As the US’s 7th largest trading partner prepares to leave the EU, how can businesses prepare?
Getting to Brexit
On June 23 the UK voted to leave the EU. Although some would say that the referendum result is not binding on the government, the new Prime Minister has firmly stated that Brexit means Brexit. Article 50 is expected to be triggered in March 2017. Last week the High Court indicated that the decision to trigger Article 50 will have to be given with parliamentary approval rather than executive order. This places an additional and important hurdle in the path of the UK government in delivering Brexit. If Article 50 is triggered we can then expect at least two years of negotiation to follow, allowing plenty of time for businesses to assess and manage exposure to any potential risks. The long term effects of Brexit are uncertain but it will affect different industries in different ways.
Assessing exposure early
US businesses can consider identifying and assessing how they interact with the EU. The 2013 Transatlantic Trade and Investment Partnership shows no signs of being concluded any time soon. As a member of the World Trade Organisation in its own right, the UK trades with the US under the EU’s schedule of agreed arrangements. Whether the UK will be entitled to continue to trade using such arrangements or whether it will have to forge new arrangements is still to be decided.
President Obama has indicated that his government’s priority is to forge an agreement with the EU first before making arrangements with post-Brexit UK. How the president elect Trump views the situation will undoubtedly be of considerable significance to what Brexit could look like, with support from the US being pivotal in negotiations with the EU.
Brexit - hard, soft, open or closed?
The key to these terms is access to the EU single market. There continues to be much debate as to whether the UK will negotiate a ‘hard’ or ‘soft’ Brexit, but there is some consensus on what each approach would entail:
- Hard Brexit - the UK has no access to the single market and no freedom of movement of labour.
- Soft Brexit - the UK has some form of subscription to the four freedoms (goods, capital, services, and people) and possibly the Customs Union.
Single market access is key for US banks and financial services firms. They have expressed concerns so this will be a critical issue for the UK government to consider.
While the pound has fallen sharply against the dollar, the FTSE index reached a new high. The current low level of the pound makes investing the UK attractive and there has been little impact on deals and market activity. Any material change to the position of The City of London in the short term is unchanging, so potential transactions need not be delayed.
Helping businesses to manage risk
We can help businesses prepare risk assessments and can keep them under review as events unfold. We understand that the detail of Brexit will affect each industry and organisation differently. For tailored guidance and advice contact Graham Bushby or Ian Williams.