Following the Brexit vote, over a third of US businesses with a base in the UK are considering moving it to elsewhere in the EU, while over half of US exporters to the EU claim they are more likely to bypass the UK in order to do business with the rest of the EU, according to research by international law firm, Gowling WLG
Its report is based on a poll of over 500 C-suite executives of companies with £10m annual turnover based in the US who export to Europe in sectors including aerospace, automotive financial services, food and beverage, health, and life sciences.
The law firm says it shows how the uncertainties surrounding Brexit, in particular the delay caused by issues such as Article 50, are threatening trading links between the UK and the US. Companies in the food and beverage, life sciences and financial services sectors say they are most likely to consider relocating with aerospace the least likely.
For the UK's financial services industry, over half (55%) of US companies surveyed are more likely to bypass the UK in order to do business with the rest of the EU, with just under half (47%) of those with a base in the UK considering moving elsewhere in the EU as a result of the Brexit vote.
Almost two thirds (66%) of US companies in the financial services sector favour a direct trade arrangement with the UK, mirroring President-elect Donald Trump's preference for direct deals between countries.
Overall, over two thirds of companies say uncertainties over the future regulatory environment is having an impact on current investment decisions.
Bernardine Adkins, head of EU, trade and competition, Gowling WLG Brexit unit, said: ‘The strong UK-US trade relationship that has been carefully nurtured over the past fifty years is in serious jeopardy. Concerns that Brexit will have an effect on current investment decisions mean this needs addressing now, not later.
‘Without its own privileged relationship with the EU, there is a higher chance that US investment will continue to see the UK as an attractive gateway to the EU's single market if the UK can retain important elements of its current access.’
Additionally, US financial services businesses are split in how they currently view trade and investment within the UK, with many more saying the current uncertainty over the future regulatory environment is having a negative effect (38.3%) rather than a positive effect (18%).
The survey found that 95% of US firms say they will need third party support and advice in order to successfully deal with Brexit. Gowling WLG says this is ‘by far and away the most important issue for the financial services sector with two thirds saying they will need financial support’.
This week, as part of its inquiry into the UK’s future economic relationship with the EU, the Treasury select committee has) issued a call for written evidence on transitional arrangements, warning that failure to do so could result in a flight of overseas investment.
Andrew Tyrie, the committee’s chair, said: ‘Many firms are understandably concerned that in April 2019, the government’s current timetable for leaving the EU, they will be faced with a sudden change in their operating environment.
‘Transitional arrangements could offer firms some protection. If it were concluded that transitional arrangements are likely to be needed, obtaining them would probably be an early and important objective of the negotiations.
‘Without an early commitment to them, firms may conclude that they cannot afford to wait, and act pre-emptively to protect their shareholders’ interests. This action could include some cancellation of investment and/or relocation out of the UK, to the detriment of the British economy, and important parts of the financial services industry.’
The committee is inviting evidence as to the desirability of transitional arrangements and will also consider the pre-emptive action that might be taken by the private sector in the absence of a credible commitment to transitional arrangements during the Article 50 negotiations.
It also wants to examine the likely consequences of not having negotiated transitional arrangements, assuming the UK’s final, settled relationship with the EU has not been agreed at the end of the Article 50 process, and will look at the extent to which the Great Repeal Bill might provide all the legal certainty and continuity required to render the need for transitional arrangements unnecessary. One option MPs want to explore is the desirability or otherwise of a temporary period during which the UK's economic and legal relationship with the EU does not change (‘standstill’), and the length of time that this would need to last in order for necessary preparations to be made.
The deadline for written submissions on transitional arrangements is 31 January 2017.
Details of the Treasury select committee inquiry are here.
Brexit deal or no deal: the implications of Brexit on transatlantic trade is here.
