All companies should prepare for the possibility of UK leaving the European Union

The decision on whether or not the United Kingdom should leave the European Union is now less than three months away.

On June 23 the British public will make a choice on one of the most controversial and strongly debated issues in British political and economic history.

Even outside Europe, all businesses may be impacted by the UK exiting from the EU in a so-called Brexit and, therefore, they need to plan accordingly.

As the big day approaches, the war of words between the Remain and Leave campaigns is escalating almost by the hour. The UK Treasury recently published a 200-page report on the possible economic consequences of a Brexit. It warns of a seismic and long-term reduction in the prosperity and prospects of the country, of business and of individual families who, it claims, would lose on average £4,300 (Dh22,857) per year.

Meanwhile, on the same day the report was published, Michael Gove, the lord chancellor and secretary of state for justice and a staunch advocate of the Leave campaign, accused the “Remainers” of treating voters like children. He suggested that to remain in the EU would condemn the UK to being “held as a hostage locked in the back of a car driving headlong towards deeper EU integration”.

With so much claim and counterclaim, trying to ascertain the impact that change in Europe would have on the business community is a daunting challenge.

With that in mind, the law firm Pinsent Masons has developed a guide called Brexit: create your own certainty. As its name suggests, the guide argues that the uncertainty creates a natural temptation to do nothing about it until it is known. But that temptation should be resisted by any organisation that has suppliers, customers or operations within Britain and the EU.

There is plenty of planning that can be done ahead of time, even now, and businesses should not lose sight of the potential opportunity, as well as challenge, that comes with possible change. The guide identifies the areas where such planning can benefit businesses and offers practical advice on measures that can be implemented.

Why is this relevant to the UAE and the Middle East?

First, a large number of businesses in the UAE will have customers, suppliers, operations or investments in the UK and Europe. Trade agreements that exist between the UAE and EU may cease to be applicable to the UK if it leaves. Further, if the UK does vote to exit, there is every possibility that other EU members may seek to do the same amid signs of growing discontent with the union. Even if the UK votes to remain, the EU may become a more complex operating environment as other states follow the British example and seek their own carve-outs and exemptions.

Second, a large number of British businesses have a significant presence in the Middle East through regional offices. They, too, stand to benefit from proper planning by their UK headquarters.

Third, anyone trading with such businesses, irrespective of their nationality or domicile and whether or not they are trading directly with the UK or through an international office, has a vested interest in whether their trading partners or suppliers have planned ahead. They may even want to enquire politely if they have done so, to give confidence that they are properly equipped for the future.

Particular issues UAE organisations may wish to consider are the impact of currency fluctuations affecting both the euro and the pound triggered by a “leave” vote. Those with exposure in that regard may wish to consider amending payment terms to be governed by a different currency, and/or converting any reserves held in those currencies.

Another key area of uncertainty is the type of trade arrangements with the EU that the UK could end up with in the event of a Brexit – and the time taken to negotiate them. This is not just a question of what terms the UK reaches with Europe, but also whether it will need to seek new bilateral arrangements with third-party countries.

The UK’s position as a destination for inward investment may also be impacted. The UK government’s aim to protect the City of London’s competitive position and upcoming elections in France and Germany will make for difficult negotiations. No European political leader will want to be seen as having strengthened the UK. Organisations would be well-advised to consider what impact such uncertainty would have on current and future investments and begin building contractual flexibility into arrangements with trade partners.

By the same token, businesses would be well advised to review the key contracts, especially any which specifically reference the EU, as the territory governed by the contract may lack clarity. Would the contract still cover the UK because it formed a part of the EU at the time it was signed; or would the departure of the UK essentially redefine the meaning of EU in the contract? Also, if, following a Brexit, goods were exported on the basis of the World Trade Organisation rules, who would be liable to pay for any tariffs that may be due? It is unlikely that a blanket answer to such questions could be handed down by either the EU or the UK government and so each contract will potentially be open to interpretation.

In an environment where the only certainty is uncertainty, it is important for all businesses to gain a greater sense of clarity around the issues that matter to them.

Sachin Kerur is the head of the Middle East region for the law firm Pinsent Masons.

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