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Brexit: What does this mean for the automotive, chemical, industrial & manufacturing sectors?

  • Europe
  • Brexit
  • Diversified industrials - Aerospace, defence and security
  • Diversified industrials - Automotive
  • Diversified industrials - Chemicals
  • Diversified industrials - Industrial engineering

14-07-2016

Last month saw the UK voting to leave the European Union, one of the most politically and economically significant decisions in our generation. We will also see a new Prime Minister being appointed today. 

As a law firm with legal experts in all areas of law within the automotive, chemical, industrial and manufacturing sectors, we are well-placed to advise businesses like yours on the possible implications of Brexit. We can help you to identify the specific risks for your business, manage your exposure and prepare a contingency plan. My team of experts and I are committed to offering you clear and pragmatic advice during this time.


What does Brexit mean for EU businesses operating in the UK?

The result of the EU referendum was announced on Friday, 24 June 2016 with a vote in favour of the UK leaving the EU. In this briefing we outline what happens next and the exit process. We will identify some of the issues that businesses should be considering now and the steps that they should be taking.

Although it will be some time before the terms of the UK’s future relationship with the EU are known, there are things that businesses can consider and plan for now, and changes they can start to make, to help protect their interests.

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Brexit: The impact on automotive

In recent years, the UK has benefited from a resurgent automotive industry, both in relation to traditional British luxury brands along with very high levels of investment by a number of global manufacturers of volume vehicles. This, in turn, has resulted in further significant investment in the component industry and the UK has been at the forefront of many revolutionary developments in automotive technology.

The EU referendum vote now places a significant cloud over the ability of the UK’s automotive industry to be able to continue to grow at recent rates. Leaving the EU creates some significant and unwelcome challenges for the automotive industry in the UK and these are detailed within this briefing.

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Brexit: How this will impact on UK employment law

In light of the significant influence of migration to the outcome of the EU referendum, before considering potential employment law implications, of even greater concern for employers is the likely impact of Brexit upon the free movement of workers. Depending on the terms of the UK's future relationship with the EU on exit, citizens of other Member States may no longer enjoy an automatic right to travel to and work in the UK (and vice versa). It would seem that free movement of people would be a significant bargaining issue for the EU if the UK is to continue enjoying the benefits of free trade in goods and services.

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Brexit: How this will impact on UK competition Law

Competition law comprises three main areas: anti-trust law, merger control and State aid. The two key anti-trust provisions are the prohibitions on (i) agreements which distort or restrict competition; and (ii) the abuse of dominant positions.

The anti-trust laws will remain basically the same except that they will apply purely in a UK context and the UK Competition and Markets Authority (“CMA”) will no longer have the power to enforce EU competition law in the UK. The UK merger regime will remain unaffected except that the CMA will have jurisdiction to investigate more mergers because the EU Merger Regulation “one stop shop" for pan European mergers will no longer apply in the UK. ​

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Brexit: How this will impact on EU-wide litigation

The UK’s exit from the EU creates uncertainty for those involved in existing cross-border litigation or with EU-wide litigation pending. A definitive answer is unlikely to be given until the model of exit has been negotiated.

For parties engaged in existing litigation or contemplating pending litigation, securing a judgment or settlement prior to the end of the negotiation period will be increasingly important. Parties may wish to take advantage of the current High Court pilot schemes for shorter and flexible trials, which are designed to expedite judgment. Alternatively parties may look at ADR as a means to bring forward the conclusion of existing disputes.

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Brexit: How this will impact on UK Tax

VAT is an EU tax, implemented mainly by Member States following an EU Directive. The immediate effect of Brexit would not remove VAT as, although an EU tax, it is implemented in the UK mainly by UK legislation. Although, the UK would no longer be tied to the requirements of EU Directives and could abolish VAT altogether, this is not considered to be very likely, given the government’s need for tax revenue.

The UK Government may generally wish to vary the items chargeable to VAT and applicable rates, however, these would unlikely be major changes, due to the VAT contribution to Exchequer revenues. Brexit will, however, cause confusion amongst the business community and wider public, disrupting a well-established pan-European tax.

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How Brexit will impact on UK contracts and trading relationships?

All businesses that trade with the EU, whether as a supplier or purchaser, will be affected.  All contracts that involve the supply or purchase of goods or services to or from the EU will need to be assessed, as will those whose pricing or risk allocation assumes trade free access, EU funding or harmonised regulatory or licensing regimes. 

Despite the fact that the future shape of the UK’s relationship with the EU will be unclear for some time, contingency planning involving contract review should start now with a view to managing risks arising from the initial stage of uncertainty in which we now find ourselves.   

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The effect of “Brexit” on UK public procurement legislation and the application of EU State aid rules in the UK

This briefing considers issues relating to the extent to which the UK’s exit from the European Union might lead to changes to domestic procurement legislation and whether, post-Brexit, restrictions on government subsidies might continue to apply.

We discuss the extent to which existing UK procurement legislation, which implements EU procurement directives, might need to be amended substantively, post-Brexit, would depend primarily on the type of relationship which the UK negotiates with the EU and the extent to which the UK would continue to have access to the “single market”.

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Comments from our experts

Robin Johnson, chair of Eversheds Diversified Industrials group, comments:

"Just days after the EU exit vote, industrial supply chain companies were dusting off plans about optimal manufacturing, sourcing , labour and technology transfer options.

"Discussions are taking place with their global Original Equipment Manufacturer (OEM) customers to determine their strategy in the Brexit context. While the UK is highly regarded as an advanced manufacturing environment, mass production of core lower margin products and heavy industrial capacity could be relocated. Certain Asian economies were once seen as a logical destination, but manufacturers have moved away from sourcing in Asia and supplying in Europe. Asian plants are now busy supplying locally, and the recent trend has been for European manufacturing to be used for Europe supply.

"Many decisions will ultimately be driven by customer demand. However, Eastern European expansion and green field opportunities will have been discussed by many UK businesses in the past, and the issue is now firmly back on many a boardroom agenda. One scenario, is that the UK manufacturing sector becomes a high-tech research and development environment with core manufacturing taking place outside of the UK."

Simon Jones, head of Eversheds Automotive group, comments:

“It is generally expected that Brexit will have a negative impact on the auto industry – at least for the volume manufacturers.

“Much of the investment into the UK’s resurgent auto industry by global manufacturers is based on the UK’s open and free access to all European markets and to the UK being an active and influential member of the EU. For these reasons, the UK has been chosen as a key manufacturing base by many of the large car manufacturers.

“Restricted access to the single market and free movement of people will create further challenges to an industry which is already suffering from a labour and skills shortage. In addition, those companies who benefit from European funding for research projects may suffer if this funding is cut. There will be general market disruption related to any slow-down in economic activity which arises in the UK and across the EC as a result of Brexit. This could well soften the demand for new cars and commercial vehicles.

“If volatility continues in exchange rate markets, significant financial implications will arise. Whilst is true that the UK’s exports will become cheaper, vehicle components are imported and will therefore become more expensive. All of this will affect the profitability margins for both OEMs and component suppliers.

“A lot depends on timing. As far as the UK automotive sector is concerned, these issues need to be resolved quickly if investment decisions which need to be taken over the next 2 years and beyond are to be made in favour of continued research, development and production in the UK automotive sector.”

Parmjit Singh, head of Eversheds India Group, comments, India trade negotiations should set post Brexit benchmark

Commenting on British moves to strike a new trade deal with India in the wake of the EU referendum result, Parmjit Singh, head of the India group at Eversheds, says:

"Furthering the trading relationship with India has been a priority for the UK for a number of years. Of late, the UK Government has been increasingly frustrated that the EU has not been able to negotiate a trade agreement of its own with the continent, especially around financial services, so this smart move will come as no great shock.

“It signals to the EU before formal negotiations start that the UK has a number of viable alternative trade options and will run twin trade negotiations with major trading nations concurrently. The Indian Government under the leadership of PM Modi is desperate to show to the world it is open for business and needs to further promote its 'Make In India' policy. As such, the UK has a willing and ready-made partner with which to negotiate and set the benchmark for discussions with other major trade nations like China and the USA." 

Ben Jones, Tax Partner, comments, The combination of income and corporation tax cuts could offset Brexit disadvantages

Commenting on Sajid Javid's call for personal and corporate taxes to be cut in the wake of the UK's EU referendum, Ben Jones says:

“The migration of top talent from the UK to continental Europe, particularly within the financial services sector, is a very real concern in the wake of the referendum vote. Multinationals might also choose to move from the UK to other European locations, taking some or all of their UK staff with them. Many of the employees that could move will be highly skilled and well paid, with roles that contribute considerably to UK plc.  

"In an attempt to stem possible migration, alongside the potential corporation tax cuts proposed earlier this week, a further step might be to reduce income tax rates and in particular reduce or remove the top 45% rate of income tax. Although probably controversial, this could make the UK more appealing to the type of highly skilled individuals Britain wishes to retain.”

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