The referendum to be held on 23 June 2016 will offer UK voters the choice of (i) remaining in the EU, or (ii) leaving, a so-called “Brexit”. The referendum is shrouded by uncertainty, both as to the result, and what might happen if a Brexit vote does in fact happen. Businesses themselves have little or no role or influence in the vote, but if a Brexit vote does happen, businesses can and should have a significant role in what comes next. In the period of uncertainty that will inevitably follow a Brexit vote, businesses with clear and reasoned views as to what should happen next will be listened to by the UK Government and Civil Service.
If there is a Brexit vote, the UK will need to have some form of relationship with the remaining EU Member States (the “EU-27“), as well as with third countries. There is currently no legal or political framework for what these relationships will look like, but what is sure is that there will be a significant period of uncertainty. What is likely is that most (if not all) trade agreements to which the EU is a party will cease to benefit the UK, and it is unlikely that new trade agreements will be concluded with all relevant third parties by the time the UK withdraws from the EU. At some point, therefore, the UK will lose (even if only on a temporary basis) the benefit of duty free trade in goods and liberalised access to service markets with the EU-27 and all other major trading partners.
Many businesses are struggling to understand whether or not they will benefit or be at risk if the UK does decide to withdraw from the EU. Asking the right questions now will help companies identify the potential risks and opportunities that a Brexit scenario will cause for the business.
The starting point for any business should be to ask itself two questions:
1. Is the UK’s membership of the European Union an overall benefit or a disadvantage to your business?
2. How will the answer to the first question change when considering the possible alternatives to EU membership?
In order to determine the answers to these two questions, we have compiled a list of issues that businesses should begin to consider:
Does your business manufacture in the UK? If so, where does your business purchase its inputs from?
If you purchase inputs from a third country, with which the EU has a FTA, import into the UK post-Brexit would become subject to tariffs.
If you indirectly import goods into the UK, via the EU, then these indirect imports will become subject to tariffs.
Does your business import under preference?
Changes to the UK’s ability to import under preference and the rules of origin will mean increased duty and VAT.
Does your business consume services in the UK provided from third countries?
If you consume services from a third country, with which the EU has a FTA, provision of those services in the UK post-Brexit would become subject to limitations.
Where are your business’ main markets?
If you sell goods to a third country, with which the EU has a FTA, those exports post-Brexit would become subject to tariffs.
Does your business’ supply of goods/services into the EU require establishment in the EU?
UK businesses not established in the EU may lose access to rights that are dependent on an entity being established in the EU.
Does your business have many mobile employees or employees that travel/work in different locations around the EU?
Free movement of workers will not be guaranteed post-Brexit, and conditions may be imposed on the movement of UK citizens into the EU-27.
Does your business have any long term contracts which might be affected by withdrawal from the EU? What, if any, steps can be taken to rebalance rights and obligations under such contracts?
Important to understand how your rights and obligations under contracts will be affected by a Brexit. Consider contractual wording (e.g. applicability of force majeure clauses) to reduce risks.
Does your business receive any grants or subsidies from the UK government and/or from the EU?
UK funding would no longer be restricted by State Aid rules and the UK government would be able to provide subsidies to UK companies without having to notify the European Commission.
EU funding may be withdrawn for UK companies post-Brexit.
Should you want to talk through the issues in more detail and discuss the possible implications for your business then we can help. We could work through the specific nature of any impact, and analyse which options would produce advantages and disadvantages in your specific situation. We can also assist you in making arguments to HMG as to which options should be pursued.
Finally, we will be hosting a webinar on 18 May 2016 which will look at the possible implications of a Brexit vote. If you would like further details on this, please contact [email protected]