en 2019-06-18 11:43:00

Report about Great Britain leaving European Union

How Brexit will impact the Czech Republic

And how to prepare business for different types of brexits

By KELLY HEINZERLING

In a June 2016 referendum, voters in the United Kingdom opted to leave the EU. After months of negotiations, the long-awaited road to Brexit is coming to an end. Yet in the two years following UK Prime Minister Theresa May’s initiation of Brexit procedures, the country’s government has not passed a withdrawal agreement. If British Parliament cannot agree on a deal, the UK will have to move forward with a No Deal, or Hard, Brexit. 

Without a deal, Britain would lose the option of a 21-month transition period and businesses will have to respond to consequences immediately, acting as if the UK were any third country. In the Czech Republic, predictions by analysts at Česká spořitelna na show Brexit could cut the Czech GDP by up to 55 billion, or 1.1%, and result in the loss of 40,000 jobs. BraveShow TV sat down with lawyers from Allen & Overy Law firm to talk about what Brexit might mean for businesses in the Czech Republic.

JANA MARŠÁLKOVÁ, SENIOR ASSOCIATE, ALLEN & OVERY: "Brexit will be the most fundamental change in the trade between the EU and the UK in decades, and more specifically for the Czech Republic. The UK is one of the five largest trade partners so there’s no doubt that there will be quite a significant impact on the business in the Czech Republic."

According to the Ministry of Industry and Trade, Brexit will touch the business dealings of any company that has a relationship with the UK. Currently, the UK is the fifth largest outlet for Czech goods, and Česká spořitelna na estimates indicate direct and indirect exports to Britain account for 8% of all Czech exports. Amidst an environment of declining British trade, Marsalkova expressed hope that exports to the UK could one day return to that 8%. 

JANA MARŠÁLKOVÁ, SENIOR ASSOCIATE, ALLEN & OVERY: "We have strong business relations with the UK and we really need to keep them because it’s one of our five biggest export partners and the Czech economy is driven by export, we do need to be active and promote the rights of our people in the UK and vice versa."

Marsalkova explained that Hard Brexit, which she called “the most draconian arrangement,” will place the UK under World Trade Organization law, leading to longer renegotiations of commercial deals. Even if a withdrawal agreement is reached for a Soft Brexit, a great deal of uncertainty remains. For Czech companies, business with Britain has already been affected.

JANA MARŠÁLKOVÁ, SENIOR ASSOCIATE, ALLEN & OVERY: "From what I hear on the market, about a third of the companies are looking for new territories and searching for new customers elsewhere. I think the whole uncertainty around Brexit, that we don’t know when it will happen, in what shape and form it will happen, does not really help this. But I would hope that this is only a short term period and in the long term it will come back and we will trade with the UK as we are used to now."

In a recent report issued by the British Chamber of Commerce Czech Republic and Bibby Financial Services, surveys show 28% of all small and medium sized companies in the Czech Republic have already witnessed a decrease in revenue or orders. Some companies made early predictions that Brexit will cause them to stop trading with the UK entirely. For smaller companies who may not have the legal and business resources to renegotiate contracts, Marsalkova expected there to be some difficulty in the future.

JANA MARŠÁLKOVÁ, SENIOR ASSOCIATE, ALLEN & OVERY: "I think it will be more difficult for the smaller to medium sized companies, especially for those who are used to trade just within the EU, because they will need to familiarize themselves with the customs, regulations, tariffs, the military barriers and all that. It will be quite a lot of administration and costs that come with it."

She predicted the Czech automotive industry will be the most affected, along with varying sectors in larger supply chains, for example optical or Pharma product manufacturing. Companies which export goods to the UK may also face new border regulations that will take time to negotiate.

JANA MARŠÁLKOVÁ, SENIOR ASSOCIATE, ALLEN & OVERY: "At the moment, if you want to export goods from the Czech Republic to the UK and there is no real border you’re there in a matter of hours. But it will take days or even weeks because of customs regulations and there will be a lot more administration [. . .] a number of the Czech companies have no experience with this so it will take them time and money. I’ve heard quite a lot of concerns about what will happen to the goods that arrive at the borders and be loaded somewhere and wait for all the customs to clear, so I do understand the concerns of the companies. Until all of this will be more systematic and everyone will get used to it, I fear that Brexit can be quite chaotic."

Cech agreed that a Hard Brexit and an immediate exit from the EU single-market will impact how goods move across borders. This will particularly affect the concept of exhaustion, where goods imported to one country in the EU can be sold anywhere else within the single-market. Pharmaceuticals and consumer goods rely heavily on the principle.

JAKUB ČECH, ASSOCIATE, ALLEN & OVERY: "If the UK would be seen as any third country, the exhaustion wouldn’t apply to them; so it can have an impact if you have your supply chain focused on the EU as a whole and now the UK will be cut out of it, that could be problematic."

"Really any consumer products that are being produced in the Czech Republic that are not necessarily Czech products but are being produced here for the whole EU these might be affected as well." 

In the world of Intellectual Property rights, Cech said there is a bit more clarity as to how the law will proceed post-Brexit, regardless of whether or not a deal is reached.

JAKUB ČECH, ASSOCIATE, ALLEN & OVERY: "It’s really nice to see that in the IP world, whether there is a Deal or No Deal Brexit, it won’t make such a big difference to the individuals or to the owners of these IP rights within the EU because the approach was quite rational from the perspective of the UK IP office. If the withdrawal agreement will be successful, then all of the rights will continue and they will be cloned automatically."

He explained that EU trademarks will be cloned to UK trademarks at no cost. In either a Hard or Soft Brexit scenario, the UK may offer the EU the same level of protections in areas such as database rights or Geographical Indicators.

JAKUB ČECH, ASSOCIATE, ALLEN & OVERY: "The UK has a very strong creative industry so it is in their best interest that the IP rights of the UK citizens and UK businesses are equally protected in the EU single-market as they are protected within the UK. And the only way to do this is to provide an equivalent protection."

He suggested Czech companies should review their contracts and define what the geographical scope of their licensing terms are, to ensure exclusivity rights will extend to the UK post-Brexit. As Brexit quickly approaches, both lawyers suggested companies prepare for the possibility of a hard Brexit and familiarize themselves with any new regulations and contracts.

JANA MARŠÁLKOVÁ, SENIOR ASSOCIATE, ALLEN & OVERY: "I would hope that both parties EU and the UK will see how important the converse relations are and they will do their best to keep their trading and providing services as easy as possible and try to remove all the barriers, but I think we are quite far away from that ultimate goal."

"Don’t plan just for Brexit, because Brexit is just the beginning of a whole new era of trading with the UK so you need to look at two to five years after Brexit and plan for that."

 

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