Many organizations view Brexit primarily as a tax matter — a question of how much duty they’ll pay to access the UK market or import UK goods. Both the UK and EU want to sign a free trade agreement that could set tariffs lower than the maximum rates set by the World Trade Organization or eliminate them all together, according to Marc Bunch, our Global Trade Leader UK and Ireland. (The UK and EU currently have no tariffs on imports between the two jurisdictions.)
Some European industries that are heavily reliant on UK manufacturing, including the automotive, aerospace, engineering and life sciences industries, could face additional tariffs post-Brexit, according to the report Brexit — the Voices of European Business. That’s because the EU currently levies tariffs on goods and parts in which a significant component is produced outside the single market, and in the future, this could also include products that are partly manufactured in the UK.
While businesses can and should lobby officials to make clear what they would like to see in any future free trade deal, there are other questions to understand and address today. These issues will ultimately determine tax outcomes and make certain that businesses can still use their existing operations.
“The duty you’re going to pay is tomorrow’s question,” says Bunch. “There are more important questions for today, like whether you are going to be able to get goods in and out of the country come March 2019. The UK border is not going to be ready for this.” In the pharmaceutical sector, for example, the future challenges aren’t with duties — the EU has zero most-favored nation tariffs for pharmaceutical products, according to a 2017 report from Bruegel. However, there are other non-tariff barriers that could affect the pharmaceutical industry, Bruegel noted. New types of compliance requirements and delays at the UK-EU border could make pharmaceutical products more expensive for UK residents and lead to lower trade.
In addition, European organizations with research and development (R&D) functions that are based in the UK could be affected by any changes to intellectual property protection arrangements between the EU and UK, according to Bruegel.
The coming negotiations between the UK and the EU on the free movement of people between the two jurisdictions also has ramifications for any European businesses conducting R&D in the UK.
“European companies have put a lot of critical research centers in the UK, and it’s going to be very important that they still have the ability to hire and retain talent,” says Paris-based Marc Lhermitte, who heads our International Location Advisory Services for the European region. “Highly skilled personnel need to have the mobility to move in or out.”
European businesses across all industries will need to work across many departments to handle the change.