Brexit is now a fact, what's next for businesses?
Last Thursday, Britain voted to leave the EU. Whilst some saw the chance to reclaim sovereign powers from Brussels, others witnessed the real risk of being left out from the single market. How to make the most out of Brexit?
At the moment, the results of the EU referendum are merely advisory and not legally binding. Hence, the UK Parliament needs to ratify the referendum results to start the withdrawal process. Once this is done, the Prime Minister should invoke Article 50 of the Lisbon Treaty, which lays down the procedure governing how an EU Member State can withdraw from the Union.
British Chancellor George Osborne has made it clear that the UK should only trigger article 50 once the UK has a “clear view about what new arrangements” are being sought with Europe. Regardless of EU Member States’ calls to start negotiations as soon as possible to avoid a political vacuum, it is likely that UK-EU negotiations will only start in September at the earliest. Hence, both parties should have time to duly prepare the negotiations. Given this timeframe, it is of utmost importance that businesses start engaging with both the EU and the UK government as soon as possible to be able to drive (or at least steer) part of the negotiations. Moreover, businesses should prepare for any eventuality. By staying up-to-date with the UK-EU negotiations, defining corporate strategies going forward may become easier.
British companies with interests in Europe are the ones who stand to lose most. Negotiating free-trade agreements with Europe generally takes years, so there might be market uncertainty for a long time until such agreement is reached. In the event the UK retains access to the single market, it will also have to comply with EU rules without being able to shape or vote on them. In addition, given that the renegotiation process needs to happen within a 2-year frame and involve many important issues such as migration, free circulation of goods and the potential delocalisation of City-based businesses, there is a risk of some sectors being overlooked, and legitimate concerns not reflected upon. British businesses should protect their interests and engage with both the UK government (and its cross-party Brexit taskforce) –on the potential trade deals it can agree with the European counterparts and the sectors that should be part of the negotiations –and with the European institutions on the future rules which could end up affecting them.
For European companies having their European hub in London (or any another British city), some sort of divestment is expected until the UK position and future in Europe is clearer. Ultimately European companies seek access to all Member States and if article 50 is triggered and trade negotiations cannot reach a satisfactory outcome for the UK, it will be difficult to argue having a European hub based in a British city. In addition, both divestment and “delocalisation” to another European country might prove an expensive exercise. Albeit the so-called “divorce” is purely political, it has a lot of economic ramifications. For these reasons, it will be crucial for UK-based European companies to engage with both sides and remain updated on the next steps of the negotiations with a view to define their own business strategies. Businesses ought to speak up ahead of the negotiations to avoid being adversely impacted by a trade agreement that is not fitting.
Several options to Brexit are being rumoured (incl. non-ratification by the UK Parliament, or a Norway-like agreement with the EU), yet what businesses shouldn’t need to cope with is the constant uncertainty regarding the different options. The consequences of Brexit will depend on how quickly the UK kicks-off the negotiating process with the EU and how both parties go about it and, unfortunately, only time will tell.
I personally wouldn’t recommend businesses to react rashly to Brexit news. Yet at risk of sounding repetitive, I would urge businesses to keep engaged with both the UK and EU decision-makers to get early information on changes affecting their sector, influence upcoming negotiating terms on different issues ranging from access to the single market and free movement of services to financial or agricultural policies, and secure stability for the market.
Putting in place the right strategies for each individual business (and business sectors) and implementing them a.s.a.p. can make the difference between having an advantageous trade deal which takes account of the specificities of the business and allows companies to operate OR not even being considered in the trade deal, which could lead to a loss of profitability at best and serious hindrance of business operations at worst. To make the most of Brexit, businesses must act now.
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