Brexit 2018: The Final Preparations

by Dechert LLP

Dechert LLP

2018 is the year that the UK and EU will look to finalise their Brexit deal; to settle the trading arrangements for what could be a lengthy ‘transition period’; and start discussions on the shape of their future long-term trading relationship. All will have a significant impact on firms who should be looking to shape the outcomes of those discussions, mitigate the potential risks on their business and finalise the nitty gritty preparations that Brexit will require.

Last month, the UK and EU settled the outline of a Brexit deal. Later this month, EU Ministers will formally agree to start negotiations on a transition deal and talks on a future trade deal may start as early as March this year. The ambition is to have the Brexit deal, transition and future “heads of agreement” settled by October 2018. The UK is also aiming to ensure that, post-Brexit, it continues to benefit from existing trade agreements with other countries around the world and is starting to shape new agreements. All of this is alongside the domestic UK regulation that will be required, not only to translate EU law into UK law, but also to deliver new UK-specific policies in areas such as immigration, sanctions and customs at the time of Brexit.

If that timetable is to be met the substance of negotiations will have to be completed by the summer of 2018, if not before. Time is therefore very limited. Industries and individual companies are planning for all scenarios and with little clarity from the negotiations to date everyone will need to have a clear plan in place. Whether this involves reaching out to government and helping shape the outcome of Brexit negotiations, or preparing your business for whatever approach is (or isn’t) agreed, you need to advance your plans now.

Ultimately, there will be winners and losers from the Brexit negotiations; those that offer clear, informed and substantiated negotiating positions to UK government will be viewed as credible interlocutors and will be best positioned to influence both current and future government policy. Therefore, understanding the impact of Brexit on your sector and your business has never been more important to help plan for the future business environment; to manage risks and maximise opportunities; to make clear to your workforce and investors that you are prepared; and to work for the outcome that best meets your needs.

How Should UK Businesses Develop or Enhance Their Brexit Strategy in the Coming Weeks?

  • Review and identify aspects of your 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 licences, etc.
  • Understand the actual (or likely) position of the UK, the EU Governments and EU institutions on the contents of the exit agreement, as well as the ambitions for the future UK-EU trading relationship.
  • Establish what the UK’s baseline obligations in the WTO and other international bodies means for your business.
  • Identify EU laws which currently impact both your operations and that of your wider industry.
  • Consider a government relations strategy (whether directly or through an industry group). Identify key proposals or considerations. Make these reasoned, evidence-based, granular and ambitious, while taking account of political realities. Respond to government consultations.
  • Consider the impact on your supply chains and customer base.
  • Look at the nuts and bolts of your business including your data protection obligations; contractual terms; employment rights; intellectual property plans; and ongoing litigation.
  • Establish what training or technology to put in place to meet the challenges

Specific Areas to Consider:

Tariffs and Customs: Consider how the introduction of tariffs on goods traded between the UK and the EU, and between the UK and countries with which the EU has (and may soon have) a free trade agreement, would affect your business and supply chains. Where should the UK government strike a balance between exercising discretion to revise the standards applicable to your products to suit UK interests and, on the other hand, maintaining equivalence with EU standards in order to retain mutual recognition and avoid the need for conformity assessment by EU bodies? Review how you would manage the introduction of customs declarations, inspections, import value-added tax (VAT) payments and (where applicable) licensing and other requirements on UK-EU trade, including compliance with rules of origin requirements. How far do you want the UK to make improvements to the Union Customs Code to suit its national interests, for example by relaxing the criteria for qualification as an Authorised Economic Operator, at the risk of losing mutual recognition of UK customs standards by the EU?

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 will be incorporated into UK law. In parallel, a new Data Bill is being considered by the UK government during the next parliamentary session. Businesses should consider their compliance with the new EU 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.

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 to EU Member States, which may require additional administrative duties in the long term.

General Regulation: A significant number of the UK’s laws are derived from European Union law and policy, as well as international agreements. Companies should understand whether their interests lay in regulatory alignment or divergence with the EU regime and be prepared for the possibility – and the potential risks and opportunities – 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. An EU registered design right is likely to be saved albeit as a domestic UK design right, but EU patents are unlikely to continue to be offered 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 (BITs), 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.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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