On March 27th 2017, the Tax and Regulations Committee – chaired by Philippe Dalpayrat – welcomed Jiri Mestecky, Partner at Kitahama Partners (Osaka) and Christopher Hunt, Partner at Herbert Smith Freehills (Tokyo) at the French Chamber for a conference on the impact of the Brexit and how companies should prepare for it.
Contrary to popular belief, without being a member of the EU a country can still be plugged in to Europe more generally. The question following the UK’s official notice of its intention to withdraw from the EU, is to what extent the UK retains economic and trade relations with the EU, including membership of bodies such as the European Economic Area (EEA).
While 72% of the population voted in the referendum (52% for Brexit and 48% against) – an impressive turnout in the UK according to Mr. Hunt – Google search data showed that in the immediate aftermath of the June 2016 referendum Britons asked in large numbers “what is the EU?”. This highlighted a concern of many in the “remain” campaign that they had failed to properly explain the work of the EU and the advantages of staying in it. Further, there is a concern in some quarters that the result of the Brexit referendum could lead to the break-up of the UK. Whilst England (with the exception of London) was generally in favor of leaving the EU, Scotland was strongly in favor of remaining. The prospect of losing EU membership because of English voters' preferences in the referendum has spurred the ruling Scottish Nationalist Party to seek another independence referendum.
Before the UK can leave the EU, the European Parliament must give its agreement (Article 50 of the Lisbon Treaty). Now that the Article 50 notice has been served (29 March), a two-year negotiation period follows. Until then everything stays unchanged, but Mr. Mestecky believes it will take much longer than two years to resolve the future trading relationship between the UK and the EU.
Short-term impacts (such as depreciation of the Pound which is interesting for potential foreign investors) and long-term impacts were then detailed, and the two speakers recommended companies to carefully consider their reasons for having invested in the UK before acting. 82% of surveyed Japanese companies expressed less confidence in the British economy, even though more than half of Japanese investments in the EU are made in the UK – language being less of a barrier. The speakers recommended that those companies which have invested in the UK or the EU form a team consisting of both internal and external Brexit specialists in order to review their exposure and strategy going forward.
A sizeable part of British laws come from the EU. Due to a lack of time, the UK will maintain all of them first then decide which to keep, reform or repeal. This represents an opportunity for foreign investors to have laws modified to their advantage. For this purpose, the UK is currently seeking investor input as to how to adapt their laws to investors’ needs.
The speakers stressed that, though the final resolution of the Brexit may be some years away, companies should begin to plan now.
You can obtain the slides of this presentation by contacting the speakers:
Jiri Mestecky, Partner
Christopher Hunt, Partner
HERBERT SMITH FREEHILLS