Funding, operational and trade analysis

Publication | June 2017
Funding, operational and trade analysis

Will the UK be able to replace existing free trade agreements that exist between the EU and other countries?
Will there be barriers to trade between the UK and the EU?
Will there be other factors affecting trading with customers in the EU?
How will Brexit affect companies’ operations across different EU member states?
What effect will Brexit have on companies’ funding for research from the European Union?

Will the UK be able to replace existing free trade agreements that exist between the EU and other countries?

Currently the EU is party to various free trade agreements, including with Canada, Singapore and South Korea, and there are potentially forthcoming EU free trade agreements with Japan and India. Whether they can be replicated with the UK alone would depend on whether each country (and the UK) was willing to enter into a new agreement. In terms of negotiating power, while the UK does not have the size of the EU, it is nevertheless a valuable market.

Will there be barriers to trade between the UK and the EU?

As there are a number of models for a relationship between the UK and the EU post-Brexit, it cannot be said with certainty that negotiations will result in an FTA between the UK and the EU or what level of trade liberalisation will be embedded in the final deal. The goal, as set by the Prime Minister, is to have a broad and ambitious FTA that provides the maximum possible access to the single market. Nevertheless, the possibility of trade barriers cannot be discounted, whether by way of direct tariffs or non- tariff barriers, or, more likely, different levels of VAT or equivalent sales tax. Avoiding the cliff-edge of trading only on WTO terms will be critical to minimise trade disruption.

Will there be other factors affecting trading with customers in the EU?

If EU legislation ceases to apply to the UK, it could result in a divergence in standards and regulations, both in relation to products and the delivery of services. As a result, where an entity is looking to trade both within the UK and the EU, it will be necessary to ensure that both sets are complied with, giving rise to an extra layer of complexity and/or cost to businesses. Maintaining regulatory equivalence will likely be crucial to maintaining effective market access and economic integration, although it remains to be seen how this will align with the UK Government’s stated desire to regain control of the UK’s laws and to extricate the UK from the jurisdiction of the Court of Justice of the European Union.

How will Brexit affect companies’ operations across different EU member states?

Operating an international business in several different EU member states often involves a spider web of commercial agreements including agency and outsourcing agreements. Both of these types of agreement could potentially be affected by Brexit.

While the possible repeal of laws such as the Working Time Regulations, the Agency Workers Regulations and TUPE might be looked on favourably by businesses, restrictions on freedom of movement could make issues such as obtaining preferred personnel or outsourcing more difficult.

What effect will Brexit have on companies’ funding for research from the European Union?

The UK has benefitted from EU research funding as the second highest overall recipient of such funding behind Germany and the highest recipient of funding from the European Research Council. EU funding programs such as Horizon 2020 are increasingly concentrated in the UK’s leading industries, such as aerospace, automotive, chemicals and pharmaceuticals.

Negotiations may succeed in protecting much of this funding, assuming that the UK remained a member of the EEA and was able to avoid the kind of disagreements that occurred between Switzerland and the EU, which resulted in restrictions to their funding in 2014.

Equally, Brexit (other than the EEA scenario) might result in a more permissive regime with regards to state aid and the UK could become more interventionist. However, notwithstanding Brexit, the UK would remain bound by WTO rules disciplining the use of subsidies and regulating the actions WTO members can take to counter the effects of such subsidies.


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