Brexit Update – 3 Months On – What to Think About Now

On 24th June 2016 it was announced that the United Kingdom has decided to leave the European Union in a shock referendum vote of 52-48 %.

Soon after, we sent out an update entitled, ‘What now and what to think about.’ This is an update to our previous bulletin.

Three months on, the continuing uncertainty proves that Brexit will be a long and difficult process with serious potential effects on business planning and prospects.

The pound is still low, but the markets have stabilized. We now have a new Prime Minister, following David Cameron’s resignation.

What This Means To Business

From our extensive experience throughout the EU and in the UK over the past 15 years, we offer the following thoughts:

1. The Political Situation: If the UK tenders an Article 50 notice to leave the EU as expected, negotiations will commence which are supposed to conclude in two years but may take many more to rearrange the UK’s relationship with Europe as well as the battery of EU laws currently applicable to the UK.  

The actual triggering of Article 50 remains up in the air with the Government determined to do so but with significant opposition from the other parties and a significant voter reluctance as well increasing the pressure for a compromise that is good for Britain but may not be achievable from the EU.

The EU announced they want Brexit done quickly but that is unlikely, and the final shape of the deal the UK can get is unclear.  The UK will want control of borders, supremacy in its own laws (rather than the European Court of Justice as final arbiter) and freedom of trade within the EU.

But freedom of trade (and movement of workers) are cornerstones of the EU which has required other countries wanting those benefits (Norway, Switzerland etc.) to abide by the EU laws the UK wants to reject.

Whether the EU will now comprise to stabilize the ‘European Project’ is anyone’s guess.

We think the EU will have to compromise or risk further ‘out votes’ which may loom in France, the Netherlands and Sweden, among other countries, where right wing parties are gaining strength and risk fragmenting the EU further. However, some countries may feel that the adverse European reaction to the UK’s decision may deter them from taking a similar path.

The ‘Brexiter’s in Parliament may be more conciliatory to the idea of something similar to a Norway type solution (if it will be offered) for free trade in exchange for many of the things (including free movement of labor) they opposed in the referendum.

2. The Future of the UK: The new government will have the challenge of having the obligation to see through a review of 40 years of EU laws with a Parliament whose majority was opposed to exiting the EU.

The situation may be further complicated by Scotland (which with Northern Ireland was one of the two major regions voting to Remain (other than the London area)) who were threatening a new independence referendum which polls show is not supported conversely (yet)  by the majority of Scots. Scotland vowed to try to block implementation of the Leave vote in Parliament in the meantime.

In short, while business can count on EU laws remaining in place for the near term, what laws will govern in the future and as directed by what party or parties remains unclear as well. This creates more uncertainty for business planning.

3. Immediate Business Impact: The UK economy will undoubtedly suffer.  There are clear impacts predicted and evident from anyone who works in this economy: Inward investment is predicted to shrink, commercial property markets may face difficult times (as evidenced by the initial precipitous fall in construction stocks), and new investment in people in existing businesses within the UK may be threatened.  Also unless the pound recovers, all input costs on goods and materials purchased from abroad may rise significantly. 

However, in the short term, whilst the pound is weak, companies that export may benefit.

More importantly for businesses which are using the UK as a corporate nerve center and also selling point of goods into the European Union, the free movement of personnel and of tariff free goods and services will be under threat. These obvious concerns have already induced major financial institutions and other foreign industries to consider their future within the United Kingdom.

What To Consider and Do

If your business is planning to open, invest or increase investment in the United Kingdom, you should be considering the following:

1. Whether to launch or continue new investment in the UK including manpower.

2. Rearranging existing allocation of personnel, service centres and back office to EU countries (as the low hanging fruit of corporate reorganization which can be done rapidly).

3. Identifying alternative venues from a business, tax and corporate for major EU operations.

4. Reconsidering transfers of high level management to the United Kingdom and shifting those to other centres.

5. Identifying key selling entities for rearranging the sale of goods and services within the EU going forward to stabilize  quickly revenues and operations to maximize profitability and minimize future disruption and uncertainty.

6. Reorganization of UK operations to concentrate for the future on the UK as a single distinct market with a powerful economy punching above its weight but not necessarily the springboard as it is now into a market of 500 million people.

7. Focusing on key acquisitions of new resources within the EU as new or additional bases for future EU business.

8. Rearranging contractual norms including commercial agreements, employment contracts, data protection arrangements and distribution and agency networks to take into account likely new structures for conducting business in the EU.

9. Increasing investment in identification of new resources and personnel within the EU to service future business.

10.  Making sure all decisions are backed by sound legal, tax and regulatory due diligence and planning.

Be aware that consider means planning and not panic. We are not advocating abandoning the UK as a place to do business – far from it – but the  issue will be for what business and what part of your business ?

Our Best Guesstimate

We still believe that the EU as an institution will have to compromise despite the rhetoric to the contrary and provide the United Kingdom a fair platform to continue to trade with the EU and also remain a partner with the EU although outside the current structure just as Norway and Switzerland have, but with more ‘outsider’ privileges than those countries currently enjoy as that is ultimately in the EU’s best interest for political and economic security.

The problem is that this can take a long time and business cannot sit still in the meantime. 

Therefore businesses which have not made contingency plans should start doing so right away and consider immediately investments on the drawing board and also the efficacy and efficiency of their UK operations and ultimately what they want out of the UK and the EU for the next five to ten years and plan accordingly.

As for the UK and its business environment, on the legal horizon, no one can tell you what UK law will look like other than that the status quo remains for the next year or so.

On the prospects of the UK outside the EU, we remain confident that the United Kingdom will continue to do well in the global economy and indeed could use Brexit as a starting point to a more dynamic, less regulated economy provided that it can focus on entrepreneurial measures and deal effectively through such an economy to satisfy the concerns of the more ‘state centered’ governance approach of the still important Labour party and SNP in Scotland.

How We Can Help

Transatlantic Law International provides business law and regulatory support throughout the EU and UK as part of its +95 country global business law service.

As Brexit issues involve legal aspects including trade regulation and important tax consequences, we can, with our access to EU regulators in Brussels and relations with the top global and European accounting and tax advisory firms, provide not just legal solutions but also multijurisdictional and multidisciplinary teams to examine all aspects of any business review confronting Brexit across the continent and assisting businesses in planning alternatives from the simplest of steps to the most complex solutions.

These include:

1. Organizing corporate commercial and tax reviews of new potential structures for investment in Europe.

2. Opening new offices as well as restructuring and transferring labor forces across the EU including top management contracts and expat assignments.

3. Rescaling existing UK operations including renegotiation of commercial and property commitments.

4. Helping target and acquire new footholds in the EU economy from small businesses to major cross-border acquisitions and joint ventures.

5. Undertaking targeted studies of regulatory and trade issues and likely outcomes in future UK – EU negotiations for specific products and services.

6. Providing you with a complete EU-wide team of country advisors to focus on key issues affecting your business as the post Brexit era commences.

7. Being a one stop sounding board for specialist questions and a resource to insure you have the best advisors on tap for specific issues or larger projects arising from these changes.

The landscape has changed, but we remain ready to assist you navigate the new geography as we always have.

We hope this is helpful and look forward to hearing your thoughts and views on these momentous events.