DCN October Edition 2019

Ian Ackerman
been unsuccessful as the UK isn’t quite sure
what it will (or can) offer.
BUSINESS UNCERTAINTY
As you would expect this has led to
massive uncertainty in the UK business
community and in the overseas
community which trades with the UK.
That uncertainty is taking a real toll.
Investors have reportedly withdrawn
$4.2bn from UK equity funds since late
May with capital outflows of $29.7bn since
the Brexit referendum in 2016.
According to research by the Bank of
England with about 6000 companies, that
uncertainty had lowered capital spending
on average by about 11%. The research
claims to have found a direct and causal
link between Brexit and lower investment.
The research estimates that the level of UK
productivity by between 2% to 5% over the
three years since the referendum, possible
due to work time being dedicated to post -
Brexit planning.
Other research by Make UK
(representing UK manufacturing) has
reported that UK manufacturers are halting
investment in their businesses, with even
stockpiling activity now being subdued,
leading to concerns over whether the sector
is less prepared than six months ago at the
time of the last Brexit deadline. The same
research indicated that domestic orders
are falling and that export orders have
also dropped, even though the potential
weakening of the UK currency may make
UK exports more attractive.
PERILS OF UNCERTAINTY
Uncertainty is anathema to investment
and business decisions, not just in the UK
but anywhere in the world. When you add
in the uncertainty of the US v China trade
war, disputes around access to the South
China Sea, possible moves against Iran
together with adverse economic results
then the Brexit issue does not actually
support ongoing investment whether
financial or in the purchase of goods, plant
and equipment.
Many Australian companies use the
UK as a base to enter the EU or use the
EU to enter the UK market. Either way,
the current convenient arrangements
for movement of goods, services and
employees between the EU and the UK
could be cancelled or varied. That has an
adverse impact on business continuity and
financial viability.
Whatever government and industry
says about the need to prepare for Brexit,
the ongoing uncertainty and posturing
gives parties cause to do the opposite.
Unfortunately the lack of preparation of
those parties will also affect those who have
prepared, unless some “two speed” clearance
arrangements can be entered into.
WITH WHOM SHOULD WE NEGOTIATE?
The delays and uncertainties over Brexit
have a major impact on our ability to
negotiate a free trade agreement with the
UK or to conclude discussions on proposed
new visa arrangements. Those negotiations
cannot start in earnest until the UK has
left the EU and there is certainty around
the timing or terms and conditions of that
departure. That position can become worse
if there was an election in the UK followed
by a change in government or change in
position of the current UK government.
The current trade negotiations with
the EU may well be affected, through the
uncertainty of just which countries will
Investors have reportedly withdrawn $4.2bn
from UK equity funds since late May
be in the EU. That leaves open how to
deal with the possibility of the deal being
completed while the UK is in the EU but
then leaves the EU or UK leaves the EU
without a deal and the EU is not clear on
border arrangements with the UK.
RECESSION FEARS
The impacts of Brexit on the UK and the EU
are likely to be significant. Some research
suggests that a recession in the UK will
follow a “no deal” or “hard” Brexit. At the
least there will be adverse financial and
economic effects on the EU and the UK.
The EU and the UK are already major
trading partners with Australia so
economic adversity in those countries
will have an adverse effect on Australian
companies relying on those markets for
some or all of their revenues. It is clear
that the Brexit uncertainty is already being
factored into business investment decisions.
Moreover the uncertainty is not limited to
financial and economic issues. There will
Andrew Hudson, partner, Rigby Cooke Lawyers
also be legal issues in having to manage
border controls between UK and the EU
where there have not been border controls
for many years. Australian companies will
need to separately document entry to and
departure from the UK and the EU which
has not happened before.
DIFFERING APPROACHES
There potentially will be different
standards in both markets for all manner
of goods and services. There probably will
be different quarantine obligations and
different obligations to pay customs duties
and other clearance fees.
The UK has now created its own
“trade remedies” regime so that there
could be dumping and countervailing
duties imposed on Australian goods
exported to the UK that are seen to
cause material injury to UK industries.
All of this also creates multiple new
compliance obligations keeping in mind
that political assurances rarely translate
into legal protections.
FINAL THOUGHTS
The best advice I can provide at the
moment is to remain informed from
reliable sources.
DFAT and Austrade are providing
assistance as are the UK government and
even the New Zealand government through
a dedicated web presence. There are a
number of reliable news sources online that
are also worth utilising.
Stay tuned to commentary in the DCN.
You may even wish to get legal advice here
and overseas.
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