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06th November 2018

Brexit Briefing: Impact of Britain’s exit from the EU on non UK businesses

The impact of Brexit will not only be felt by businesses in the UK but also those in Europe and around the globe. Below are some of the key questions for businesses and their advisers to consider.
What is the timing and terms of Britain’s exit from the EU? The UK has served notice to exit the EU and that exit will take effect on 29 March 2019. It is intended by the UK government that terms of withdrawal will be agreed amicably and there may well be a transition period but so far both sides have not been able to reach agreement on various matters of principle let alone the detail. A ‘no deal Brexit’ is not seen as a good scenario for either the UK or the EU and many commentators believe this to be an unlikely scenario.

What is the impact on EU businesses? There are a range of possible outcomes of the current Brexit negotiations. At one end of the spectrum is what has been dubbed a ‘Norway-style’ deal whereby the UK would join the European Economic Area and the European Free Trade Association and could take advantage of already negotiated EU trade arrangements. At the other end of the spectrum is the UK leaving Europe with no deal agreed in which case the trading relationship between the two would fall back on World Trade Organisation rules. There are a whole host of permutations in between and the added complication of possible transitional arrangements which may be put in place. The impact of any deal agreed with the UK (or of a no deal situation) would vary across the countries in the EU whose major concerns with Brexit range from manufacturing supply chains to agricultural tariffs and fishing limits. All EU countries could be affected by citizens returning from the UK and possible cuts to the EU budget. Whatever the outcome of the negotiations, it is almost certain that the legal and regulatory landscape for businesses in Europe that trade with the UK will be more complex and, once the deal is clear, swift advice and preparation will be needed.

What is the impact on non-EU businesses? It is likely that the UK will no longer fall under the umbrella of negotiated EU trade agreements and so individual agreements will need to be negotiated by the UK government. Those negotiations could take some time to come to fruition and negotiations are unlikely to start in a meaningful way (or possibly at all) until the UK has exited the EU. In the case of the United States, Donald Trump’s chief trade negotiator recently stated that a new ‘cutting edge’ free trade agreement would be put in place as soon as the UK was ready to negotiate. However, despite the willingness to negotiate, the detail is likely to take some time to agree and, in the meantime, there will be a period of uncertainty.

Despite the uncertainty there are some areas which businesses and their advisers in the EU and around the globe should be considering now.

Is the UK still a stepping stone to doing business in Europe? Currently the UK is seen as a gateway to Europe and non EU businesses have been comfortable with setting up branch offices or distribution centres in the UK in order to do business with Europe. It is intended by the Government that agreements will be put in place to allow this to continue. However, in the meantime, there is a potential for a double whammy of trade tariffs as goods coming into the UK could face first one set of tariffs and then a further tariff when they enter the EU customs union from the UK. In addition, the EU single market rules are unlikely to apply to the UK (possibly after a further transition period) and any businesses currently relying on UK regulatory authorisation as sufficient for the whole of the EU may need to seek authorisation within the EU following Brexit. Any business which is regulated in this way should already be considering how it will be authorised to operate after Brexit.

Impact on trading relations with UK entities. Existing business arrangements involving UK businesses may become unworkable and/or expensive overnight and the question will arise as to whether the contracts that govern those arrangements can be re-negotiated or even terminated. The answer depends on the particular terms of the contractual basis of the arrangements. However, generally changes in economic circumstances have not be seen as sufficient to trigger a right to terminate under what is known as a ‘force majeure’ clause in a contract dealing with circumstances beyond the control of the contracting parties. It is advisable to review such contracts now with a view to negotiating more flexible terms to deal with the current uncertainty and the possibility of a no deal Brexit.

What is the impact on employees? Where businesses have EU nationals working in their offices in the UK there have been some encouraging signs that these employees will be able to continue to live and work in the UK as presently. The EU Exit Settlement Scheme sets out a process whereby generally speaking EU migrant workers living and working in the UK by the end of 2020 can apply to live and work in the UK indefinitely once they have been resident in the UK for 5 years. Businesses with EU workers in the UK should ensure eligible workers have full information to safeguard their immigration status. As regards future recruitment and relocation of staff from or to the UK from EU countries, that will almost certainly be harder to achieve after Brexit than before as free movement becomes a thing of the past. Identifying those in the workforce who may be affected by these changes is vital as they may be able to apply for citizenship or permanent residence in the UK which would allow them more certainty about the future.

What about intellectual property rights? The UK and the European Commission have agreed a number of transition terms in respect of IP rights, which are intended to remain in effect until 31 December 2020. The holder of an existing EU trade mark or registered design will become the holder of a comparable registered and enforceable right in the UK, free of charge. Similar rules have been agreed in relation to pending applications, and those subject to opposition or revocation proceedings. The European Patent Office is not part of the EU, and Brexit will not affect patents granted through the EPO system. The future of the unitary patent remains uncertain. As always, we recommend a business keeps its IP portfolio under regular review, particularly to ensure its rights are maintained after the UK exits the EU.

Enforcement of legal judgements. Currently judgements handed down in the UK almost always enjoy automatic rights of enforcement throughout the EU. Following Brexit, enforcement rights will depend on the local laws of the EU country in which the judgement is to be enforced and there will be different criteria applied in each country. Brexit will not affect the mechanism whereby judgements given in countries outside the EU are enforced in the UK. The currently applicable reciprocal arrangement, if there
is one, will continue to apply without change after Brexit. International arbitration is likely to continue to increase in popularity and the framework set out in the Arbitration Act 1996 will not be affected by Brexit.

This is an outline of the current position and may change incrementally or drastically depending on the progress of current negotiations. Appropriate legal advice must be sought before taking any action. Please visit our website for further details.

For any questions please contact Emma Shipp emmashipp@hewitsons.com

This document is written as an outline guide only and any action should not be based solely on the information given here. Appropriate professional advice should always be taken in specific instances.
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