On 23 June the UK will hold a referendum on whether or not to leave the European union, the so called Brexit. This has been one of the most highly contentious issues in British politics for decades. It will have a significant impact on everybody in the UK. Whether that is a positive impact or a negative impact depends on ones politics and who you listen to but it will also have a significant impact on anyone who does business in or with the UK.
Why should non-British companies be interested?
It may sound like an issue only for UK companies and a long way from American shores but the Brexit idea has become a real concern for US companies with [basis] or [sniffing] operations in the UK or continental Europe. So why are we finding that US companies are so concerned about the Brexit issue? This is because there is considerable uncertainty right now over the extent to which the UK will retain access to the EU single market in the event of a UK leave vote, for example in the financial services sector providers are currently able to base themselves in the UK and use that passport as a basis to provide services throughout Europe. Another area that is causing concern with the US clients that we are talking to is whether business will retain the ability to enforce judgements in the UK elsewhere in European courts.
What will “out” look like?
One of the major difficulties for businesses is that at this stage no one can really say what the relationship will be between the UK and the EU if we decide to leave. No one can really say what “out” looks like. What we can say is this Article 50 of the Treaty in the European Union provides a mechanism for leaving the EU. Under that mechanism we would have to serve notice on the rest of the EU and then enter a period of two years to negotiate a withdrawal and negotiate the future arrangements. Its widely expected that the two year period would be extended. It can be extended by an agreement between all of the EU member states and to put it in perspective when Greenland left the then, EEC in the mid-eighties, it took around three years to do so and Greenland was only negotiating on one issue, that of fish. No one knows what type of agreement the UK would even seek if it left the European Union. Even those campaigning for leave have not been able to set out what exactly this would be. A lot of different models have been banded around ranging from Norway, Albania, Switzerland, Canada, South Korea to a plain and simple world trade organisation relationship. These different models have lots of pros and cons for example Norway is not part of the EU its part of the European Economic Area, that means that it is bound by much of EU law, it contributes to the EU budget and it accepts free movement of workers. On the other end of the spectrum Canada is close to finalising an agreement with the EU that covers a large part of the trade in goods between the two countries gradually eliminating tariffs but doesn’t provide for much in the way of provision of services.
What can companies do to prepare?
So what can companies start to do now to prepare for a possible Brexit? Because the bottom line will be effected we are advising companies to start looking now to take advice and plan as there are several practical things that can happen, for example company contracts, they will need to provide for the possibility of a Brexit. What happens for example if a counterparty can no longer provide services or if the supplying team is disrupted because of export duties post Brexit. We are already starting to see several deals being conditioned upon UK voting to remain in the EU. Also overseas companies are using the UK as a gateway for Europe and they need to think ahead if they are going to start to think about establishing a presence in the UK for example: anyone making a long term investment decision the referendum needs to be a crucial factor in that planning. There are several other areas of legal contingency planning that companies can start to do right now for example protecting in the event of Brexit in M&A transactions, real estate investments, data protection and IP in particular trademarks. The impact on each business will of course be different and we are counselling clients now to integrate Brexit planning into short and long term decisions and we are very well placed to be able to help you through that.