What is the position?
Since the UK voted to leave the European Union in June 2016 much has been written and discussed. Commentary has ranged from the childish to the provocative and from the ill-considered to the (sometimes) insightful and interesting.
Perhaps this is because, at this stage, we can still only speculate on the consequences and effects of the vote, and many organisations are waiting to see what emerges now that Article 50 of the Lisbon Treaty has been activated and the UK has given formal notice to the EU to commence the timetable for exit. This process itself, technically, takes two years. However, many political and economic commentators are advising that the full process could take much longer than this, maybe ten years, maybe longer.
This latter view, however desirable or undesirable, seems likely to be correct given the extent to which our laws, regulations, and economic activity are now woven into the fabric of the European model.
Plan and manage risk
It is crucial for businesses to make plans and manage risk. Even if organisations do not themselves trade with European firms they may still have customers who do, and in any event this is about more than direct trade. Businesses that buy parts or materials from Europe, for example, will be affected by exchange rates and this may push up the cost of production and supply. Similarly businesses that export to Europe will want to take full advantage of those same exchange rate fluctuations to make hay while the sun shines.
Our advice is to use this time of uncertainty to plan your strategy and prepare for changes to come. This process should take into account the over-arching imperative to minimise risk to your business. Specifically, the following may be helpful as a starting point:
As a first step businesses which would suffer heavily from a loss of trade with the EU should carry out an analysis of that trade and the risks which the current position presents. For example, would the imposition of standard world trade tariffs (“SWT Tariffs”) make your products uncompetitive in EU markets? If so, are there any steps the business can take to improve its margins? Such steps would obviously benefit both EU and non-EU exports.
If you believe that the imposition of SWT Tariffs on your business’s EU trade would significantly reduce EU trade volumes, could the business replace this trade by exporting to other non-EU countries where competition and, therefore, pressure on margins might not be so fierce?
Commercial agreements with suppliers and customers should be audited to ensure that wherever possible they provide protection and would operate effectively in a post-Brexit, SWT Tariff trading world. Do the company’s standard trading terms provide any protection against currency fluctuations? What do the standard trading terms say about EU regulations? These issues will not be easy to address at present, but it is worth reviewing them particularly in relation to new business. The business needs to watch out for and be aware of possible changes in the regulatory regime in which the business operates.
Does your business rely on the supply of materials or products from EU countries on a just-in-time basis or provide its services to EU customers on that basis? If so, the company may need to plan an alternative strategy which would enable goods or materials to be stored in the country where they are likely to be needed in order that the company can keep to the just-in-time model. Border controls in the future may mean that this cannot be done so easily across borders.
Does your business regularly recruit employees from overseas? If so, the company will need to watch the development of new immigration controls carefully and develop policies to match the requirements of any new system so as to minimise any difficulties that may later be experienced in bringing in the right employees. The company will also need to consider more widely any changes to existing UK employment rules.
In short there are probably no areas of business management that will not be affected by Brexit. Organisations will benefit from early planning and risk assessment.
We have been part of the EU (and its equivalent predecessors) for more than 40 years; that’s a long time and in that time, we have built up a complex and binding set of trade rules and procedures. Extracting ourselves from this will be complicated and, as with any change, there is likely to be some pain – it is important for all businesses who rely to any degree on EU trade to minimise that pain by planning early and putting a risk strategy in place.
As matters develop and the extraction process unfolds, our specialist lawyers will continue to provide advice and practical guidance on the impact points that we foresee for businesses and how best to mitigate those risks.