From Brexit to immigration and trade policies, both the UK and the US are currently undergoing huge legislative steps towards a different kind of progress. Regulators are on their feet in anticipation and businesses even more so. Here Michael Hatchwell and Julia Holden-Davis, Directors of Globalaw, talk Finance Monthly through the most recent legal conundrums facing businesses in these nations and point back to the importance of the rule of law.
The present government’s objective whilst dealing with the huge challenge of Brexit negotiations will be to maintain a stable, vibrant and attractive economy that will offer increased opportunity for all, lower taxes (inevitable and necessary to attract wealth and business to compensate for the Brexit factor), a better standard of living, and a more global business outlook. This will be a huge juggling act, especially when the true cost of Brexit becomes fully understood and is actually felt.
Current priority areas for businesses
The key current priorities of UK business beyond survival in a difficult and unpredictable global economy are understanding the implications of Brexit and determining a strategy. Brexit has a big impact on both intangibles such as confidence, and tangibles such as movement and availability of the right staff, passporting issues, and creating a new and relevant message for the UK as a whole.
Different businesses will have different concerns, and those involved in the EU financial sector, reliant upon passporting, or who are broadly exposed to the EU market, have some difficult decisions to make.
This is the stated goal of many governments, but given Brexit it is increasingly unlikely. One only has to look at recent tax legislation to understand the challenge.
Regulation and Compliance
Mostly – will it increase or decrease? Whilst needed to avoid another financial crash and in the battle to eradicate fraud, corruption and bribery, regulation and compliance also costs UK industry billions and creates an uneven global playing field, because the same level of regulation simply does not exist in most other countries. This will become a serious issue if the UK is now to turn towards the non-EU part of the world. It is no coincidence that large Chinese and Indian companies have been able to use their vast protectionist, locally unregulated and generally untaxed local markets as a springboard to conquer globally.
Passing the burden of government to business
This is a significant and growing trend. Examples range from requiring regulated entities to report crime and suspicious activity without being allowed to inform their own clients, to introducing rules that have the effect of ensuring that perfectly proper companies cannot open a UK bank account because they do not have a UK resident director. There is and will be increasing pressure on media giants such as Facebook and Google to police effectively their own media or incur sanctions. Trial by media not by law, of companies and individuals apparently not paying sufficient tax although acting entirely legitimately (borne out by the lack of prosecutions), to politicians and even our last PM referring to a well-known comedian and his personal tax affairs, are all evidence of a less disciplined and principled environment.
In the US, the government is focused on building confidence in the US economy while also rebuilding the US’ military strength and addressing immigration issues. Each of these items has significant potential impacts on businesses – both in terms of opportunity but also in terms of risk. Within these broad objectives are more discreet goals such as tax reformation, revised energy policies, and an increased focus on both employing US workers and procuring US-made supplies.
Current priority areas for businesses
America First Trade Policy
The current US administration is actively focused on changing the United States’ trade policies. One of the first acts of the current president was to withdraw from the Trans-Pacific Partnership, and the administration has made clear that it intends to renegotiate the North American Free Trade Agreement (NAFTA). Further adding to these policy changes are active steps taken by the administration to impose tariffs or sanctions against the US’ trade partners for treatment deemed “unfair”.
These policy changes also reflect the administration’s current focus on improving the US economy through reinstating jobs, particularly in the manufacturing sector, as well as improving wages.
Changing the landscape of trade agreements and providing incentives (or disincentives) focused on optimizing the utilisation of US-based labour or to purchase US-produced items, will likely both create opportunity and change the risk analysis for local and international businesses.
Changing Tax Requirements
Alongside changes to the United States’ trade policies are proposed tax changes that also implicate businesses. One of these is the Border Adjustment Tax, which in broad terms moves the corporate income tax from its current origin-based application to a destination-based tax. This has significant potential implications for businesses located outside the United States which currently enjoy lower tax rates by virtue of their global locations.
The Administration’s focus on the energy sector is also significant to businesses. The policy broadly looks to domestic energy reserves with the goal of both providing energy within the US but also exporting energy beyond the US. Revenue from energy production is identified as key to developing and maintaining US infrastructure – from roads and bridges to schools and agriculture. Key focuses of the US government include reducing regulatory requirements which impact the United States’ ability to develop its energy (including changing the focus of the Environmental Protection Agency), reviving the US’ coal industry, and posturing the US to be independent from OPEC and other foreign nations.
Immigration remains a key focus area in the US, with businesses already considering the impact on their US-based workers, the availability and accessibility of talent, and the perceived benefits or detriments of locating workers in the US.
For both the UK and the US, these areas all neatly focus us on the critical importance of the rule of law — the main pillar of a just and successful society.
The pillar of business law is the law itself
The rule of law is the number one imperative for creating a foundation for society in which business can prosper and flourish.
It is the principle that says no man is above the law, including government and leaders. The World Justice Project expanded this to include three more principles which can be summarised as follows.
Laws must be clear, publicised, stable, protect fundamental rights such as the security of persons, property and certain fundamental human rights.
Laws must be enacted, administered and enforced, fairly, accessibly and efficiently.
Justice must be delivered in a timely, ethical and independent manner, with adequate resources and funding and reflecting the make-up of communities represented.
It is easy to see why the rule of law, or perhaps these rules of law are primordial to a successful business environment. It is difficult to identify any country which is sustainably successful which does not adhere to these principles.
The rule of law provides the essential foundation to a successful and prosperous post-Brexit Britain and it is vital that its importance is understood and that the rule of law is protected at all costs form the onslaught which threatens it. Similarly, in the United States, the rule of law must be protected to provide necessary balance and focus in a world with shifting policies, relationships, and focuses.
Michael Hatchwell is a director of Globalaw, a top 10 international legal network, and senior corporate lawyer at Gordon Dadds LLP London. Julia Holden-Davis is also a director of Globalaw and the construction and government contracts attorney practice group leader for Gunster, a United States law firm with a primary focus on Florida business.