However, what is common for most companies is that the consequences of Brexit and the UK’s exit will be extensive, both in the short-term and long-term. Accordingly, it is necessary to analyse how the UK’s exit may affect the individual business. Only then will it be possible to consider what types of risks and possibilities the company faces.
On 23 June 2016, the United Kingdom voted to leave the European Union. The decision by the UK to leave the EU has resulted in uncertainty, speculation and several issues concerning the result. Following both protracted and difficult negotiations, a withdrawal agreement has been negotiated which is intended to govern how the parties will go their separate ways. The agreement is a condition precedent for an ordered UK withdrawal, although the agreement’s status is currently uncertain. There is a significant risk that the United Kingdom will leave the EU on 29 March 2019 without an agreement, a so‑called “no deal Brexit” with extremely serious consequences as a result. Substantive negotiations concerning how future relations between the EU and the UK will be handled have not yet commenced. However, it is already possible at this stage to assess the possible alternatives.
Swedish companies with any form of exposure to the United Kingdom will be affected by Brexit and in many cases these consequences can be significant. How an individual company will be affected is of course dependent upon the company’s operational area. However, what is common for most companies is that the consequences of Brexit and the UK’s withdrawal will affect both the short-term and long-term. In addition to the completely new regulatory framework which is intended to handle the relationship between the EU and the UK, Brexit will also entail changes within the EU. In order to handle these changes, it is necessary for companies to analyse how the UK’s withdrawal from the EU can affect their operations. By understanding the situation in more detail, it will be possible to consider the risks and the possibilities which follow from the withdrawal.
The majority of business relations which in some way involve the UK will be affected by Brexit. The consequences of a UK withdrawal can be extremely far‑reaching and will affect, in principle, all parts of a company’s day‑to‑day operations including:
- Export and import of all forms of goods and services, including all import and export licences, customs issues and origin rules.
- Data processing, including transfer of personal data.
- Transfer of all forms of assets.
- VAT and other tax issues.
- Competition rules, including issues concerning state aid and public procurement.
- Financial issues, including insurance issues.
- Different forms of regulatory licences which are required to conduct operations on the UK market – for example, in conjunction with export controls of products with any dual use products.
- Intellectual property rights.
- Business regulation from a broad perspective, including everything from telecommunications and pharmacy regulation to rules governing import and export of waste.
For companies with some form of exposure to the United Kingdom, this means in turn consequences for their clients, customers, suppliers, subcontractors and other relations which are significant for the company’s operations. Not least, all contracts which a company has entered into with a UK counterparty will be affected. For example, the following aspects may be affected:
- The function of supply chains.
- Interpretation of contracts which are affected by EU regulatory provisions.
- Licences issued by public authorities in accordance with EU regulatory provisions.
- Regulation which constitutes the basis for the ongoing operations.
- Data transfer.
- Requirements governing export or import licences.
- Tax planning.
- Work and operational licences.
In addition to the immediate effects which Brexit may entail for Sweden’s relations with the UK, the UK’s withdrawal will also cause a change of the EU. Sweden’s chief ally and defender of free trade is in the process of leaving an organization which risks becoming more protectionist and more bureaucratic. This is completely contrary to what many Swedish companies desire.
In addition, these consequences can occur within the immediate future. If the United Kingdom leaves the EU on 29 March 2019 without a withdrawal agreement – a “no deal scenario” – then we are facing a potentially devastating state of affairs. Even an ordered withdrawal can have far‑reaching consequences and time is short. The preparatory work must be commenced, or at least intensified, as soon as possible.
Preparations in three stages?
In order to avoid a catastrophic scenario for the company’s operations, it is necessary for all companies which are exposed to the UK to handle the changes which Brexit may entail. It is necessary to understand the consequences and to prepare for the risks or the possibilities which the UK’s withdrawal from the EU entails. There are three overall stages to take into account in this preparatory work.
- The exposure which the company has towards the UK must be analysed. It may seem to be self‑evident that a company is well aware of this exposure, but, on many occasions, it can be far more extensive than it may appear. All executed contracts which are affected by the relationship to the United Kingdom should be reviewed, including relations to customers, suppliers, advisers and insurance providers. All planned contractual relations, investments and similar operations should also be reviewed.
In addition hereto, it is also necessary to evaluate the indirect effect of the company’s relations to the UK. For instance, companies should start looking for alternative suppliers and subcontractors outside the UK.
Another aspect is the strategic assessment of the exposure to the UK in the long-term. This analysis includes, among other things, a review of what the company has to take into account in the context in contracts which are entered into for a term of 5 or 10 years in order to secure the long‑term advantages and to ascertain what alternatives are offered elsewhere within the EU or in countries with which the EU has a trading agreement.
- After having analysed and assessed the exposure which the company has to the United Kingdom, this must be placed in relation to the relevant regulatory framework. In this case, it relates to a significant extent to EU law, which also constitutes the rules which will be affected directly by the UK’s withdrawal. Parts of this regulatory framework have different provisions for countries within the EU and other rules for countries outside the EU. As regards the relationship to the UK, these changes can have serious consequences. It is also the case that parts of the regulatory framework which the companies currently comply with do not have any corresponding provisions for countries outside the EU. In those cases, the relationship will be completely replaced by another form of regulation. In addition, a comparative analysis needs to be made as to how free trade agreements entered into by the EU will affect exposure to the UK, which may be very important in relation to supply chains.
A legal analysis of the regulatory framework and how this affects the regulation of the operations, contracts and disputes is of course entirely determinative for the company as well as a central part of the preparatory work which is required.
- The third stage in the work which the companies need to take is to lobby parties which will negotiate the manner in which the future relations between the EU and the UK will be formulated. This state of affairs will be decisive for the companies’ operations in and towards the UK. It is possible to affect both the Swedish and the British governments and also the EU (the European Commission) in order to thereby manage a development which is beneficial to one’s own operations. In the UK, this lobbying is fairly common and one of the reasons as to why the British government has realized the seriousness and understood how important the interests of the companies are.
Small and medium‑sized companies may lack the resources to lobby the government in question, in which case their case can be pleaded by interest organizations such as, for example, the chambers of commerce or Swedish Enterprise.
Erik Lagerlöf, Professor of law,
Associate, EU and competition,
+ 46 (0)70 714 31 66, email@example.com