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Posted 24th September 2018

Are you ready for a sharp Brexit?

Our Chairman Ian Baxter shares his advice for businesses on how to keep goods moving post-Brexit and how we stand prepared to support our customers, whatever type of Brexit deal we get. 

The current Brexit negotiations are difficult for anyone to get their head around so let’s start with where we are at present:

After EU leaders unanimously rejected Theresa May’s Brexit ‘Chequers plan’ in Salzburg, it looks as if negotiations are going to go right down to the wire with the Prime Minister standing her ground.

Some have described the Salzburg meeting as a ‘nightmare’ for Theresa May and it’s certainly not helpful that the head of the European Council Donald Tusk has since been mocking the PM on Instagram. The Brexit negotiations are by far from a laughing matter and for someone whose wages are paid in part by the British taxpayer I might add, perhaps think twice next time Mr Tusk before trolling.

Let me be upfront: I campaigned for the UK to remain in the EU being an official speaker for ‘Britain Stronger In Europe’. Not because I love European institutions particularly but out of hard headed pragmatism that the UK has a largely beneficial arrangement with the EU and that leaving would be complicated and potentially damaging.

But I’m also a democrat and a realist, and the facts are that we held a referendum and the majority voted to leave. Unless there is a radical change of circumstance, leave we must, and leave we will.

The UK is scheduled to leave the European Union on 29 March 2019. Under the draft Withdrawal Agreement, the UK has negotiated an implementation period so that, once we have agreed what a post Brexit trading relationship will look like, there will (theoretically at least) be enough time for businesses and individuals to adjust before the new reality comes into force. That transition period is scheduled to last until 31 December 2020.

You will note that I have used the word scheduled twice already. That’s because it’s possible that Article 50, our notice to quit the EU, might be extended by agreement to allow further talks and it’s also possible that the UK will crash out of the EU next March without any deal at all.

Under the principle that “nothing is agreed until everything is agreed”, a ‘no deal Brexit’ means there will be no implementation period so our trade with Europe would immediately fall back to World Trade Organization (WTO) rules (this sounds straightforward but the head of the WTO has signaled it wouldn’t be).

A third possibility is that there is an agreement but that the parties decide the implementation period isn’t sufficiently long so it might be extended to end later than 2020.

With such a lack of clarity it’s very hard to know what businesses should do to prepare themselves. And although every business hates uncertainty, the fact UK and European companies are all in this together does, I think, mean we shouldn’t panic.

Surely no Government on either side of the Channel is going to perpetrate such a significant act of self-harm as to disrupt the integrated supply chains of the automotive and aerospace sectors or undermine the stability of the European financial sector are they? Are they indeed.

 

How to create a Brexit risk assessment:

Now I’m sure that most business leaders have already done this to some degree but I think it’s really helpful to create a Brexit risk assessment. Theresa May’s right hand man David Lidington also recently spelt out that the Government currently sees only two real alternatives: the so-called Chequers plan or leaving the EU without a deal. My two infographics indicate the key differences.

Despite Mr Lidington’s view, it is, of course, possible that we will end up with some other kind of ‘non-Chequers Brexit’ given the recent talks in Salzburg. While it’s hard to second guess what that might look like, we do know it would be likely to involve more bureaucracy and hassle for any business trading with Europe.

While it’s true adopting any of a Norway, Switzerland, Turkey or Canada style arrangement would have benefits for the UK, each of them would involve additional customs paperwork and procedures that aren’t currently necessary as none of these countries are members of a full customs union with the EU (although Turkey partly is).

If none of these models are adopted or we have a ‘no deal Brexit’, our trading relationship will change fundamentally as we will not have tariff free access (like Canada mostly does), will not be part of a Customs Union (so will require customs clearance and certificates of origin) and won’t have a common rulebook (so might expect to be subject to border checks).

As we gear up to help businesses cope with whatever the Brexit outcome delivers, it is worth asking the following key questions:

  1. Which parts of your business depend directly or indirectly on trade with Europe?

You may import components which are used to make your products or be a reseller of EU goods, maybe your goods are made here or imported from outside the EU but exports to Europe are a big part of your sales. But I say indirectly because maybe you don’t even trade with Europe but the components you buy in the UK have their origins in the EU. In today’s world of very complex supply chains it’s very hard to avoid this.

 

  1. If you directly trade with the EU, are you familiar with rules of origin and customs regulations?

If you trade with countries outside the EU then you probably are. If not, it’s time to upskill your business to be ready for the likely changes. Your local Chamber of Commerce is a good starting point.

 

  1. How sensitive is your business to delays in transporting goods?

Whether you trade directly or indirectly with the EU, since deliveries will likely take a little longer and be a bit less reliable outside of the Customs Union, consider how sensitive your business is to any delays. Regarding imports: maybe it’s possible for you to build up a few days’ worth of extra stock to cope with any new arrangements. Although an agreed deal will have an implementation period, a ‘no deal Brexit’ will not. Such an outcome could be seriously disruptive to supply chains so building up stock over the next few months probably makes sense.

 

  1. What if you’re an exporter to the EU?

Any outcome that does not involve a Customs Union or some kind of facilitated customs arrangement will likely add time (as well as cost) to distribution from the UK to Europe. We are currently seeing many businesses building up stock in new warehouse facilities in the EU. Maybe they won’t turn out to be strictly necessary, but these companies are doing all they can do to protect their businesses from Brexit and to make sure their customers have an uninterrupted supply.

 

  1. Looking beyond Europe…

Finally, don’t forget that one of the points of Brexit was that UK businesses should be focused on looking beyond Europe to the US, former Commonwealth and fast-growing developing economies of the Far East for new business.

 

  1. Anything else you can do?

To be honest, there are too many issues to mention here but one other thing that can be done is to apply for an Authorised Economic Operator (“AEO”) certification, also known as “trusted trader status”. While it isn’t clear precisely what benefits this will have in an unknown post Brexit world, AEO does mean your goods are less likely to be subjected to formal customs checks and any customs guarantees that might be necessary for VAT and duties will be lessened. So this is definitely an option worth exploring.

Since not even Theresa May really knows what Brexit will mean (some doubt it will even mean Brexit!), it’s hard for us to be certain what our customers should be doing to be Brexit ready. But what we do know is that we stand ready to help you cope with whatever comes in the best way possible.

Whilst leaving the EU isn’t a path I would personally have chosen, minimizing the challenges and maximizing the opportunities for our customers is what we are focused on every day. Please get in touch if you’d like help or advice or if we can assist you in any way.