The message from the new Prime Minister could not be clearer, the UK Government is committed to leaving the EU on 31 October deal or no deal.
The default legal position as set by the Article 50 process is that unless the Prime Minister requests an extension from the EU the UK will leave the EU on 31 October 2019. This coupled with the significant increase in the seriousness of the new Government’s commitment to leaving the EU on October 31, deal or no deal, means that falling out on no deal terms is a likely outcome which companies must take seriously.
techUK has identified a number of key areas where our members may face challenges in the event of no deal if preparations are not made. These relate to:
- Sending and receiving personal data to and from the EU
- The end of the free movement of people
- Exporting and importing goods to and from the EU
- The provision of services within the EU
- Meeting business regulations if you do business in the EU
- Accessing funding provided through EU institutions
- Disruption at the borders with the EU and chemical goods
- The overall economic impact
Below we set out what are the risks, what steps can be taken to reduce disruption and where further guidance can be found:
Sending and receiving personal data to and from the EU: In a modern economy the flow of data is an integral part of trade and business. Businesses hold the data of their customers and employees and use it to manage operations, customise market services, fulfil orders and communicate in a wide range of ways.
The transfer of personal data is tightly regulated in the EEA and requires a very high level of protection. The transfer of such data is relatively simple inside the single market because they are protected and policed by the EU’s unified data protection regime. Even where the sender and receiver of data are in different EEA states, both states are bound by a common data protection framework where the transfer is treated as having taken place within a single jurisdiction. This is supported by common data protection rules applied within the EEA, the General Data Protection Regulation (GDPR).
When the UK leaves the EU the UK will leave this common data protection framework and therefore companies operating in the UK will have to take extra steps to ensure that data sent to and from the EEA is given sufficient protections. This is in order to satisfy the rules contained within GDPR that cover data transfers to states which are outside the EU common data protection framework and who have not received an adequacy decision from the EU.
An adequacy decision from the EU allows data to be transferred to and from the EEA without any further safeguard being necessary. Adequacy decisions from the EU take time and if the UK is to leave the EU without a deal there may be a period of time where extra safeguards will be needed to allow transfers of personal data to and from the UK to the EEA. These safeguards will need to be provided to comply with GDPR rules.
The ICO have provided guidance for UK companies who transfer data to and from the EU which can be accessed here (ICO guidance). We strongly advise that members who transfer personal data to and from the EEA and have not taken steps to introduce alternative mechanisms contained in GDPR such as Standard Contractual Clauses (SSCs) or Binding Corporate Rules (BCRs) to read the ICO guidance and make necessary preparations.
These steps should be taken well ahead of exit day on 31 October 2019 as the UK’s membership of the EU’s common data protection framework will end at the point the UK leaves the EU.
Further guidance on international transfers under GDPR can be found here.
The end of the free movement of people: When the UK leaves the EU the free movement of people will end. This will have consequences for EU citizens resident in the UK and those who come to the UK after a no deal exit.
For those EU citizens who have not confirmed their status a no deal exit is likely to cause significant confusion and we strongly recommend the business leaders make EU citizens aware of the UK Government’s EU Settlement Scheme ahead of October 31 which can provide a roadmap to identifying their immigration status and rights to remain if the UK leaves the EU without a deal (the settlement scheme can be found here).
For information on EU citizens coming to the UK after a no deal exit day, for example coming to the UK to visit, study, work or join family, please see the following Government advice here. This arrangement will enable EU nationals to continue to travel on a short-term basis for work or to provide ‘fly-in fly-out’ services in the UK after a no deal Brexit. This interim arrangement will be in place until the new UK immigration system comes into effect in 2021.
Please note that Irish citizens do not need to take any action to confirm their status and will continue to be allowed to live and work in the UK as before due to arrangements under the Common Travel Area. Government guidance on this can be read here.
Exporting and importing goods to and from the EU: If the UK is to leave the EU on no deal the UK will immediately leave the EU customs union and single market.
This means that the free flow of goods will cease requiring the imposition of tariffs and checks on goods travelling into the EU. The CBI in it’s What comes next: the business analysis for a no deal Brexit outlines from page 31 the impacts of new customs checks and tariffs (this document can be viewed here).
In summary, UK business should expect to experience significant changes to the exporting and importing goods, with goods exports required to go through additional processes or be denied entry into the EU. Firms should expect delays to goods if the right processes are not followed and we strongly encourage all members which rely on timely exports or imports to or from the UK to register for a European Union registration and identification (EORI) number. This number will be needed to move goods in or out of the UK if there is no Brexit deal.
We also strongly advise members to thoroughly read all relevant documentation available on the UK Government’s collection on Trading with the EU in the event of a no deal Brexit, available here.
The provision of services within the EU: Providing services within EU countries will become more challenging after a no deal exit. Under EU single market rules there are only limited restrictions on the selling a service such as a consultancy or research service between companies based in EU member states, a so-called mode 1 of supply. Or temporarily moving staff to work in other part of the EU without establishing a business branch, mode 4 of supply.
After a no deal exit these modes of supply will become more limited. Mode 1 of supply will vary depending on domestic rules. Most EU member-states make a commercial presence or establishment a condition of market access for a variety of services. For legal services some states, including Belgium and Cyprus, place nationality-based conditions (Swiss or EEA) on representation in domestic courts and membership of the domestic bar. In the event of a no deal Brexit member companies will have to check where business is being delivered and the requirements that will be placed on them in the event of no deal. Clarity on recognition of professional qualifications will be important, UK Government advice on providing services including those of a qualified professional in the event of no deal can be found here.
The temporary movement of UK nationals to the UK to provide business functions, mode 4 of supply, will become much harder for UK nationals. If the UK leaves on no deal mode 4 of supply will revert to WTO terms. The EU’s WTO schedule relating to mode 4 of supply restricts the maximum stay to only three months in any 12 or for the duration of the contract, whichever is the lower. That means offering a contract longer than three months from the UK to an EU client would be increasingly difficult to service without establishing a business branch following no deal.
UK nationals travelling to the EU for work will face immediate disruption to intra-company transfers or to provide ‘fly-in-flyout’ services. Businesses which regularly send UK staff to EU for work or provide ‘fly in-flyout’ services should begin to assess what impact respective Member State third-country immigration rules could have on their business models.
Meeting business regulations if you do business in the EU: If the UK leaves the EU without a deal there will be a number of business regulations which will need to be observed by member companies who operate in the EU. While many of these regulations have been transferred into UK law limiting day one disruptions, such as for the recognition for patents and trademarks, members should review Government guidance to be sure of their regulatory status and any changes or preparations that need to me made ahead of a no deal exit. Information on meeting business regulations on broadcasting, copyright, IP, mergers, trademarks, telecoms and business structure can be found here.
Accessing funding provided through EU institutions: As a member the UK is involved in a number of EU-organised programmes and funding schemes. One of the most important for business is Horizon 2020, the EU’s research and innovation programme that brings together businesses, academics and Universities across Europe to work together on solving global problems.
On day one of a no deal Brexit UK businesses and Universities will no longer be eligible to apply for most new EU funding through Horizon 2020. Business will be able to continue to participate in ongoing projects and apply for limited amounts of Horizon 2020 funding, however these applications will include less favorable terms for UK business as they will be treated as applications from a third country.
The UK Government has said that it will guarantee funding for EU programmes which business successfully applied for prior to exit day. Companies which have secured funding through horizon 2020 should register with the UK Government’s underwriting programme here, while business which has secured funding or wishes to apply for further funding after a no deal exit should review UK Government advice on applying for EU funding programmes here.
Disruption at the borders with the EU and chemical goods: If the UK leaves the EU without a deal on 31 October there is likely to be significant disruption at the border. Beyond the implications of customs checks and the imposition of tariffs the UK Government has said that it will prioritise vital supplies such as food and medicines if there is disruption at the border. Companies which rely on timely imports and exports of goods, such as for repairs and maintenance and where materials are supplied from the EU should examine their supply chains to identify where delays may occur if there are significant disruptions.
There will also significant changes relating to regulated goods such as chemicals imported and exported into the EU where business will have to take specific extra steps when the UK losses access to the REACH chemicals database as a result leaving the EU.
If there is a no deal overnight, some UK chemicals companies will no longer be legally able to export many of the substances that they produce if the right registration processes have not taken place. However, companies importing chemicals will have a 120 day grace period. UK firms that have registered with European Chemicals Agency (ECHA) will see that appointment automatically kick in, providing some continuity for exports.
When the UK leaves the EU the UK’s Health and Safety Executive (HSE) will take over functions currently provided by the ECHA. The HSE has provided detailed guidance on how companies should prepare for a no deal exit, which can be found here.
The CBI has provided further advice urging large companies, to continue work with SMEs in their supply chains to ensure all necessary steps are taken in order to minimise overall disruption.
The overall economic impact: If the UK is to leave the EU without a deal there is likely to be a significant shock to the UK economy in the period before exit day if no deal appears inevitable, on exit day or shortly after. This will likely result in a further devaluation of the currency, a decrease in investment as business waits for the effects of no deal to become clear and the demand and supply side effects that may result from any disruption at the border. The UK Government will take action to try and reduce these effects, however it is difficult to predict the extent of disruption and how effective Government support will be in addressing this. We therefore recommend that all business take necessary steps to prepare for a potential slowdown in UK economic output and a decline in business opportunities in the EU.
Further actions from techUK:
techUK will be surveying our members to identify their levels of preparedness for no deal, their greatest concerns about a no deal exit and what actions could be taken by Government to ensure that business is prepared and what steps could be taken to ease the burden of any disruption.
We will continue to produce information on preparing members for no deal and will increase our engagement with Government to make them aware of any new issues that arise as we move closer to a possible no deal outcome on 31 October 2019.
Please get in touch if you have any further questions or concerns.