Brexit: things to consider if you trade internationally

As the tumultuous Brexit process rumbles on, both small and large businesses in Wales still face huge uncertainties as to what is to come. At this stage, we do not know what the final EU-UK deal will be, or if indeed Brexit will actually go ahead but we do know what was proposed in the draft Withdrawal Deal and Political Declaration (which Parliament has repeatedly and resoundingly rejected) and what a hard Brexit or no deal would look like. Businesses in Wales can put themselves in the best possible position to respond to whatever the final outcome is by understanding how the Brexit scenarios could affect them.

A long extension to Article 50

Whilst this scenario may continue the uncertainty in the short term since nothing is actually resolved, most Welsh businesses would prefer it to the certain downsides of a no deal Brexit. During the period of extension, the current status quo of frictionless trade through a customs union and access to the single market would be maintained but uncertainly would still prevail and businesses would still have to plan for the possibility of No Deal or a hard Brexit.

A hard Brexit

This scenario envisages a form of negotiated settlement with the EU which would take the UK out of the customs union and the single market. Any negotiated exit would most likely include a transition period which would guarantee the status quo for a defined period and allow time for businesses to prepare. However, after that period, Welsh businesses would likely face significant disruption from a legal and trade perspective, as it would require them to deal with a new border and the associated inspections, tariffs and customs processes. It could also lead to a divergence in regulatory regimes between the EU and the UK. All this would bring new burdens for Welsh businesses in legal and regulatory compliance and risk management.

A soft Brexit

There are varying possible scenarios for a soft Brexit. However, many proponents imagine a "strategic partnership agreement." In this case, both the EU and the U.K. would maintain mutual market access and avoid non-tariff barriers to trade in goods and services. This would imply that businesses would need to maintain full compliance with EU legislation and regulations for all goods and services imported and exported with the EU single market. It is likely therefore we will continue to harmonise (perhaps with no ability to shape policy) yet there will be transitional adjustment issues and divergences over time that are likely to create barriers and delays to market entry.

The worst case Scenario: No Deal

Under no deal, the UK would revert to World Trade Organisation (WTO) rules on trade and any exports to the EU would be subject to EU tariffs, and vice versa, as well as administratively burdensome authorisation and certification processes. The EU may also no longer recognise many products that have been tested, certified or registered in the UK. For Welsh businesses operating in highly regulated sectors, such as food, chemicals and pharmaceuticals, this could have a serious impact. In the absence of a transition period, businesses would need to react immediately and implement their no deal contingency plans. It`s not all doom and gloom however: Welsh manufacturers serving UK businesses would likely be in demand because of the potential difficulties and issues surrounding imports from the EU.

What can businesses do to get themselves in a strong position for international trade post-Brexit?

Review your contracts

Review your contracts, seek to renegotiate unfavourable terms where possible and speak with your legal advisors to discuss the adjustments that might need to be made to your standard terms for future contracts. For example, contracts which are linked to a specific delivery or performance date may be affected by border delays and certification processes so fluctuation provisions could be incorporated as well as protections to safeguard against border issues and other delays. Also review customer contracts for delivery terms to ascertain whether your goods are 'Delivered Duty Paid' (DDP), this means that you as the supplier are responsible for any duty chargeable rather than the customer.

Ascertain economic origins

Businesses operating internationally will need to understand the ‘economic origin’ of any products and components they use or sell in order to ascertain whether they may benefit from zero tariffs at import, manage their duty costs and be ready to apply for any reliefs. Depending on the terms of any trade deal that is negotiated with the EU, the cost savings could be significant. This will entail a detailed analysis to determine where they were manufactured but businesses that have the data readily available and are in a position to complete export and import documentation quickly will get a competitive edge.

Utilise existing government schemes

Welsh businesses that trade outside of the EU might already be using government-backed schemes such as 'Trusted Trader' which allows logistics and hauliers priority at border controls, accelerated customs clearances and other reduced compliance obligations by gaining Authorised Economic Operator (AEO) accreditation. This will become critical in the case of a no deal or hard Brexit, particularly for businesses that are part of complex supply chains. Other initiatives to consider include customs warehousing and inward processing.

We're in this together!

If ever there was a time for Welsh businesses and partners to work collaboratively and find common solutions it`s now! There will be other third parties that play an essential role in your business: suppliers, banks, professional advisers, insurers and customers will all also be dealing with their own Brexit related challenges so why not come together to share information, best practices and joined up planning to share the burden and build robust contingencies? Now is the opportune time to consider joint ventures, industry clusters and cooperative approaches to pool resources to devise innovative solutions to the challenges ahead. 

Insight article byChristian Farrow

Christian Farrow

Partner

+44 (0)7791 370 679
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