12 May, 2017 - 11:31 By News Desk

Forget Brexit - will ‘Frexit’ be next?

A recent sell-out event in Bordeaux attended by more than 300 French business leaders gave a fascinating insight into the possible implications of Brexit for French businesses. 

Alex Kenworthy, a corporate lawyer at Mills & Reeve, shared the stage with Jean Beunardeau, chief executive of HSBC France, Hervé Jounjean, former Director General at the European Commission and Laetitia Banos, corporate tax lawyer at French law firm FIDAL. Here Alex gives his views on the key takeaways from the evening.

It’s fair to say that Brexit will bring about the biggest shift in our constitutional and legal system for a generation. Many of the issues with which we as voters and business people have had to grapple in the UK over the last 12 months were highly relevant to the French as they wrestled with the decision of who to elect as their new President. 

Their choice of Emmanuel Macron was in many ways decisive in terms of France’s future participation in the EU and removed any fears, for the time being at least, of ‘Frexit’. 

The election of Marcon, a vocal supporter of a stronger EU, was no doubt met with a huge sigh of relief in the corridors of Brussels. Perhaps less so in the corridors of Westminster. 

The ‘domino effect’ which was feared following the Brexit vote doesn’t seem to be manifesting itself. At least not for now.

The views expressed during and after our Bordeaux debate were mixed: some have been left slightly bewildered at the UK’s decision, many are concerned about the uncertainty posed by the vote to leave the EU and the loss of the UK’s influence at Europe’s top table, with others viewing things differently and suggesting that the European Union was in need of reform and something like Brexit was perhaps what was needed to force that through. The overall sense was, however, one of disappointment that the UK has chosen to leave.

In many ways, the UK has viewed the EU differently to other member states, seeing it as primarily an economic organisation. The UK as a whole doesn’t really share the philosophical, emotional and political belief common across much of the continent that the EU is the political destiny of its members and it has made this clear several times over the years in negotiating its current special status in Europe. 

When it comes to negotiating our exit and our future relationship with the EU, we should not assume that the other member states will act with the EU’s economy as the overriding concern – a major part of the EU’s negotiation strategy will undoubtedly centre around protection of the political ideology which drives the EU as a collective. 

This is especially true of those countries which do little trade with the UK but for whom the EU is absolutely central to their political narrative.
The debate also generated questions from the floor on issues as diverse as the recognition of diplomas, the likely disruption caused by customs barriers, the position of Scotland and Northern Ireland and free movement of labour, including the position of EU nationals currently working in the UK. 

Mills & Reeve is advising a rapidly growing number of French clients, many of them in the context of understandable concerns over Brexit and what it might mean for them.

The event at the Cité du Vin in Bordeaux's newly developed business quarter certainly provided an evening full of insight and analysis for an audience which included a real cross-section of French businesses based in the south-west of France, including a host of wine producers and representatives from the tourism, manufacturing and agri-business sectors.

Brexit is certainly causing French businesses to think ahead and review their existing trading arrangements in the UK. There are, for example, a significant number of ongoing infrastructure projects in the UK in sectors such as energy and construction where French companies have significant roles to play – projects which are predicated on the free movement of labour and of goods and services over several years. 

The uncertainty caused by Brexit in an environment where you need a clear line of sight over the long term to justify long-term investment means that French businesses are understandably on their guard at this sensitive time. The weakness of the pound is also a cause for concern for French businesses importing goods from Europe to sell in the UK. We are finding that certain existing business models are under review. 

That said, it’s largely a question of adapting, as the UK market remains important to many French businesses. The challenge for them is to stay nimble in the coming years as the outcome of Brexit negotiations and the implications for foreign investors in the UK become clearer.

• Mills & Reeve signed a memorandum of understanding with French firm FIDAL in 2014. The agreement built on the existing relationship between the two firms, who have been working together since 2012 and regularly refer work to each other when clients require advice on cross-jurisdictional matters.

Alex Kenworthy is a native French speaker who has lived and worked in France. He presented in French and provided an analysis of why Brexit happened, where we are in the process and the stance that the Government is taking in its approach to negotiations, looking at some of the challenges and opportunities ahead for UK and French businesses.

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