The result of the British referendum has shocked the whole world. However it must be remembered that an official withdrawal from the EU has not taken place yet, changes in laws, regulations, taxes and other legal conditions are difficult to estimate at the moment. In any case it can be assumed that these changes would lead to additional costs and work efforts for both sides, the UK and the European Union.
Experts have estimated the trade volume (mostly import/export of goods and commodities) between the United Kingdom and the EU to about 1196 billion euros before exit.
In terms of subsidiaries, there are estimated 1,300 German subsidiaries in the UK and 25,000 British companies with a branch in Germany with an overall of 2.6 million jobs.
In a worst case scenario, the UK leaving the European Market will likely mean that UK companies will no longer be able to get into EU market on a cross-border or branch basis and vice versa. There are no immediate changes, the UK will continue to be a full member of the EU for at least 2 years in which new agreements must be negotiated between the two parties.
In the short term, UK regulatory laws should remain correspondent to the EU regulations.
But for the future, there are various conceivable models for the definition of the bilateral relationship like the Turkish way by means of an EEA membership or like Switzerland by bilateral agreements or by independent free trade agreements, which all will change the current way of doing business.
Risk factors for companies with branches in each others territory:
- increasing bureaucracy and higher administrative expenses, even with conclusion of expected agreement for facilitating the economic relationship between UK and EU,
- higher fluctuations in foreign exchange rates, which influences directly the product pricing and increases the competition pressure,
- revaluation of supply chains to be eventually made on the basis of their risk assessment (costs and delivery times, standards and regulations),
- higher logistics costs for intercompany transport as a result of burdensome customs procedures.
Risk factors for companies with marketplace in each others territory:
- territory specific requirements may lead to specific testing and certification request,
- high import duties with direct impact on selling prices and marketing,
- preference of the products manufactured in the own territory with effect on the sales market,
- risks for freedom of movement for workers with influence to the possibility of commitment of employees within the European Union.
Conclusions
The legal and regulatory position will undoubtedly be more complex as careful analysis of each jurisdiction will be required in the absence of new treaty access rights. Given the additional bureaucratic burden as a result of the more comple legal and regulatory framework, which is to be expected after the exit of the UK from the EU and its associated additional costs, it is already, in this early stage, advisable, especially for manufacturing companies, to prepare for reorganisation as the probability of a restricted access to the EU internal market as well as the British market is quite high.
In order to position the company for the future successfully in the changed market, current operating organisations and companies structures need to be reconsidered and examined in the respective territories.
