Posted by Claus Andersen, Partner
Brexit – while we are waiting for certainty
This weekend I attended a conference in Copenhagen hosted by the Conservative party in Denmark and the Europe movement. The conference was about the implications of Brexit. The speakers included officials from the Danish CBI (“Dansk Industri”), Danish Shipping (Danske Rederier) and Dominic Schroeder, who is the UK Ambassador to Denmark.
Whilst the majority of the attendants were sad about the UK leaving the EU, there was also a profound respect for the British decision and a recognition that the most important issue now is to find a pragmatic solution to the UK’s exit from the EU, so that current trading relations are not damaged. Statistic from the conference shows that Denmark is the 15th largest investor into the UK. Danish companies employ roughly 90000 people in the UK. Therefore, Brexit should be dealt with in a pragmatic way. Dominic Schroeder, the UK Ambassador to Denmark, stressed that the UK is leaving the institutions of EU, but not Europe. Trade and security co-operation will continue.
For such post-Brexit relations to be successful, it would be useful, if present negotiations between the UK and EU could be concluded with a result, which gives businesses the opportunity to plan for Brexit and life after Brexit.
This week will see another summit between the UK and the remaining 27 EU member states about the UK’s withdrawal from the EU. It remains to be seen whether an agreement can be reached, but regardless of this companies and businesses must start preparations for Brexit.
It is worth noting that the present negotiations concern 1) a withdrawal agreement in which the UK leaving the EU is set out, including areas such as “citizens rights”, the “divorce bill” and the border between the republic of Ireland and Northern Ireland and 2) a statement setting out how the future trading relationship should be between the UK and EU. The original ambition was to conclude these points this week, but given the current disagreements, this may be difficult to achieve.
It is of course difficult to prepare in a situation, where we do not know, if an agreement can be reached, and what the terms of the agreement would include. If an agreement is reached, the agreement will in all likelihood provide some guidance for businesses. On the other hand if an agreement cannot be reached, businesses may have to begin preparations for a “No-deal” Brexit. However, even if an agreement cannot be reached this week, one should not automatically assume, that it will be a “No-deal” Brexit. There will still be time to reach an agreement later in the Autumn/early Winter of this year.
However, companies should (if they have not already done so) begin to prepare for Brexit and life after Brexit, and in spite of the uncertainties surrounding the present negotiations, there are a few areas, where businesses should be looking.
A general implication of the UK leaving the EU is, that the UK will be a “third country” in relation to the EU. This means that the UK cannot take part in the free movement of goods, services, capital and people. So for example as a starting point UK goods will be treated the same way as goods coming from countries outside the EU. Likewise goods coming from the EU into the UK will as a starting point be subject to the same checks as Non-EU goods are today. Broadly speaking, the border between the UK and the other 27 member states, which is today largely invisible, will become more visible after a Brexit.
This change in status of the UK from a member state to a non- member state is likely to be felt in a number of areas. Some of these are:
- Contractual relationships;
- Corporate structures; and
Much will depend on what (if any) agreement the UK will reach with the EU. To the extent that it is set out in the agreement, this will govern the areas. However, companies should now be looking at the impact Brexit will have for their business. I will below deal with some of the aspects of the above points in turn.
To the extent that a business relies on an authorisation from a public authority to conducts its business, it should be considered, if such authorisation is still valid after a Brexit. If not one should consider re-applying and what the process is for this, and how it should be done.
Existing contracts should be fulfilled in accordance with their terms. Brexit as such is not a ground for termination, unless that has been specifically agreed in the contract. If a contract turns out to be unprofitable because of Brexit, one should look at the termination provisions to see, if termination is possible.
Contracts which businesses are looking to enter into now should contain provision protecting the business, when Brexit becomes a reality. This could be provisions about currency fluctuations, who is responsible for obtaining the correct paperwork for import/export, payment of duties, flexible termination clauses or perhaps re-negotiation clauses.
In this process companies should also identify, where they buy their goods from. To examine your supply chain is a prudent measure, which companies should use to minimise the risk that they cannot deliver under the contracts they enter into.
Companies should consider if it would be beneficial to have some sort of presence in one of the 27 member states. This could for example be necessary for regulatory reasons or to support the present supply chain.
One of the most important consequences of Brexit is that the free movement of people will stop. Going forward citizens of the EU cannot necessarily expect to able to come and work in the UK, as they can today.
Whilst the government has been keen to stress, that it wants current EU workers to stay in the UK after Brexit, many EU workers are trying to formalise their stay in the UK. Companies may have to offer practical assistance in that regard in order to retain them.
In relation to attracting talent after Brexit, companies must now prepare themselves for a new immigration regime. In order to attract talent some sectors must be prepared to develop tools, whereby they can assist prospective employees in getting permission to work in the UK. If companies are not prepared for this, they could loose out to competitors, which have such systems in place.
So while a deal may not be agreed this week, companies should start preparing for Brexit and life after Brexit.
If you have any questions about Brexit and how it might affect your business, please feel free to contact Claus Andersen on:
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