Legal Disruption in EU May Cause Headaches for U.S. Supply Chain Managers

Last week’s Brexit vote has created political upheaval and a confused and uncertain global marketplace, contend leading law and supply chain analysts.

According to Ashley Craig and Lindsay Meyer (photos below), partners in the international law firm, Venable LLP,

The Brexit vote promises to have a major impact on businesses of all stripes, especially companies focused on international trade.   

Both attorneys counsel U.S. and foreign interests on transactional matters and cross-border regulatory and policy concerns, and advise clients on the new and emerging importance of homeland and transportation security initiatives.

  Mr. Craig and Ms. Meyer note the potential impact of the UK leaving the European Union for US companies:

“While according to the EU Treaties negotiations for an EU exit may take up to two years (or even longer if all Member States agree) from the moment the UK Government notifies the EU of its intention to withdraw, the simple fact remains that, once exit negotiations are concluded, the UK will probably no longer be subject to EU law, and will likely apply its own national legislation across the board”

 In such a scenario, U.S. firms operating in the UK will likely experience significant changes in a number of areas. Craig and Meyer outline below a few key areas of potential interest to U.S. businesses, including law firms.

 Trade and Customs  
A key reason for many U.S. companies establishing in the UK is the country’s access to other EU and third-country markets through the EU’s Customs Union and Free Trade Agreements (FTAs). Upon exit, the UK will likely lose such preferential access.

Accordingly, exports of U.S. businesses from the UK may be subject to duties and other kind of taxes. While the UK will likely negotiate an FTA with the EU, this will take time and will likely not match the level of preferential access that the UK currently benefits from under the current EU Treaties.

Additionally, the UK will have to negotiate its own FTAs with a number of third countries that the EU has trade agreements with, likewise losing - as a result of a weaker negotiating power - some of the benefits it currently enjoys under EU’s FTAs.

As a result, in an exit scenario, many U.S. manufacturers currently operating in the UK may want to establish themselves in other EU Member States, which, in turn, will most-likely affect the business of many UK-based service providers, including law firms.

 Banking and Insurance
 Many U.S. financial institutions and insurance companies currently operate from the UK solely because they are able to provide services across the EU from their base in the UK (so called “passporting”). Unless otherwise agreed between the EU and the UK, this will no longer be an option after a UK exit.

As a result, non-EU financial institutions and insurance companies might consider leaving the UK as a whole and establishing themselves in other EU countries (e.g. France, Germany, Ireland or the Netherlands). This will likely result in a spill-over effect on the business of other UK-based service providers, including law firms. 

 Foreign Investments  
Even before a final exit takes place, foreign and domestic investment is expected to decrease as a result of increased uncertainty as to the prospects of the UK economy,” says Meyer. “This will have a serious impact on the business of a wide range of UK-based service providers, including law firms.”

 Access to Human Capital
 Many U.S. companies have established in the UK because, among others, they access to a large pool of qualified employees from other EU countries.

According to EU legislation, EU citizens are largely free to pursue employment opportunities in any EU country, including the UK. If the UK leaves the EU, this will likely no longer be the case.

While EU citizens currently employed in the UK may be permitted to remain in the country, further migration of EU citizens will be subject to serious restrictions. Accordingly, U.S. businesses - including law firms - may experience a shortage of talent from other EU countries.

Further, many EU professionals (e.g. lawyers) are able to pursue employment opportunities in other EU countries on the basis of mutual recognition of their professional qualifications in all EU Member States.

Given the UK has decided to leave the EU, such mutual recognition might be taken away. For law firms, in particular, this would mean, for example, that UK lawyers may no longer be able to practice law in another EU Member State as admission to the Bar of that State may become significantly more difficult.