FORUM: Impact of Brexit on international trade


Financier Worldwide Magazine

November 2017 Issue

FW moderates a discussion on the impact of Brexit on international trade between Matthew Townsend at Allen & Overy, Roger Matthews at Dechert, and Renato Antonini at Jones Day.

FW: Although negotiations with the EU are still at an early stage, could you outline some of the challenges companies are likely to face as the UK strikes new trade deals post Brexit? In general terms, can we expect an impact on operational processes, procedures and compliance requirements?

Antonini: A recurring caveat in the responses to today’s questions is that much, if not everything, will depend on the outcome of the negotiations between the EU and the UK. If the negotiations result in the continuance of a formal preferential trading relationship, the challenges faced by companies trading with the EU will probably be limited, with additional customs procedures likely to be the most problematic issue for companies trading goods. For companies trading with third countries with which the UK currently has a preferential trading relationship through EU agreements, everything will depend on whether the UK will be able to roll over these existing trade agreements. Finally, for companies trading with third countries with which there currently are no preferential trade agreements, we expect disruptions to be minimal. Here, opportunities lie for the UK to negotiate new trade agreements.

Townsend: The immediate challenge is uncertainty. There is a high degree of speculation as to the shape of a future trade deal between the UK and EU-27, and negotiations have yet to begin in earnest. Businesses may need to adjust their operating models in readiness for Brexit. The extent of this adjustment will be driven by a range of factors, including access to markets – both EU and non-EU. The EU is the UK’s largest trading partner and the terms of any deal may also shape free trade agreements between the UK and third countries. For many businesses, there will be a real impact on operational processes, existing approvals, supply chain arrangements and current compliance requirements. These changes cannot be put in place the night before Brexit. In all likelihood, they will need to be implemented when the terms of any UK/EU deal is still being finalised.

Matthews: The most important trade deal for the UK will be with the EU. But the impact on third-country arrangements must be watched. The UK cannot open formal trade negotiations with third countries until it has left the EU, so these deals will not be ready for signing the day after the UK leaves. Yet, on leaving, the UK will cease to benefit from the EU’s existing deals with around 50 third countries. The prime minister, Theresa May, noted in Florence that, on Brexit, the UK will “no longer directly benefit from the EU’s future trade negotiations”, which suggests an expectation that the UK might continue to benefit from existing EU agreements. But there has been no confirmation of this, or how it might be achieved, beyond a general aspiration for there not to be a cliff edge on 30 March 2019. A sensible approach might be for the EU, the UK and each third country to agree in advance that, during the transition period, each FTA will continue to operate as if the UK was part of the EU. Absent such an arrangement, these FTAs will cease to apply to the UK on Brexit, with a consequent impact on operational processes and compliance requirements, and a risk of some legal uncertainty.

The UK will be far more flexible and have far fewer demands and less red lines than the EU, meaning that it can focus on its own offensive and defensive interests.
— Renato Antonini

FW: Do you believe the attractiveness of the UK as a trade partner will be diminished by its exit from the EU? In your opinion, what aspects of the Brexit negotiations should be the greatest cause of concern for UK business, specifically in relation to their future trade prospects?

Townsend: The position of the UK as a trade partner after Brexit is difficult to determine. Investor sentiment will be driven by a range of factors, including the UK’s new terms of trade and political uncertainty. A key concern is to ensure that the UK’s negotiating priorities are not wholly driven by political considerations and that a realistic assessment is made of the country’s economic priorities. This should drive the UK’s negotiating stance and the development of a new trade policy. Difficult compromises will have to be made in the negotiations, so it is essential for businesses to ensure that their voice is heard within government. As we approach the Brexit deadline, businesses will start to implement their worst case scenarios unless there is sufficient clarity on the terms of the deal. This is already starting in certain sectors.

Matthews: The UK’s clout in negotiations with third countries will not match that of the EU – it is a smaller economy and a smaller population. So even securing the same terms with some third countries that we have enjoyed as an EU member may be difficult. However against that, the UK will be better able to tailor deals than it could as part of the EU. The content of such third country deals will very likely be determined by the nature of the UK/EU deal. But other third countries may sense an early mover opportunity: for political reasons the UK needs some early trade deals in a bid to lend credibility to its “global Britain” message. The UK may be more concerned, at least initially, with doing deals quickly and less concerned with the content or quality of them. UK businesses have a role to play in ensuring the economic quality of deals that the government pursues – by developing detailed proposals and advocating them to the government – and businesses will want to ensure that the needs of their sector are well understood and given sufficient priority by the UK in negotiations. All the signs are that an early UK/US deal is a priority for the UK, so that is a key one for businesses to watch, although the UK may also look for a couple of ‘quick wins’ with smaller countries where the range of issues is narrower.

Antonini: Everything will depend on the outcome of the Brexit negotiations. However, irrespective of the outcome, the situation will likely be nuanced. On the one hand, the UK in itself will be a more ‘junior’ trade partner than the behemoth that is the EU, meaning that with certain trading partners the UK will not necessarily have the upper hand. Furthermore, the UK market is far smaller than the EU market, which could diminish the attractiveness of the UK as a trade partner. On the other, the UK will be far more flexible and have far fewer demands and less red lines than the EU, meaning that it can focus on its own offensive and defensive interests. This could have a positive impact on the attractiveness of the UK as a trade partner. In any event, the key element for UK business with respect to Brexit and trade, especially those that trade with the EU, is that the trade relationship with the UK remains as similar as possible to what it is now, in order to avoid any possible disruptions.

FW: To what extent do you believe Brexit will spur relocation strategies for the headquarters of multinational companies?

Antonini: In the near future, it is unlikely that many multinational companies will relocate their headquarters post Brexit. Indeed, Brexit is unlikely to be the main factor to spur such relocations. Nevertheless, a phenomenon that is already taking place is that several companies, in particular those in the financial services sector, are planning to move some of their activities to other EU Member States, or are already in the process of doing so.

Matthews: Many companies currently headquartered in the UK will need to establish or enhance an EU-27 country base, and shift certain functions to it, to ensure that their EU operations can continue. A number of companies have already started to do this, and if no satisfactory transitional arrangement is agreed by the end of this year, we can expect many more businesses to accelerate such plans. It seems less likely that many businesses will immediately move their headquarters from the UK to an EU-27 country, although a small number may. However, we may see a gradual drift; as more functions have to be done or can more easily be done from within the EU, or, as with airlines, certain business can only be done from an EU-owned entity, businesses may find that over time – if not immediately on Brexit – the case for keeping the UK as their European HQ starts to look weaker. In formulating its position on transitional arrangements, the long-term deal and the arrangements with third countries, the UK needs to identify and spell out clearly and precisely what it aims to be able to offer to companies to incentivise them to choose to continue having the UK as their European headquarters. This must be done quickly, before the gradual drift gathers too much momentum.

Townsend: We have already seen some companies announce the movement of employees to other locations. This may accelerate as we approach Brexit. The finance sector would appear to be the most susceptible to this but businesses in other sectors are clearly assessing the need to move staff and management. That said, we do not expect to see an exodus of businesses. In general, there are a range of factors that influence location decisions but the UK is likely to remain a popular destination for investment. Bear in mind that we are at peak uncertainty at present and this will likely remain the case for a while. Businesses will adapt quickly once the terms of the UK’s relationships with its major trading partners become clear.

Before it can finalise a Free Trade Agreement (FTA) with the EU, the UK will have to weigh up the benefits of harmonisation on the one hand and regulatory autonomy on the other. Businesses may be likely to favour harmonisation.
— Roger Matthews

FW: Do you expect to see an overhaul of the regulatory framework governing trade, bringing fresh compliance challenges and associated costs to UK-based companies?

Matthews: An immediate overhaul of UK regulatory standards seems unlikely; indeed, the Withdrawal Bill makes clear that the opposite is intended, at least for the immediate term. In her Florence speech, Ms May supported this intention, proposing that during the transition period, “access to one another’s markets should continue on current terms” although the EU has yet to agree to this. What will be needed, at least by the end of the transition period, is the establishment of domestic regulatory responsibilities – the UK relies on pan-EU regulatory frameworks for a range of rights and activities, such as EU trademark registrations, medicines licensing and aircraft safety certification, to name a few. The UK will need to ensure that its authorities adapt to take on new functions or replicate existing rights and licences that businesses rely on. Looking at the longer term, being outside the EU gives future UK governments more freedom to adjust regulation according to their priorities. Ms May confirmed that she is “committed to not only protecting high [regulatory] standards but to strengthening them”; future governments may have a different aspiration. But she recognised also that there will be regulatory divergences between the UK and the EU. Before it can finalise a Free Trade Agreement (FTA) with the EU, the UK will have to weigh up the benefits of harmonisation on the one hand and regulatory autonomy on the other. Businesses may be likely to favour harmonisation.

Townsend: The UK will need to quickly develop its own trade policy as part of a wider redefinition of its international trading terms. The regulatory position will become more complex as business starts to adapt to the new rules, whether under new FTAs or WTO arrangements. Even if the UK and EU-27 agree a new trade deal, it is inevitably going to be more complex than the position the UK is in today. This has already resulted in businesses having to understand international rules on trade to a far greater degree than was previously necessary. It is not just about the terms of trade. The regulatory interface between the UK and EU-27 will also need to be determined and managed, whether that relates to financial services or a whole host of industrial sectors seeking to ensure their products can be sold across the EU with minimal barriers to entry.

Antonini: In general, it is likely that the UK government will try to avoid any overhauls of the regulatory framework governing trade. Indeed, it appears that the goal is to obtain a trade relationship with the EU that is as close as possible to what it is today, roll over existing preferential trade agreements and for the most part adopt the EU’s rights and obligations at the WTO. If the UK succeeds in this effort, the general regulatory framework is unlikely to change substantially, at least in the near future. The biggest impact, which would bring compliance challenges and associated costs to the companies involved, is likely to be on those UK companies that trade goods with the EU. Indeed, these will become subject to customs procedures, whereas before this was not the case. This could result in substantial costs for all companies involved, including the other EU companies.

FW: Given that Brexit could disrupt revenue streams, tariffs, customs, tax, investment, finance, regulations and a host of other business issues, are the trade implications of the process high enough on boardroom agendas – or is planning at the highest level hampered by current uncertainty?

Townsend: Extensive planning work is being done, particularly in the financial services sector. Many large financial institutions have a detailed understanding of what needs to be done and are assuming a worst-case scenario for the Brexit negotiations. A number of them are starting to execute those plans. Corporates are at a slightly different stage. Many are waiting for greater clarity on the terms of the deal before executing significant business changes. For most large corporates, it is simply not possible to execute multiple Brexit contingency plans in response to the changing dynamics of the political negotiations. They will likely wait until a deal emerges. But, planning should not be hampered by the uncertainty. It is possible to model a range of scenarios and have an execution plan for each of those. This means you can act quickly and at the right time.

Antonini: For the companies involved, if the impact of Brexit on trade is not on their boardroom agendas, it should be. Whereas planning is definitely hampered by current uncertainty, except for, perhaps, certain companies in the financial services sector, Brexit is an issue that should be followed closely and businesses should start preparing for the different potential outcomes, including the worst. For companies involved in significant EU-UK trade, it would not be unwise to study the impact of the different scenarios. There are a number of possible scenarios that are envisaged, ranging from something close to the status quo to trade on WTO terms. These are all different scenarios, the impact of which can and should be studied.

Matthews: The issue is rapidly getting higher up the agenda in boardrooms as the detailed complexities become apparent. This is true for both UK and EU businesses. Many businesses have done an assessment to at least address the issue of whether they need a relocation strategy and what it should look like. However, beyond the issue of what to relocate, and when to activate that plan, businesses are understandably frustrated that there is little they can do with the negotiations still so undeveloped. Those businesses whose thinking is most advanced are working not only on pre-emptive or reactive preparatory measures, but also on developing, either directly or through industry bodies, a case they can put to the UK and EU policy makers to advocate for specific outcomes that are key to their sectors. At the other end of the scale, there are undoubtedly many businesses which have not sufficiently identified the potential impacts, and which may find themselves underprepared further down the line.

Now is certainly a good time to develop your Brexit playbook – this should assess a range of scenarios for the business given the varying possible outcomes of the negotiations.
— Matthew Townsend

FW: As the countdown to March 2019 continues, what steps can firms in the UK take to prepare for the likely impact of Brexit on their international trade operations over the short, medium and long term? Would you recommend they undertake a formal strategic review of the potential drawbacks and opportunities that Brexit may present, and what might such a review entail?

Matthews: The first step all businesses need to take is to conduct a full assessment of the potential impacts of Brexit for them, including how different outcomes, including the ‘no deal’ scenario, may affect them. Many may then wish to develop some proposals as to how the Brexit arrangements might best work for them, and conversely identify particularly bad outcomes, and form a government/EU engagement strategy to advocate for the most favourable outcomes or avert the least favourable. The government will likely have to choose between competing sectoral negotiation priorities, so identifying your sectors’ key needs and communicating them clearly is essential. For international trade operations in particular, an identification of all potential problems will help them to identify whether there are workarounds which might be applied in the event that the type of Brexit that is ultimately agreed risks particular difficulties.

Antonini: Affected companies can and should start preparing for the impact of Brexit and should do so for different scenarios, such as status quo to WTO terms. They could, for instance, run a simulation on what the impact on their business would be if trade between the EU and the UK would be on WTO terms, by estimating the customs duties that would have to be paid. Furthermore, irrespective of the outcome of the negotiations, it appears clear that customs procedures will apply on trade between the EU and the UK. The costs and potential delays that this could bring should also be estimated.

Townsend: Now is certainly a good time to develop your Brexit playbook – this should assess a range of scenarios for the business given the varying possible outcomes of the negotiations. This playbook should also assess where Brexit presents potential threats to, and opportunities for, the business. This will lead into companies’ execution plans. The likelihood is that there will be very limited time between the terms of a deal crystallising and the Brexit cliff edge, possibly just a few months. Significant work may be required during this period, but a lot of the planning can be done in advance. Companies ought to start from a worst-case basis, with the UK coming out of the EU without a new trade deal and a default to WTO schedules, no customs union or association, no transitional period and a regulatory cliff edge. Companies should work forward from there to a more realistic – and optimistic – assessment. For certain sectors, there may well be opportunities arising from Brexit and these should also be a key area of focus.

FW: Finally, what are your hopes and expectations for the future of international trade post Brexit?

Antonini: What we have learned since the Brexit vote is to expect the unexpected. Brexit is also not the only factor that is likely to have large ramifications for international trade. Indeed, the current crisis at the WTO, the change in the direction of US trade policy and the continuing change in the balance of powers on the international stage are just some factors that are of at least equal importance to international trade and the direction in which it is going. One can only hope that the relevant policy makers will manage to keep a cool head.

Townsend: We would hope that the UK avoids a shift to a more protectionist stance with its major trading partners and forges a new trade policy that incentivises investment in the UK. To achieve this, the UK has significant work ahead in negotiating multiple free trade agreements. We would like to see these in place at the earliest opportunity so businesses can adapt quickly to the new trading and regulatory framework. This will be a challenge given that international trade is as much, if not more, about politics than it is about the legal rules.

Matthews: In the immediate term, the aim of maintaining ‘frictionless trade’ is clearly desirable, not only between the UK and the EU, but also with other countries with whom the UK currently benefits from EU-level trade agreements. A concern is that the loss, on Brexit, of important parts of the existing EU and international framework that the UK currently relies on may be overlooked, with the problems surfacing too late to be addressed. The departure from Euratom, and the UK’s access to the EU-US Open Skies agreement and the ECAA, are among those that have caught some attention recently, but there are doubtless others which may pass unnoticed or be inadequately addressed due to limited government ‘bandwidth’. In the long run, it is essential that the UK can deliver on its aspiration to be a beacon of global free trade, and in particular that it can find ways to preserve its close trading links with the EU without merely being a rule-taker, while also forging strong trading links elsewhere; if there is to be a purpose to Brexit, that must be it.


Matthew Townsend is a partner and head of Allen & Overy’s international trade and regulatory law group. He advises major international financial institutions and corporates on trade-related matters including on the scope and impact of WTO rules, free trade agreements, anti-dumping rules and a range of barriers to market entry. He has worked with a wide range of clients on their Brexit contingency planning and provides analysis around the impact of different trading models the UK may have in place post Brexit. He can be contacted on +44 (0)203 088 3174 or by email:

Roger Matthews is a senior lawyer in Dechert’s International Trade and EU law practice. He advises on international trade regulation and EU regulatory law and practice, including advising on the full range of issues relating to Brexit. Before joining Dechert, Mr Matthews served as a policy officer at the European Commission on sanctions and other international trade dossiers, and worked as a legal adviser at HM Treasury, where he advised on the EU negotiation and domestic implementation of EU financial services laws. He can be contacted on +44 (0)207 184 7418 or by email:

Renato Antonini has been involved in many of the largest trade defence investigations in the EU and other jurisdictions during his 20 years of practice focused on the EU and WTO trade laws. He has extensive experience in EU and Italian customs and export control laws, and also advises clients in EU and Italian competition law, particularly in cartels, state aid and abuse of dominance issues. He can be contacted on +32 2 645 1419 or by email:

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