Few economists would have predicted a no-deal Brexit just a few months ago. However, the lack of consensus on the "backstop" and the overwhelming rejection of the deal presented by Theresa May to the British Parliament on January 15 has reshuffled the cards.
The consequences for French companies are numerous, particularly in terms of regulations and taxation.
For the time being, most companies are still waiting for a final agreement to be signed. To date, the absence of a guideline is a major difficulty. Here are the main expected consequences of the Brexit for French companies.
Whatever the UK's exit scenario, it will no longer be possible to trade "as before" with these countries. The UK will no longer be able to benefit from the same trade advantages as if it remained in the single market.
French companies are used to the rules of the intra-community market, and will have to do without them. Tomorrow, trading with the UK will be like trading with a "third country" rather than a "member state".
All French companies, whatever their size, must therefore change the rules applicable to their partners in the UK.
Some companies need to recruit staff dedicated to managing new customs issues
Data protection obligations will be different for use in the UK. The UK will remain a member of the Single Market for a further 21 months, until the end of 2020.
Companies can expect a return to customs formalities and an increase in the number of inspections.
First and foremost, this means more administrative formalities. So we'll need to dedicate the necessary staff.
In the context of a no-deal Brexit, British companies could no longer be obliged to comply with European social, environmental or phytosanitary standards, for example.
Certain practices that are less costly (particularly in agriculture) but more harmful to health could flourish at prices lower than European competition. Consumers will then have to inform themselves about the origin and composition of products.
French and British companies will therefore have to adapt their manufacturing, production and consumer information processes.
For French companies, the risk of no longer complying with British standards (which are likely to evolve post-Brexit) does exist. In this case, they will no longer be able to market their products in this territory.
Intellectual property law is also being called into question. Indeed, all trademarks, patents and other European agreements take the UK into consideration. In the event of a no-deal Brexit, many trademarks or patents could be banned from use on British territory.
The tax consequences of Brexit are numerous, but depend in part on the conditions under which the UK will leave the EU. For the time being, therefore, nothing is definitive.
From a legal point of view, imports will be considered as goods entering the intra-Community territory and will be subject to VAT. All goods destined for the UK will be considered as VAT-exempt exports.
The VAT refund will be made in accordance with Directive 86/560/EEC, which allows Member States to make refunds conditional on reciprocity.
As for customs duties, it's impossible to predict what the tax rate will be. In any case, British companies do not want them reinstated, as this would penalize their competitiveness.
If a free trade agreement is not reached, France will be among the six countries most affected by the Brexit (source: Euler Hermes).
French companies could record up to €3.2 billion in additional export losses in 2019 alone, should a no-deal Brexit be implemented.
Theoretically, March 29, 2019 is the fateful date on which the United Kingdom will have to leave the European Union. Unless the Brexit is postponed and no compromise is voted by all parties, it will be a no-deal Brexit, i.e. the worst-case scenario.
French companies need to study precisely the potential consequences of Brexit on their business, and prepare for the harshest scenario.
Written by our expert Paul LASBARRERES-CANDAU
January 28, 2019
