Every Exit is an Entrance to Somewhere Else: The Lowdown on Brexit

By Melissa Miller Proctor

In Rosencrantz and Guildenstern Are Dead, playwright Tom Stoppard noted as follows: “Look on every exit as being an entrance somewhere else.” This brilliantly sums up the recent Brexit decision in the United Kingdom, which will undoubtedly lead to new challenges and opportunities for companies engaged in global trade over the course of the next few years. On June 23, 2016, and to the world’s astonishment, the UK voted by popular referendum to terminate its membership and formally withdraw from the European Union. Unless a second referendum ensues, the UK will soon submit formal notification of its intention to leave the EU and begin negotiating the terms of its departure with the remaining EU member states. The UK’s exit will become final either upon the entry into force of such exit agreement or two years following the filing of its notification of withdrawal, whichever occurs first. The EU member states may also agree to extend this two-year transition period if necessary. The earliest date on which the UK could separate from the EU would be late 2018; however, it is likely that the transition toward full separation will occur several years beyond that date, if at all.
    
For the immediate future, however, the UK will remain an EU member state, and will continue to be subject to the EU laws, regulations, directives and treaties. Companies will still be required to comply with EU requirements and standards when selling their products or services within the UK and EU. UK citizens and residents will also still have the ability to move freely around and work in the EU. Further, the UK will continue to utilize the customs rules and tariff rates established by the EU, enjoy duty-free access to EU member states’ markets, and take advantage of preferential tariff treatment afforded by countries that are parties to the EU’s various free trade agreements. 
    
There are several options available to the UK with respect to its future relationship with the EU. For example, the UK could join the European Economic Area (“EEA”) like Norway, negotiate a bilateral agreement with the EU similar to Switzerland, or merely rely upon its status as a member of the World Trade Organization (“WTO”) and enter into specific free trade agreements with the EU for the continued enjoyment of preferential tariff and trade access to the EU’s market. Regardless of the model or combination of models the UK chooses to adopt over the course of the next two years, the UK’s rather long list of action items will likely include the following:

  • Develop its own national tariff schedule, which must be approved by the WTO, setting forth the duty regime that will be applied to goods imported into the UK;
  • Negotiate preferential tariff treatment and market access with the EU member states, the countries which are parties to existing EU free trade agreements, and countries that are currently in negotiations with the UK, such as Canada and United States;
  • Roll out new procedures for the import and export clearance of goods—however, as the UK is already a member of the various multilateral export control regimes in its own right, it is expected to maintain its current export control licensing policies upon withdrawing from the EU;
  • Establish UK-specific policies and measures on unfair trade practices and remedies, the Value Added Tax (“VAT”) and other taxes and fees, new standards applicable to products imported and distributed in the UK, and immigration requirements for the entry and employment of foreign nationals; 
  • Decide the extent to which prior EU judicial decisions will be allowed to remain in effect after the UK’s formal withdrawal from the US;
  • Implement its own economic sanctions programs and restrictive measures—note that the UK will continue to implement the various United Nations economic sanctions programs as it is a current member of the UN Security Council, and it is anticipated that new UK sanctions will likely align themselves with those of the U.S. and the EU; 
  • Adopt new laws and regulations for foreign direct investment in the UK; and, among other issues,
  • Enact legislation regarding the treatment of trademarks registered in the EU (i.e., whether they will be fully recognized and protected in the UK or whether they will be required to be re-filed in the UK). 

The anticipated changes resulting from the recent Brexit vote are expected to impact UK-based and non-UK companies alike. Companies engaged in global markets are advised to stay abreast of new developments in the Brexit saga, and begin assessing how the UK’s withdrawal could impact existing and contemplated agreements with customers, vendors, distributors and other supply chain partners, the continued protection of IPR in the UK and EU, future sourcing and procurement strategies, supply chain security and logistics operations, and overall investment strategies involving the UK and the EU.