Leaving the European Union could have a huge effect on the regulatory environment in which the industry operates. Or it could not. It will all depend on the coming negotiations

Sheena Sood

A simple “no” to the question “should the United Kingdom remain a member of the European Union?” has caused shockwaves around the country, sending the pound into freefall and politicians running for the hills. I wish I was exaggerating. Our answer to this single question will lead to a multitude of further “in/out” decisions as we chart a course through post-Brexit Europe. A raft of laws, regulations, directives and case decisions from the EU make up a large part of current UK law. So, which existing EU-inspired laws will be retained? And when EU laws are passed, will the UK automatically reject them? Or do we only adopt those we approve? Who makes these choices for us?

The answers depend on what our post-Brexit relationship with the EU looks like. There may be a radical change in the legal and commercial landscape or the difference may only be minimal. The process for withdraw is set out within Article 50 of the Treaty on the Functioning of the European Union (TFEU). Once triggered, Article 50 provides for a two-year negotiation period during which the UK and the EU will seek to negotiate the terms of their future relationship.

So what might the potential models look like?

  • The Norwegian model The UK would become a member of the European Economic Area (EEA) and of the European Free Trade Area (EFTA). This would allow participation in the EU’s single market and the carrying out of trade and services. However, compliance with EU law and regulation and the freedom of movement may also be required. Should the UK seek to adopt this model, changes to legislation will be minimal - the UK would continue to have the economic benefit of the EU and, although it would not have voting rights on new EU regulations, there would be some ability to influence.
  • The Swiss model The UK would become a member of the EFTA only. This model is governed by a framework of bilateral agreements and provides limited access to the single market. It allows domestic legislation (to an extent) but also trade with the EU and freedom to enter into free trade agreements with third parties. This model may have a greater impact on legislation and we would expect it to take longer to negotiate.
  • Complete break The UK could potentially leave the EU and have to agree a new relationship - or run out of time. The UK could rely on the World Trade Organisation (WTO) General Agreement on Trade in Services and have access to the EU market under the WTO rules. This will increase cost for trade with the EU and it will be difficult to provide services without complying with EU regulations. This model would create huge uncertainty with regard to UK law and commerce. Alternatively, the UK could seek to join the EU Customs Union. This is the means by which Turkey maintains a relationship with the EU. This would allow the UK to trade in goods on favourable terms but not services. This would be problematic, given the UK’s strength is in services. Furthermore, there would be less EU market access as the UK would not be a member of the EFTA.

Either of the above options would necessitate a legislative overhaul.

While we will be able to negotiate our own special deal with the EU (we had one of those, by the way) and there are good reasons to have confidence in the strength of our economy - it will take time and, like in any divorce, wounds need to heal. The clock is ticking though as, if we do head into recession, as some predict, our negotiating position worsens.

Nevertheless, the first stage to any negotiation is agreeing what we, as a country, want to achieve. This will be difficult given the conflicting views during the debates both leading up to the referendum and since. However, it seems to me that a deal along the lines of the Norwegian model will be the easiest to negotiate and will result in less uncertainty. I also believe this is the best model for the construction industry. For example, the UK currently applies the EU Procurement Directives meaning that we are part of the club and can bid for OJEU work. In the event that we, like Norway, join the EEA that is likely to remain the same.

Joining the EEA should also ensure the industry can benefit from the continued freedom of movement of EU citizens to the UK. While this in itself may make the Norwegian model a harder sell, many construction firms depend on engineers, architects and construction labour from the EU due to the skills shortage in this country. Addressing the domestic skills deficit will take time, money and commitment. In the meantime, surely we want to continue to welcome skilled individuals rather than deter them by restricting free movement?

What we cannot, however, do is for business and growth plans to be put on hold while we wait to see what the outcome of the UK’s exit negotiation is. I suspect that every business will review its plans in light of Brexit but let’s do that quickly and get on with business. Companies that start planning now for a post-Brexit construction industry will be better prepared and able to get ahead of the curve.

Let’s look for the opportunities that Brexit has created and address the issues that it has thrown into focus, such as the skills shortage, getting students interested in a career in the industry, forging relationships and fostering collaboration overseas. One thing is for certain, we live in interesting times.

Sheena Sood leads the construction, engineering and infrastructure group at Beale & Company Solicitors