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Brexit

Brexit—pitfalls and opportunities for multinational companies—part two

REUTERS/Dado Ruvic

The United Kingdom (UK) and the European Union (EU) have officially parted ways on 31 January 2020. Next is negotiating a trade deal with significant implications for companies that do business in EU member states, during the transition period, and soon-to-be former member states.

To consider the impact, Thomson Reuters turned to John Grayston, who has practiced EU law in Brussels for 15 year and in 2007 founded Grayston & Company, an independent law firm specializing in EU regulatory and trade law.

You indicate the commitment to move forward with Brexit creates opportunities for companies. Can you elaborate?

Although there are lots of problem areas, there are also potential opportunities here. At the end of the 11-month transitional period that started 31 January—and unless otherwise altered by a trade deal—the UK has said it will change customs duty rates and the scope of anti-dumping measures. This means some trade with the UK will be free of such duties when, for the rest of the EU, imports would be subject to both customs duties and anti-dumping duties. There is surely an opportunity here.

What are the challenges for UK companies to maintain access the EU market?

There are certain structural things that they will need to do after the end of the transitional period in order to establish themselves with an EU-based presence. Only companies with an EU presence will be able to act as importers. Similarly, European companies who want to continue to sell into the UK will need to make sure they’ve got a suitable presence in the UK, whether it’s a branch or a subsidiary or whatever, to undertake imports and exports and make sales.

Is that a critical component, a physical presence?

Well, yes. Let’s take if you’re a US business with a distributor in the UK and your distributor is responsible for importing in the UK—nothing is going to change. On the other hand, if your UK distributor has also been selling to other EU countries, and Ireland would be a classic example, then your distributor will now need to create a presence in Ireland in order to continue to supply its customers directly. It’s not something that you can totally contract out to third parties. Third parties will do the logistics, but you need to have a presence. You will have to consider the UK as a separate location so you will then have to decide, Do I need a presence in the EU?

What about EU member states?

Let’s say I would have Belgian companies who have been selling into the UK from Belgium. They want to continue to sell to their customers in the UK. They don’t want to ask their customers to act as the importer because if they ask them to do that, they would probably become rather disinterested in the offer and would go to somebody else. So, they will need to set up a presence in the UK so they can act as an importer in the UK, or, alternatively, appoint a distributor in the UK to do that on their behalf. I think those are the, let’s say, structural issues.

What are some of the other business implications?

Another thing to look at is UK companies producing or selling to countries that are outside the EU on the basis of EU free trade agreements. For example, the EU-Korea agreement, EU-Canada, and EU-Japan.

For the purposes of these agreements, as of the 31 January 2020 at 11pm, the UK is no longer a member state. The EU has agreed that during the transitional period the UK will continue to benefit from these arrangements, but the third country involved also has to agree. For example, South Korea and the UK have already agreed that the terms of the EU free trade agreement will be continued during the transitional period and beyond until the UK and South Korea negotiate a new free trade agreement.

But Canada has not formally said it will carry on CETA (the Comprehensive Economic Trade Agreement between Canada and the EU) during the transitional period. Though everyone is expecting it to. I recently asked someone on the UK negotiating team, though, and they said, “no, we’re still discussing this aspect”.

I don’t think, at the end of the day, it’s likely to end up in a major dispute. I think something will be resolved. But let’s put it like this: the uncertainty of how it affects producers in Canada who are selling to consumers or to intermediaries in the EU, in the UK, under CETA, also affects UK producers who are exporting to Canada.

If the UK and Canada do not reach an agreement, companies would need to consider how best to alter their supply chains. There are a couple of relatively easy work-a-rounds, but nothing that would match the simplicity of applying CETA directly.

What can companies do now to minimize their risk and seize opportunities?

The first thing to do is to keep watching! The story is far from over.

The reality is that companies have to plan in advance and the only logical approach is to take a worst-case scenario approach—which is generally the no-deal hard Brexit. Plan for this and then anything else will be a bonus.

Of course, the problem here is that for many companies this involves very considerable investments with no certainty that they would be necessary. For many companies, the default position then becomes ‘wait and see’.

If change is to bring new opportunities, we need to look at the UK. It will be in the UK that changes to customs and trade defense measures will take place. Industry will also need to focus on the detail of the EU-UK trade negotiations as well as the UK-US negotiations, should they start in earnest.

As the Brexit ambiguity continues—there is one certainty—2020 promises to be a busy and challenging year.

 

Amidst the changing nature and complexity of Brexit, arm yourself with the tools needed to navigate the changing legal landscape with confidence. For more information on Brexit resources click here.

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