2019 Outlook: Global Regulations and International Investment
From the Brexit plan hanging by a thread, to the longest US government shutdown in history, to the US-China Trade war and several key elections scheduled across the globe, 2019 is certainly off to an interesting start. Business executives are constantly monitoring global trends to ensure that they make informed decisions that benefit their firms. Below is a discussion of four major legal frameworks that could significantly impact global business in 2019.
Brexit Withdrawal Agreement
Britain decided to leave the European Union in 2016, following a referendum in which the majority of the British people voted to leave. On March 29, 2017, Prime Minister Theresa May invoked Article 50 of the Lisbon Treaty, which governs the withdrawal process. The Article allows the withdrawing State and the EU to negotiate a withdrawal agreement for a period of two years, after which the state ceases to be a member. This means that Britain will cease to be a member of the EU on March 29, 2019.
In a recent turn of events, the European Court of Justice (ECJ) ruled on December 10, 2018 that Britain may unilaterally revoke the Article 50 Brexit process and choose to remain a member of the EU. The negotiated Brexit deal was subsequently rejected by the MPs and Prime Minister May survived a vote of no confidence.
At this juncture, there are a number of possible scenarios that may occur. Firstly, Prime Minister May could ask for an extension of time to negotiate a fresh deal that will appeal to the MPs. Alternatively, Britain may decide to exit on March 29 without a deal. The Prime Minister may also call for a new referendum with a view to rescind the Brexit process. Whatever the outcome, it is likely to have a significant impact on corporations with large imprints in the UK and Europe. For instance, in the event of Brexit, a manufacturing firm with its main hub in the UK and market across Europe may lose the single market advantage and may incur higher costs through tariffs in exporting from the UK to other parts of Europe. Companies may also need to consider the immigration status of its UK citizens in other parts of Europe and vice versa.
The General Data Protection Rule (GDPR) is a regulation in the European Union that governs data privacy and protection of its residents. The EU regulation is poised to change the way personal data is managed by data controlling or processing companies. The regulation applies to all data controllers (entities that collect data) and data processors (entities that process data on behalf of collectors) based in the EU, as well as those who collect or process personal data of EU citizens. The regulation, among other things, mandates that companies disclose in very clear terms how collected data will be processed and, in some instances, disclosed to third parties.
Although the GDPR became effective in May 2018, and in spite of the fact that companies had two years advance notice, 2018 was generally seen as a year of compliance for the relevant companies, with most of them publishing revised privacy policies and putting up internal structures to ensure compliance. It is therefore believed that regulators will be tougher in monitoring and enforcement in 2019. Companies subject to the rules need to ensure they are in compliance if they want to remain in business. On January 21, 2019, CNIL, the French data protection regulator, imposed a €50 million fine against Google for non-compliance with the GDPR. This is the biggest fine to be issued in relation to the GDPR. The impact of the regulation is exacerbated by globalization, as most global companies have a strong customer bases in Europe. It is only a matter of time before the GDPR (or some variation of it) becomes a global law. The UK passed the Data Protection Act 2018, which has similar provisions to the GDPR, and pundits predict that Congress may consider enacting a US version of the GDPR.
Basel III is an international regulatory framework for financial institutions enacted by the Basel Committee on Banking Supervision in reaction to the 2008 financial crisis. The committee consists of central bank governors from 28 countries and has a secretariat in Basel, Switzerland. Basel III is a policy vehicle built to address bank capital adequacy, stress testing and market liquidity risk to ensure that financial institutions can withstand any future credit crisis.
The regulation increases minimum capital requirement from 2% to 4.5% of common equity of the bank’s risk-weighted assets (RWA), requires banks to hold a leverage ratio in excess of 3% and hold sufficient liquid assets that can withstand a 30-day stressed funding scenario as specified by the supervisors. Although the deadline for implementation by international banks is March 31, 2019, there is no publicly available information that shows the current level of implementation by banks. The implementation may likely impact lending capacity as well as profit margin of the banks, as the requirements touch on their liquidity. In any event, it is likely that some financial institutions may consider mergers and acquisitions or some other form of asset consolidation to enable compliance.
The African Continental Free Trade Area (ACFTA) is a multilateral treaty pioneered by the African Union to create a single continental market with free movement of goods and persons. If implemented, the agreement could bring together 54 countries with a combined population of 1.2 billion and GDP of over $2 trillion. Some countries, such as Nigeria, have yet to commit to the agreement, asking for more time to consider the implications on their domestic economies. The UN Conference on Trade and Development estimates that participating countries may lose about $1.4 billion annually in waived tariffs, but with the potential to generate gains in the realm of $16 billion.
Economic experts predict that the ACFTA could be in effect by mid-2019. This will reduce the cost of doing business in Africa, eliminating tariffs and converting all participating countries into a single market for manufacturers and traders in Africa. Companies established in non-participating countries may also consider shifting base to a participating country to enjoy the fruits of the ACFTA.
Higher Regulatory Standards Accompany Increase in Market Access
As technology and globalization continue to provide access to global markets, businesses increasingly become subject to global regulatory frameworks. These legal frameworks attempt to facilitate both international investments and consumer protection. This outlook projects a conscious effort by sovereign states to reevaluate their relationships with other states and how those relationships impact the businesses within their respective jurisdictions. In any event, 2019 is set to be an eventful year for international investments.
Tobi Amoo serves as a graduate editor of the NYU Journal of Law & Business, and is a candidate for an LL.M. in Corporation Law at NYU School of Law. Prior to NYU, he practiced corporate law at SimmonsCooper Partners, one of the leading law firms in Nigeria. He is admitted to practice law in Nigeria.