With Article 50 having been fully enacted, the government of the United Kingdom begins the 2-year long process of negotiating terms of exit from the European Union with its member states. UK-based organisations will certainly be among those significantly affected by this and business leaders are rightly keen to understand what this means for them in the short and long-term. Key areas that will affect many organisations are trade agreements, immigration and free movement, both of services and of people.
Over the months following the triggering of Article 50 there has been ongoing confusion amongst businesses about what Brexit will mean for them. It may have been hoped that after a month since the announcement the uncertainty ahead would begin to clear and a better idea of future proposals would come to fruition – however, that is certainly not the case.
Increased Administration and Legal Costs During Cross Border Litigation
For many organisations, the importing and/or exporting of their goods across the EU markets is a keystone of their business models. It is a system that heavily relies on common understanding and regulation when it comes to governance in trade matters across borders.
Whilst being part of the EU, the UK enjoys the benefit of being protected and subject to the Brussels regime, which states that when pursuing legal action, a claimant must first pursue litigation in the defendant’s own country. However, the prospect of what would happen once the UK is removed from the EU is still very much unclear and still presents a potentially costly and admin-intensive future ahead.
More administration costs will inevitably lead in-turn to greater cost for businesses than is currently experienced.
Whatever the result, during negotiations the UK must negotiate how, and to what extent it participates in and continues to be governed by European law. With no meaningful steerage or suggestion thereof from the UK government as to how they view the legal relationship with the rest of Europe it is hard to determine what type of deal is the ideal.
One of the possibilities if the UK decides to cut most of its significant ties with EU law an even more confusing and complex legal landscape that must be navigated in nearly all cases. With English and Welsh law potentially not carrying its current weight in Europe for much longer (in the event that the UK is no longer formally associated with it), there will be a big question mark as to how, where and in what language any legal proceedings would take.
Should this occur, then it is very likely that legal cases would be heard once in native language of the European state and in accordance with European law, and then also again in English under the guidance of English and Welsh law. Having so many different legal scenarios to prepare for, in multiple languages and possibly via multiple legal systems each with their unique nuances, an organisation’s legal fees will certainly increase significantly. More administration costs will inevitably lead in-turn to greater cost for businesses than is currently experienced.
Organisations Exporting and Importing Goods
As well as the potential of facing more legal paperwork and multiple languages to contend with, organisations who do business through the exporting and importing of goods to and from the EU will certainly face yet more change – and likely costs, too.
Whether it’s customs duties, additional taxes or tariffs, or significant changes to the declaration of goods when arriving from abroad, Brexit could very well shake up everything that UK businesses have become to know so well over recent decades. Now that the UK will likely be no longer part of the single market in the way that it is today, more checks, procedures and administration frameworks look like they will inevitably be introduced.
Compared to pre-referendum predictions, foreign investment in UK business has fallen short by 25%.
Now whilst on the most part these will not be significantly affected in the longer-term by legal charges, what will increase is the time and additional cost taken to set up and maintain these new procedures and compliances. For some of the largest multinationals, this will be an inconvenience, and one that will result in potentially huge administrative increases. However, it could be even more potent for the rest of UK-based businesses, the less well-resourced SMEs and those organisations from third countries attempting to reach European markets. For these businesses, who make up over 90% of the country’s total number of registered organisations, the threat of increased administration, professional advice and changes to an established system make for uneasy reading and a bank statement most unbalanced.
The Gateway to Europe is Closing
Despite prima facie suggestions that larger multinational organisations are seemingly better placed to negotiate the turbulence and uncertainty of Brexit over the coming years, do not take it that they too should not (and are not) be considering their options – because they are, and their opinion wields a strong presence in the ears of the UK’s EU negotiators.
For many years, organisations that are not natively based out of EU-member countries have seen the UK as a mean to provide them with a European base and allow access to the European market in a way that the likes of America, China or other global economic powerhouses do not universally share. The uncertainty of Brexit and its terms for UK businesses means that this once secure route to market is quickly becoming less and less so.
Whilst it is known that over 40% of the world’s biggest organisations have a UK office, most often in London, this may not be the case for too much longer if the UK does not brake a deal that secures favourable access to the EU marketplace for the organisations based on its shores. The likes of Frankfurt and Paris, amongst others, are knocking on the door of London in these times of uncertainty.
The big risk for the UK economy and businesses within it, is that the country’s main industry and source of foreign investment (banking and finance) suddenly becomes less attractive considering being unable to guarantee access to European markets without significant cost and process. A recent report in the press revealed that compared to pre-referendum predictions, foreign investment in UK business has fallen short by 25%. This is not a rate that the economy can afford to continue to lose. The further down the line we get without a firm outline of a resolution, the greater the risk becomes of losing out for good.
Ricardina Pedeneira is Solicitor Avogada at Ricardina Bridges Solicitors, experts in all aspects of corporate, commercial and employment law. If you or your business require more information regarding the effect of Brexit, the Immigration Skills Charge or employing migrant workers, you are encouraged get in contact viainfo@rbsolicitors.com.
This article is not designed as a form of legal advice and does not necessarily deal with every topic in this area.
Copyright Ricardina Bridges Ltd 2017
