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Critical Analytical Note (CAN)

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WikithalonSeptember 5th, 2016
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Brexit is the new hotch potch super star. It seems that Brits were clearly not wary of the membership that had been achieved after two veto rejections by France way back in the 60s. However what concerns us here is the legal procedure for Brexit and subsequent economic implications and arrangements. In order to understand the same, we need to look at the exit procedures that maybe adopted.

As per U.K.’s legal arrangement referendum is not binding on the government. (This was a referendum of similar nature under the EU Referendum act, 2015) The government might decide otherwise, but looking at the political environment it is highly unlikely. If the U.K. government decides to exit European Union it will have to invoke article 50 of the European Union Treaty. This article can only be invoked by a member country and not by the European Parliament. Invocation of this article sets off a two year period called the sunset period in which the terms of demise are discussed. Further, Article 50 does not provide for a legal basis to withdraw decision to leave. Hence, once invoked, Article 50 will make demise of UK certain from the EU. However, the real tricky part is that this article has never been invoked before and hence exact procedure and outcome can only be speculated upon. It was only Greenland that has ever left EU, but that was way back in 1982 before Article 50 was inserted in Lisbon treaty in 2007.

Another possible manner in which UK can leave the EU is by British Parliament reappearing the enabling European Communities Act, 1972. This will mean UK’s unilateral withdrawal from the EU without a sunset period.

From the business and markets perspective the former is better. It will take into account interests of different stake holders and may work out an arrangement accordingly. As per the popular media a possible solution is an arrangement similar to one that EU has with Switzerland. This might be similar to arrangements within European Free Trade Association. However, considering the fact that EFTA provides for free movement of people and one of the primary reasons for Brexit is immigration, arrangement on these grounds seem grim. Hence, if Article 50 is invoked, the new arrangement will depend on negotiating power of the two countries. This will be further made interesting by evolving political equations in UK (Scottish and Irish!) On the other hand a unilateral withdrawal is highly unlikely. For the businesses a possible implication would be that already signed deals and negotiated agreements will be frustrated due to the frustration of purpose. Along with new legal arrangements new business arrangements will have to be evolved.

Thus, present picture is unclear because Article 50 has never been invoked and future arrangements will be governed by negotiations that are yet to happen. Hence, we cannot conclusively establish outcome and much of it depends on the outcome of negotiations between UK and EU.

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