain”.

A recent study conducted by McKinsey and Company market analysts evaluated the actual data and concluded that there was much more to globalization than outsourcing. In its review of the study, Bloomberg pointed out that as the information revolution continues to spread, globalization has led to more knowledge-intensive products than labor-intensive goods. This, in turn, means that while sanctions may disrupt the flow of goods, the flow will not be stopped because most of the States around the world are too dependent on international exports and imports.

 The International Sanctions

 Generally, States or international organizations use economic sanctions against other countries to influence the sanctioned States to change their policies. Some examples involve the international community sanctioning Iran over its support of terrorist organizations, or North Korea since the Korean War, or Cuba since the Cuban Revolution.

During the ongoing crisis in Ukraine, the United States, Canada, Switzerland, Australia, Japan, the EU, and other States, have sought to modify the policies of the Russian Federation concerning the Russian intervention in Crimea and Eastern Ukraine by imposing economic sanctions on the Russian economy. In response, the Russian Federation imposed its own sanctions. The complete list of US sanctions against the Russian Federation is here.

 New Opportunities Stemming from the Sanctions

The newly elected President of Ukraine, Petro Poroshenko.  Here, in June 2014, he is addressing the Council of Europe in Strasbourg, during one of his first international visits following his election.  He has declared that the new EU-Ukraine trade agreement is one of the most important documents since the independence of Ukraine in 1991.   Courtesy of http:// http://en.wikipedia.org

The newly elected President of Ukraine, Petro Poroshenko. Here, in June 2014, he is addressing the Council of Europe in Strasbourg, during one of his first international visits following his election. He has declared that the new EU-Ukraine trade agreement is one of the most important documents since the independence of Ukraine in 1991. Courtesy of http:// http://en.wikipedia.org

The new international sanctions alter the flows of international trade, but do not extinguish them. While, the Russian Federal may ban imports of foods from the European Union, Russians still need to eat. The Russian Federation may threaten to refuse to sell its natural gas to the European Union, but it must find a new purchaser quickly. This creates new business opportunities because some markets may temporarily close their doors while opportunity knocks elsewhere.

Brazil and Argentina seek to increase their food and grain exports to the Russian Federation.   In addition, Russia recently signed a $400 billion natural gas delivery agreement with China, but it will take several years to implement it.

On the other hand, following the ouster of the pro-Russian Ukrainian President Victor Yanukovych, the European Union has signed new trade agreements with Ukraine. Similar trade agreements have been signed between the European Union and Moldova and Georgia. According to the European Commission Press Release, the agreements will boost imports and exports between the European Union and Ukraine, Moldova and Georgia, thus potentially re-directing some of the goods and services, and creating new business and investment opportunities. The agreement with Ukraine is expected to result in an immediate 500 million euros increase in trade. As previously reported in the TransLegal blog, Global Economy Needs More Natural Gas – Opportunities and Risks, the United States is also making preparations to sell more natural gas to the European Union.

Contact TransLegal to discuss how the international sanctions and changing flows of goods, information and services between the US, EU and the Russian Federation may affect your business.

Business Opportunities under the European Union Budgetary Framework 2014-2020

Francisco A. Laguna & Wojciech Kornacki 

Janusz Lewandowski, European Union (“EU”) Financial Programming and Budget Commissioner, forecast that the EU’s new 2014 – 2020 budget would result in 6 years of growth.  The goal of the Commission is to transform the EU into a “knowledge-intensive, low-carbon, and highly competitive economy” supported by flexible energy, transport and infrastructure networks.  The budgetary framework of € 959 billion presents ample opportunities for both EU and non-EU businesses.

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The EU consists of 28 countries.  Its economy, measured by Gross Domestic Product (“GDP”), is currently bigger than that of the United States (“US”). The US economy is estimated at $15.4 trillion (2012), while the EU economy is estimated at around $17.3 trillion, after conversion, placing it as the world’s largest economy. Continue reading