The British exit or ‘Brexit’ from the European Union (EU) has created instability across the UK, with knock-on effects felt around the world. For the UK and global chemical industry, the overall impact will be hard to predict until the detailed negotiations on the terms of the UK exit are well underway.
Formally leaving the EU requires invoking Article 50, which the UK Government has committed not to trigger until March 2017. There will then follow a formal exit period – officially set at two years. At the current time, there is little consensus on how long that will actually take; nor what the final trade deal between the UK and the EU might look like. While it is important to avoid falling into the realm of speculation, the impact may be large, and there is a lot that chemical companies can be doing now to prepare for exit.
KPMG has been working with clients to understand the implications of the UK’s relationship with the EU for years: including advising industry trade bodies such as the SMMT, informing the strategic thinking of individual companies as they consider trade tariffs or providing immigration law advice to EU CEOs working in the UK.
According to Karen Briggs, Head of Brexit at KPMG, the firm’s dialogue with clients shows that they need expert support on mitigating the risks and taking advantage of the opportunities that arise from Brexit. In the chemical industry, where a large proportion of the manufacturing base in the UK is owned by non-UK companies, these issues are as relevant in Frankfurt, New York, Houston, Amsterdam, Tokyo, Riyadh and Shanghai as they are in London. For example, non-EU companies with European headquarters in the UK may be affected by limitations on the free movement of capital and labor as well as goods and services. Above all, changes in tax issues could encourage international corporations to relocate their UK holding companies to EU member states.
KPMG is advising our clients to implement our 2:2:2 approach — consider the next two weeks, two months and two years to assess the path ahead. Many of our clients have been seeking advice on their immediate risks. However, we are now seeing clients look further ahead to what opportunities might lie ahead in the next two years. These might include strengthening trade relationships with China or gaining a competitive edge with other players in emerging economies. We are also engaging international clients and are observing, interestingly, predatory intentions from other European nations considering what competitive advantage Brexit might mean for them.