Tim Maloney is a partner at the international law firm Dorsey & Whitney. Maloney, who advises clients both in the public and private sector in all issues related to Brexit, believes that:
- The prospects of either trade deal being successfully concluded in the time available are not good:
- Businesses should be extremely sceptical about either of the UK Government’s aspirations being achieved. The UK certainly does not hold the “trump card” in those negotiations.
- The EU does not have a hard deadline. It has said that negotiations will not commence until March and, if the UK insists on its 31/12/20 exit deadline, they would need to be concluded by the summer to allow sufficient time for ratification by individual member states. The EU appears not to appear to regard a “No Deal” exit by the UK as a credible threat: the UK represents 15% of the EU’s exports whilst the EU represents 45% of the EU’s. It is suggested the EU may be running down the clock deliberately to force the UK to make concessions.
- It is conceivable the UK may be able to secure a non-comprehensive trade deal by the time of its stipulated deadline. This might conceivably cover limited categories of goods such as pharmaceuticals and motor vehicles plus possibly cyber-security. It appears to be generally recognized by the EU and the UK (certainly by the Bank of England) that there would be insufficient time to discuss a trade deal in relation to services.
- The prospects of a UK/US Trade Deal seem even more remote either in the short or the longer term, in spite of the President’s warm words in Davos and even though it represented one of the main reasons for the UK leaving the EU.
- This is the first trade deal the UK has negotiated in 40 years. The UK will be negotiating with experienced hard-nosed US trade officials, who will drive a hard bargain and seek to pry open UK markets e.g. pharmaceutical procurement ad agricultural products.
- What steps should corporates be considering?
- The Confederation of British Industry has advised the UK Government that neither the EU nor the UK is ready for “No Deal”. However, businesses need to plan for that potential scenario and to conduct a root-and-branch evaluation of their operations.
- In developing contingency plans, businesses will need to prioritize by deciding what actions need to be taken now (e.g. whether to list in the EU or the US), what can be deferred, what actions might be left and where they should remain flexible if the political landscape changes, examples include:
- The financial services sector: more than 1,000 banks, asset managers and insurers from the EU have announced plans to open offices in post-Brexit UK Britain. They have applied to the Financial Conduct Authority for temporary permission to operate in the UK after Brexit so that they can continue to serve their UK clients to cover the possibility of two-way access between the UK and EU coming to an end following the expiry of the Transition Period.
- Ernst & Young has this week reported that large UK-based financial services firms have implemented plans enabling them to continue operating in the EU. This will involve approximately around 7,000 positions being relocated from London to the EU, and a further 2,400 jobs being created and hired locally in their new EU hubs.
CTMfile take: The advice on what corporates should do about Brexit has changed little over the last 2-3 years. But as the UK government blunders on they will start to discover the realities:1) the UK has little bargaining power, 2) the large trading blocks, like the EU and the US, will now play hardball, and 3) trade agreements take a long time to negotiate. Meanwhile, corporates will suffer.
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