After much anticipation, on Wednesday 29 March 2017, the UK Government gave formal notice of the UK's intention to leave the EU. The UK and the other EU 27 Member States now have a two-year window in which to negotiate arrangements for the UK's withdrawal.
Most organisations we have spoken to have taken an active decision on whether to conduct detailed Brexit contingency planning or, alternatively, to stand back and adopt a "wait and see" approach. Those who have opted to make detailed contingency plans have generally formed a Brexit team, with members who are able to:
- Assess best-case (Brexit Lite) and worst-case (Brexit Hard) scenarios (business analysts);
- Look at impacts on cross-border trade in goods, services, data, IP etc, and tariffs and taxes (trade, data, IP and tax specialists);
- Run the numbers and test financial controls and accounting policies and procedures (accountants);
- Advise on legal - including regulatory - changes, structuring issues and potential workarounds, and run legal diligence, including reviewing existing and prospective material contracts (lawyers and compliance teams);
- Design and test new systems (IT specialists);
- Consider implications for staff (HR teams);
- Manage reputation and deal with market positions (PR, IR and brand teams); and
- Engage with Governments/trade associations (public affairs teams).
In light of what we at Allen & Overy are hearing from our clients, industry bodies, and Government and EU representatives (both within and outside the UK), it is clear that there is still an opportunity for businesses to seek to ensure that their interests are properly understood and represented by those negotiating the Brexit package, on both the UK and the EU sides of the table. This short paper sets out in eight key points some of the strategies parties may wish to consider deploying to make the most of that opportunity.
1. Work out your RAG rating
Many of those who have a Brexit team in place have now made good progress in running their analysis on the effects of both a best and worst-case Brexit on their economic activity within and outside the EU (and on the businesses of those in their supply chain). This mapping exercise will hopefully have identified areas which are:
- Unlikely to be affected or where the effects are likely to be at a de minimis level or capable of being worked around (GREEN);
- Likely to be materially affected or where a workaround is available but that workaround is itself complex/material (AMBER);
- Likely to be significantly affected or where effects are unknown but potentially significant (RED).
Given limited time and resource on both the business side and the side of the bodies with which businesses are likely to want to engage, it makes sense to focus attention and efforts on those areas that this exercise reveals as being likely to have the most significant impact.
2. Engage with the UK Government
Although the UK Government is now turning its attention to the conduct of the negotiations, it is still listening to stakeholders and there are still opportunities to engage with the UK Government with a view to ensuring that particular issues, or particular sectors, are given a high priority as the negotiations progress.
3. Ensure your UK Governmental engagement is effective
Our experience to date of the UK Government's approach suggests that:
- Where you have been able to identify particular areas of concern (ie the areas on your RED list), these should be at the front and centre of any Government liaison, even if you also make wider points about your preferred position.
- You should keep your messages simple and repeat them when you have the opportunity to do so. UK Government representatives do not always have practical experience of the way in which particular sectors and industries operate. They are also hearing from a vast range of interested parties, so key messages can get lost.
- The UK Government is likely to have to trade on points to reach an overall deal. So it is worth thinking about how to position your individual concerns within your sector more generally.
- You should tread carefully on seeking sector specific concessions. These will need to be compliant with international trade and anti-trust laws and the EU Commission is likely to look closely at anything that resembles a subsidy.
- If you have identified opportunities that Brexit may create for your business, make these known - the UK Government is still keen to hear about any potential upsides of Brexit.
- Indirect approaches via engagement with industry or sector groups may well be helpful. This can be time consuming, particularly where there are a range of different bodies considering similar issues, but industry bodies can be very influential. Ensuring your voice is heard in multiple groups may help in building a consensus and is also sensible because it can be difficult to predict which body will end up being most effective in its engagement with Government.
- Complaining about the referendum result or the additional workload that falls on your organisation does not go down well - it is the same for everyone.
4. Engage with EU Member State Governments
Consider engaging with EU 27 Governments and MEPs. Particularly for those whose principal operations are in a Member State outside the UK, this may be the most effective way of ensuring that your voice is heard.
5. Remember the role of non-EU Governments
Do not forget the role that non-EU Governments may play into the process. The widely publicised 15-page "message to the UK and the EU" produced by the Japanese Government at the start of the G20 Summit in September 2016 is an important reminder that Governments outside the EU may be willing to seek to influence the Brexit process, which means that there may be merit in engaging with non-EU Governments too.
6. Beware local lobbying rules
Where you are engaging with Governments, ensure you comply with local lobbying rules.
7. Monitor the negotiations
Ensure your Brexit team has a plan in place for monitoring developments during the negotiations, so that you are able to assess and advocate your position rapidly as those negotiations evolve.
8. Monitor the transposition of EU law into UK law
The UK Government has just published a White Paper on its widely discussed plans to put in place a "Great Repeal Act" to implement Brexit at a UK level. The Paper indicates that the principal aims of the Act will be to (a) repeal the UK statute that currently gives direct effect to EU law in the UK; and (b) transpose EU law as it stands at the moment of exit into UK law, to ensure there are no significant gaps in UK law immediately post-Brexit and maintain legal certainty.
The transposition process envisaged in the White Paper rightly recognises that there cannot be a simple "cut and paste" approach as in some cases EU laws will no longer work post-Brexit and in others there may no longer be reciprocity, which may mean it is not in the national interest, or workable, for that law to continue to apply. Amendments will therefore need to be made and businesses (and in particular regulated entities), will need to monitor and scrutinise proposed legislative changes to assess the practical implications for their businesses and, where necessary, to seek amendments or swift rectification of any errors.
The task ahead for the UK and the EU 27 teams negotiating the UK's exit is a formidable one. The next few months will be a critical window in which businesses can ensure that they are prepared for Brexit, and that their strategic concerns are given due weight by key decision makers.