The B words: Business fallout of Brexit

March 30, 2020

3 min read

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What's going on here?

Cabinet minister Michael Gove, whose responsibility includes no-deal Brexit preparations, has warned businesses that Brexit will cause friction at borders and divergence from the EU. Gove stated that despite the difficulties businesses will face, the government would make efforts to assist them.

What does this mean?

On 31 December 2020, the transition agreement between the UK and the EU comes to an end. Going into 2021, if a new trade deal has been agreed and ratified then the UK will start a new relationship with the EU. If there is no agreed deal, then the UK will exit the transition without a deal. At present, the government is pursuing a deal similar to the agreement between the EU and Canada (known as CETA). A deal of this kind would seek to eliminate tariffs on goods, but it does little to remove regulatory barriers and border checks. In contrast, Theresa May’s defeated deal would have resulted in the UK aligning on regulatory standards.  

Former chancellor Sajid Javid recently stated that the UK would not remain aligned with EU rules in light of its departure. This could impact businesses importing and exporting products between the UK and EU, such as chemicals, engines and food, which are required to meet certain standards. Divergence from EU rules has heralded concerns from several sectors that benefit from alignment on regulation and product standards, such as the aerospace and pharmaceutical industries.

What's the big picture effect?

Recent developments have seen Boris Johnson threaten to walk away from trade talks and resort to a hard exit on WTO terms, following Barnier’s comments that the UK and EU adopt common rules regarding environmental policies and state aid. This outcome is expected to set the economy back by 8% and is seen as a worst-case scenario by many industries. In a statement which is at odds with the UK’s position, France’s Europe Minister stated that they would not be opposed to extending the December 31 deadline for talks. 

Law firms will continue to counsel clients through this period of uncertainty, as clarity will be needed on developments and legislative changes. Brexit will lead to a short-term increase in regulatory work for lawyers, as clients seek emergency advice in relation to issues, such as whether to move parts of their business out of the UK and how a lack of alignment will impact them. Many firms have established helplines or specialist teams to guide clients through this period.

However, whether Brexit will be positive for law firms and other businesses in the long term depends on several factors, such as the outcome of a future deal, type of work and make up of clients. Large firms and businesses with an international focus are better protected than small outfits, whose main market is the UK.

A blanket approach cannot be applied in regards to diverging from EU rules. Whether a deal that prioritises divergence is beneficial is specific to industries, with some areas, such as fishing, deriving value from sovereignty and others losing out. Law firm’s with sector specific expertise will be required to guide clients on whether Brexit will benefit them and how best to mitigate potential drawbacks.

Report written by Laila Khan

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