Brexit: Contingency planning for businesses

Transcription

1 Brexit: Contingency planning for businesses d

2 How are the Brexit negotiations likely to affect your business? Defining your priorities, developing concrete proposals, communicating these to influencers and decision-makers, and planning for different potential outcomes are all now critical. Dechert has a team ideally placed to assist, with deep UK and EU legal expertise combined with practical and policy experience. We have already worked with industry bodies, companies and governments to develop their positions, to translate this into an advocacy strategy and to plan ahead. This brief outlines the key issues and the areas in which we can help. The UK government formally triggered the process of leaving the EU on 29 March 2017: in two years the UK will leave the EU (unless there is unanimous agreement to extend the deadline). By then, the UK government aims to achieve: 1. Agreement on the terms of the UK s withdrawal from the EU, covering the rights of EU 27 nationals living in the UK and those of British nationals living in the EU 27 and any UK financial contributions to outstanding obligations under the EU budget. 2. A new strategic partnership with the EU 27, including an ambitious and comprehensive Free Trade Agreement and a new customs agreement to secure the freest and most frictionless trade possible outside the Single Market and the Customs Union (there are significant uncertainties as to how far this can be concluded within two years). 3. Transitional arrangements to enable a phased process of implementation of the new relationship, to ensure a smooth, orderly exit by giving businesses time to plan and prepare. 4. A Great Repeal Bill to adopt existing EU laws as British law, and a raft of other legislation to put in place new policies and processes in a wide range of areas such as customs, trade and immigration. 5. Establishing the UK s own schedules covering trade in goods and services at the World Trade Organisation (WTO), replicating as far as possible the UK s current position as an EU member state. 6. Advanced informal discussions on trade agreements with priority non-eu countries (these cannot legally be concluded until the UK leaves the EU). This work will proceed against a backdrop of political uncertainty on the continent, with elections in France in April-June, Germany in September and Italy in early Each has the potential to have a major impact on the negotiations. If agreement is not reached on the UK s future relationship with the EU when the UK leaves, its trade with the EU 27 would be conducted on the basis of the WTO rules, requiring in particular the introduction of tariffs on goods traded between the UK and the EU 27. Attorney advertising. Prior results do not guarantee a similar outcome. Page 2

3 What can businesses learn from existing trade models? The UK government has indicated it will not adopt an off the shelf trade model, but will seek a unique deal for its future trading relationship with the EU. In the negotiations ahead, it faces a complex array of options. These will require tough trade-offs between different sectors and interests (e.g. between goods and services, consumers and business, farmers and manufacturers, and exporters and importers). Businesses have a crucial role to play in understanding what is important for their business and industry sector, and how the negotiations are likely to affect their interests, and drawing on this analysis to inform and influence government thinking as well as to plan ahead. To help understand what kind of deal may emerge, the key features of existing models of EU relationships can provide a useful framework, despite the adoption of any one of these having been ruled out by the Prime Minister. 1) European Economic Area (EEA e.g. Norway) Trade: Trade between EEA countries and the EU is free from tariffs in most sectors except agriculture and fisheries, although they are still subject to customs procedures at the EU border (however, using the Norwegian/Swedish border as an example, the customs requirements are in practice minimal). Single market: Non-EU EEA states have the same level of access to the single market for their service providers as EU member states, covering sectors such as air travel, retail, tourism, construction, business services and financial services. The ability to passport certain financial services means that banking, insurance, investment, asset management and payment services firms authorised in one EEA country can provide their services across the EEA without further authorisation. European law: Although not mandatory, the non-eu EEA members adopt most EU rules to ensure that their domestic law complies with EU requirements. Norway has incorporated approximately three-quarters of EU laws into its domestic legislation, not only sector-specific rules, but also in areas such as competition, state aid, social policy and consumer protection. Ultimately, one outcome that is certain Brexit will happen, and businesses need to prepare a strategy now to protect their commercial interests whatever the ultimate terms of a post-brexit agreement are. Page 3

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5 Free movement: The non-eu EEA members are obliged to accept the free movement of people from both EU and other EEA countries and to contribute to the EU budget. Norway has a higher proportion of EU migrants than the UK and contributes some 90% per capita of what the UK contributes. 2) European Free Trade Association (EFTA) plus Bilateral Agreements (e.g. Switzerland) Trade: Trade between EFTA countries and the EU is free from tariffs in most sectors except agriculture and fisheries, but it is subject to full customs procedures. Single market: Switzerland has only limited market access for professional services including accountancy, auditing and legal services, and no passporting rights for financial services, but has negotiated over 100 bilateral agreements with the EU giving it further non-discriminatory access in a range of sectors including some types of insurance and public procurement. European law: EFTA members are not obliged to incorporate EU regulations into domestic law but exporters to the EU must comply with EU rules, such as on the environment and safety, and any divergence risks acting as a barrier to trade. As a result, Switzerland chooses in most cases to align its domestic laws with new EU laws as they are adopted, including on competition, state aid and environmental standards. Free movement: Although in principle EFTA countries are not required to accept free movement of people from the EU nor to contribute to the EU budget, under its bilateral agreements Switzerland has undertaken to do both (it has a higher proportion of EU immigrants than the UK). 3) EU Customs Union (e.g. Turkey) Trade: Turkey has an Association Agreement with the EU and participates in some parts of the EU Customs Union. Turkish industrial and processed (but not raw) agricultural goods can enter the Single Market free of tariffs and quotas. However Turkey s bespoke customs union arrangement has meant that not all customs procedures have been abandoned, meaning trucks and goods may be stopped at border to undergo customs inspections. Trade in services is not covered. Single market: Where Turkey has access to the EU market, it is required to enforce rules that are equivalent to those in the EU including in areas such as competition, product, state aid and environmental standards. Turkey is in principle free to negotiate trade agreements with countries outside the EU in areas where it has exemptions. But its external tariffs must remain aligned with those of the EU. Thus, when the EU signs a trade agreement with a third country, Turkey must give that country access to its market on the same terms. But this obligation is not reciprocal: the third country is not required to open its market on the same terms to Turkish exports. Free movement: Turkey has no obligation to accept the free movement of people nor to contribute to the EU budget. Page 5

6 4) Free Trade Agreement (e.g. Canada) Trade: Canada s bilateral free trade agreement with the EU goes further than any previous EU trade deal, lifting tariffs on all industrial and most agricultural goods, and addressing a number of other discriminatory measures such as quotas and subsidies for industrial goods. However, certain sensitive areas remain protected (e.g. export quotas on fish, beef and pork will remain) and all trade remains subject to full customs procedures. Single market: In services, the EU is opening its market significantly for Canadian firms but a number of key sectors are not included, including audio-visual and the majority of air, transport, and there is no passporting of financial services. Canada is under no obligation to apply single market regulations. European law: Canada is not obliged to ensure that its domestic law complies with EU legislation, but its exports to the EU still have to comply with EU rules, such as on the environment and safety, and any divergence will risk acting as a barrier to trade. Many Canadian products remain dependent on approval by EU authorities before they can be sold in the single market. Free movement: Canada has no obligation to accept the free movement of people from the EU (although the agreement does involve a requirement to accept arrangements for the temporary movement of professionals working in service sectors) nor to contribute to the EU budget. 5) Association Agreement + Deep and Comprehensive Free Trade Area (e.g. Ukraine) As part of the EU s effort to strengthen ties with Ukraine, outside of its standard association agreement, both sides agreed to create a DCFTA which came into effect on 1 January This is purported to be much more than a classic FTA and aims to progressively open both markets to freedom of goods, services and capital. Trade: Trade between Ukraine and the EU has no import duties for 98.1% of EU and 99.1% of Ukrainian products. However, as it is not a part of the Customs Union, there remain customs procedures and significant non-tariff barriers for goods crossing into the EU and vice versa. Ukraine retains the ability to conclude its own trade deals. Single market: Ukraine is offered the fullest degree of single market inclusion for goods and services, to the extent that Ukraine is willing and able to implement EU single market law. The DCFTA contains provisions specifying how the Ukraine may achieve full internal market status for financial services and other service sectors. European law: The agreement also allows for extensive Ukrainian participation in the EU s many agencies and programmes, such as the European Defence Agency and the Horizon 2020 programme for scientific research, amongst others. There is also institutional machinery for cooperation at leader, ministerial, technical and parliamentary levels. A judicial tribunal of three judges arbitrates disputes and collaboration is envisaged in foreign and security policy as well as in fighting terrorism and international crime. Unlike EEA or customs union countries, Ukraine is not offered the prospect of EU membership. Page 6

7 Free movement: Free movement of persons is excluded. Instead the agreement aims at a system of work permits and visa liberalisation. 6) World Trade Organisation (WTO) In the absence of an agreement between the UK and the EU before the expiration of the two-year time limit under Article 50, the UK s existing WTO membership would provide the basis of the trading relationships. Trade: UK exports to the EU would become subject to the EU s common external tariff and to full customs procedures. The EU would only be obliged to give access to UK service providers in line with WTO rules, giving less access than the Canadian and Turkish models. European law: The UK would be under no obligation to apply EU regulations nor to ensure domestic law complies with EU legislation but, as in the other models, exporters to the EU would still have to comply with EU rules in order to trade with the single market and any divergence would risk acting as a barrier to trade. Free movement: There would be no obligation to accept the free movement of people from the EU nor to contribute to the EU budget. Businesses that are ready early with a clear, specific, well-argued set of priorities will be best placed to influence the government s thinking and to defend their interests when the inevitable trade-offs are decided. Page 7

8 How can I ensure my business voice is heard? Businesses and trade associations must understand who the key decision and policy makers are from the United Kingdom, the European Union and the wider world. United Kingdom: The prime minister and her close team are clearly the driving force behind the negotiations but not everyone is invited to No. 10. Ensuring that a business or sector has relayed a strong message to the relevant UK authorities will be crucial in trying to craft the right starting point (and red lines) for the upcoming negotiations. The key government departments and their heads are: David Davis, Department for Exiting the European Union Phillip Hammond, the Treasury Liam Fox, Department for International Trade Boris Johnson, Foreign Office Greg Clarke, Business Secretary The big picture options for Brexit and the UK s new relationship with the EU will be shaped by David Davis Department for Exiting the European Union, working closely with Brussels, other government departments and the Devolved Institutions, to understand and referee between the competing geographical and sectoral interests. The options that the Brexit department develops will have a Downing Street Theresa May Prime Minister Bank of England Mark Carney Governor of the Bank of England EU Unit: Jeremy Heywood Philip Rycroft Sir Tim Barrow, EU Ambassador Cabinet: Boris Johnson, Foreign Secretary Liam Fox, Secretary of State for International Trade Phillip Hammond, Chancellor of the Exchequer David Davis, Head of the Department for Exiting the EU Devolved Institutions Nicola Sturgeon First Minister of Scotland Arlene Foster First Minister of Northern Ireland Carwyn Jones First Minister of Wales Opposition Parties Jeremy Corbyn Leader of the Labour Party Tim Farron Leader of the Liberal Democrats Page 8

9 significant impact on the types of trading relationships that the UK can develop with those outside the EU. Engaging with DexEU will be crucial in getting a business voice heard. However, they will also draw on the expertise of the Treasury, the Department for Business and the usual line ministries in a given sector. Where particularly strategic local interests are at play, then engaging with a local MP can also help to provide additional support to business. Maintaining effective communication across all of these parties will be crucial to ensuring a business commercial position is reflected in the actual negotiations. European Union: Aside from the United Kingdom, on the other side of the table are three institutions and 27 member states representing 440 million consumers with a strong interest in defending their political and economic positions. The key institutions and those leading Brexit on behalf of the European Union are: Michel Barnier, European Commission Didier Seeuws, European Council Guy Verhoftsadt, European Parliament The Commission will draw on its technical knowledge and analysis of the EU law and how it needs to be unpicked in any withdrawal process. The appointment of Michel Barnier is a clear pitch for a more integral and political role in the process going forward. The Council has set up a Brexit taskforce under the leadership of Didier Seeuws, the chief of staff to the former President of the European Council. The 27 member states will have to approve any withdrawal deal on the basis of a qualified majority (weighted voting system usually comprising 16 out of 27 member states), but the Council is likely to only act with a consensus of all Member States. Any deal also requires the consent of the European Parliament. Whilst this may not be a loud voice in the day-to-day negotiation, the Parliament may provide a useful negotiating tool for the EU, which will have to be able to get any deal through a traditionally integrationist Parliament that will want any new arrangement to have the smallest impact possible on the wider European project. The position of Germany and France will be by far the biggest influence and the savvy industries across the EU will be making sure their voices are heard in Berlin and Paris at an early stage. The wider world: Alongside having their voice heard in the UK-EU negotiations, every firm and industry will want to be clear about the types of deals they expect to see with third countries. The UK s departure from the EU will mean that the existing EU free trade agreements that many have come to rely upon in their day-to-day business could cease to apply. Businesses should be clear now on the needs and priorities of their firm and industry to protect supply lines or access to markets overseas. Page 9

10 European Commission Brexit Task Force Michel Barnier Chief Negotiator, European Commission Sabine Weyand Deputy Chief Negotiatior, European Commission Director General of Commission Departments Jean-Claude Junker President, European Commission Martin Selmayr Chief of Staff, Commission President Alexander Italianer Secretary-General, Commission Luis Romero Requena Head of Legal Services, Commission European Parliament Guy Verhofstadt Chief liaison for the European Parliament, Leader, ALDE Group Manfred Weber Leader, EPP Group Gianni Pittella Leader, S&D Group Syed Kamall Leader, ECR Group Gabriele Zimmer Leader, GUE Group Ska Keller Co-leader, Greens Group Philippe Lamberts Co-leader, Greens Group European Council Donald Tusk President, European Council Piotr Serafin Chief of Staff, Council President Jeppe Tranholm-Mikkelsen Secretary-General, European Council Council Working Group Didier Seeuws Brexit Coordinator, European Council Page 10

11 How should businesses begin developing a Brexit strategy? The majority of businesses operating with or in the UK should have already begun: Reviewing and identifying aspects of the business that rely on, or assume the applicability of, pan-eu arrangements such as EU rules of origin and customs procedures, passporting for financial services, EU-wide medicine licenses, etc. Keeping a careful watch on the UK government statements in coming weeks and months which may give any further indications as to the UK s likely negotiating position and similarly any indications on the EU side as to its likely negotiating position and red lines. Identifying EU laws which currently impact UK operations. Identifying the nature and extent of interactions with pan-eu agencies. Considering a government relations strategy (whether directly or through an industry group). Identify key proposals or considerations. Respond to UK and EU government consultations. Considering the impact on its customer base. By undertaking the above process, businesses can begin to identify their own exposure to the effects of Brexit and as a result articulate their demands with reasoned analysis and hard data. Some tangible examples of the aforementioned process, focussing on areas that effect most businesses, can be found below. Contractual arrangements: Businesses should review their existing contracts and amend the standard terms to account for when the UK ceases to be an EU member state. Consider if your contract relies on EU regulation applicable to contractual arrangements (Rome I)? How and where will the contract will be enforced? Does your contract assume the UK is an EU member state and make references to the EU? Does your contract rely on or assume free movement within the EU? Is your contract subject to English law or Scottish law including EU law? UK businesses may wish to adjust their usual Material Adverse Change (MAC) clause to include a bespoke Brexit clause. Such provisions could anticipate the emerging negotiations between the UK and the EU, placing breaks in contracts should an unforeseen or undesirable change in the legal framework be agreed. Data protection: The new EU General Data Protection Regulation will come into force throughout the EU in May 2018 and is likely to take effect in the UK. Consider your compliance with the new Regulation particularly in terms of data rights, cross-border and intra-group transfers and the role of your data protection officer to avoid the anticipated new fines regime. In the long term, the ability of UK businesses to transfer personal data between the EU and the UK will depend on whether the European Commission deems the UK protection of personal data to be adequate post-brexit. Page 11

12 Employment and free movement: : The UK prime minister has made it clear that the UK will regain control of its borders in Brexit negotiations, but has pledged to protect EU nationals already working in the UK. UK businesses need to think carefully about the terms of recruiting staff from EU member states, whether they will be able to continue to do so with ease, and whether they are likely to find all the relevant skills from the domestic workforce. They will also need to consider UK staff seconded toeu member states, which may require additional administrative duties in the long term. In terms of existing EU legislation, the government has indicated they will protect and even enhance worker s rights (retaining agency workers legislation, Working Time Directive and the obligation to conduct collective redundancy consultation with unions or employee representatives). Environmental law: A significant number of the UK s environmental laws are derived from European Union environmental law and policy, as well as international agreements. Companies should be prepared for the possibility of regulatory changes in the years that follow Brexit. Intellectual property: Owners of any sort of IP should take steps to ensure that their rights, both in UK and in EU, will continue to be protected after Brexit. EU trade mark and registered design right owners should consider applying now for UK trade marks, in the event that pan-eu rights cease to extend to the UK. EU unregistered design right is likely to be saved albeit as a domestic design right, and EU patents are unlikely to continue to offer UK protection. Litigation and arbitration: London s position as one of the world s leading arbitration centres is unlikely to change in fact, there may be an opportunity for London to become the go-to neutral forum to resolve intra-eu disputes. UK businesses should be aware however, that Brexit could reinforce the UK s intra-eu Bilateral Investment Treaties, reducing investors enforcement risk. Businesses intending to make significant investments in countries with which the UK has intra-eu BITs are well-advised to consider structuring their investment so as to benefit from the protections that the UK s BITs could have to offer. Page 12

13 Businesses need to prepare a strategy now to protect their commercial interests.

14 What are the next steps? Dechert can assist you in developing your planning for both the current period of uncertainty and for the longer-term post-brexit environment. We recognise that this raises huge challenges and is a top priority for our lawyers. We work with our clients to build a robust Brexit strategy that will identify opportunities and maximise potential upsides of Brexit, whilst creating fall back positions that will mitigate against the adoption of unfavourable negotiating positions by either the UK government or the EU. We strive to ensure that our clients establish themselves as trusted and key interlocutors, able to present informed and reasoned solutions to key decision-makers. This will increase their standing and the likelihood of favourable treatment in a negotiation process that will create both winners and losers in industry. Dechert has a team ideally placed to help, with offices in London, Brussels, Dublin, Frankfurt, Luxembourg and Paris. In addition to deep UK and EU legal expertise, our team has practical and policy experience including of trade negotiations developed at the European Commission, the Council and a range of UK bodies including the Prime Minister s Office, the Cabinet Office, the Bank of England, HM Treasury, the Foreign Office, and the Attorney-General s Office. Through this, we have an understanding of how the UK and EU institutions operate in practice and the main personalities involved. We have already helped industry bodies, companies and governments to develop their positions, to define clear priorities, red lines and concrete bespoke proposals, to translate this into an advocacy strategy that best fits their needs, and to plan for the different potential outcomes to be faced on 29 March Page 14

15 Key contacts in London, Brussels and Paris Richard Tauwhare Senior Director, London International trade and EU law Alec Burnside Partner, Brussels alec.burnside@dechert.com Roger Matthews Senior Director, London International trade and EU law roger.matthews@dechert.com Marianne Schaffner Partner, Paris marianne.schaffner@dechert.com Richard Frase Partner, London richard.frase@dechert.com Mark Stapleton Partner, London mark.stapleton@dechert.com Doug Getter Partner, London doug.getter@dechert.com Charles Wynn-Evans Partner, London charles.wynn-evans@dechert.com Page 15

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