5 minute read 11 Feb 2020
How to stay in business after Brexit

How to stay in business after Brexit

Authors

Franky De pril

EY EMEIA Global Trade Leader

Helping clients navigate global trade.

Lize Martens

EY Belgium Tax Senior Consultant

Global trade advisor.

5 minute read 11 Feb 2020
Related topics Global trade Tax Supply chain

Brexit done… the real work begins.

The United Kingdom has left the European Union. The withdrawal agreement has been approved on both sides of the channel. But now it really begins. The British and EU negotiators have to seek a new relationship fast. Businesses will have to prepare very thoroughly. How far along is Brexit?

As of 31 January, the European Union only counts 27 member states. We’re now in the transition period, which runs until the end of 2020. During this period, to all intents and purposes, the United Kingdom remains a member of the European Union, but with no political control. Although the EU has left open the possibility of an extension, this looks unlikely. The election promise of British Prime Minister Boris Johnson was clear: Get Brexit done!

Unease in the service sector

The most difficult part of the negotiations is only just beginning: that concerning the future relationship between the EU and the UK, particularly a bilateral trade agreement. The EU wants as broad a partnership as possible, covering goods, services, employment, environment, etc.

The British are set on a transition period ending at the end of 2020. But the available timespan of eleven months may not be enough to put in place such a comprehensive agreement. The negotiators are prioritizing matters not covered by international agreements together with trade in goods - they want to avoid customs tariffs and restrictions at all costs. In view of the focus on goods, there is great unease in the service sector. During this transition phase, this does not appear to be a priority in the negotiations at present.

The European Commission proposes reaching a ‘broad agreement’ with three main components: general, economy and security. This leaves open the possibility of reaching additional agreements on other matters in parallel or at a later stage.

The feared border will be introduced again and customs formalities will then be a fact.
Franky De pril
EY EMEIA Global Trade Leader

Preparing for the new reality

Reaching an agreement between the two parties is no easy task. Especially in the light of recent statements by British Chancellor, Sajid Javid. The finance minister recently reiterated that the UK does not plan to mirror EU regulations after the transition period. The UK will no longer belong to the single market or the customs union. Businesses need to prepare themselves for the new reality and have already had three years to do so.

The EU responded to this through Michel Barnier, its chief negotiator with Britain. No tariffs and no import restrictions can only happen if the regulations of the EU and the UK are aligned. Zero tariffs are by no means guaranteed. Products made outside the EU and shipped from the EU to the UK are taxed at the normal tariff on entry, the tariff depending on the product. The two parties must define the conditions for each product or product category in their trade agreement. This also means that all sectors have a big stake in these negotiations. Ideally, they should make their voices heard loud and clear. The question remains whether eleven months is enough.

Another risk, which businesses often underestimate, is that of different product regulations in the UK. This would make it more expensive for manufacturers to sell their goods on both sides of the North Sea. Sectors such as the auto sector, pharma, chemicals, food, etc. are uneasy about this. Examples include differing requirements for product quality and preliminary research, labelling, product registration, prohibited products in production, additional import licence requirements, and so on.

Feared border

Our message to businesses has always been to prepare for the worst. Many companies are well ahead with their preparations while others still haven’t got off the ground. One thing is certain: Brexit is here. And it looks very likely that the United Kingdom will actually leave the EU on 1 January 2021, regardless of the status of the negotiations. The feared border will then be brought back and customs formalities will apply once more.  It remains to be seen how that will look in practice in Northern Ireland.

Invest in specific expertise. The risks are much greater than we initially thought.
Lize Martens
EY Belgium Tax Senior Consultant

Virtually all sectors in Belgium which trade with the United Kingdom will feel the impact. As a logistics hub, Belgium may well run the greatest risk. Border formalities lead to longer journey times, more paperwork, higher costs and rising demands from customers. In addition, we also expect a modal shift in some sectors. Short, contractually agreed delivery periods will force some businesses to send more goods by air.  Are our logistical actors prepared to play their part in this complex story?  

The pharmaceutical industry is a heavily regulated sector with internationally integrated supply chains. The speed of movement of goods is often crucial. Differing regulations and standards form a major challenge. The UK and Belgium are also countries that are highly active in R&D, with a great deal of movement to and fro.

Fast access to the UK market, with minimal trade barriers such as import certificates, is equally a priority for our Belgian businesses in the food industry. Many products have a limited shelf-life and investment costs are high. In view of this, building up extra stock across the channel would not be the first choice scenario.

New challenges

We are clearly facing a different reality with new challenges. We advise you to follow the negotiations closely to see what they mean for your sector and your range of products - both goods and services. You should also invest in specific expertise, as our projects reveal that the risks are more extensive than we initially thought, ranging from logistical aspects to customs procedures, contractual changes, systemic impact and above all dependence on external business partners such as suppliers and customers.

The Brexit toolkit

The Brexit team at a global player in industrial products tells us about the priorities for the business in its Brexit strategy and approach. These are the three main ones. There are, of course, many other matters that require in-depth consideration, such as logistics.

  1. Piecing together fragmented data to arrive at an accurate assessment of the risks - financial and operational.
  2. Identification of the necessary systemic adjustments to guarantee future trade, including adjustments to billing, integration between systems, data corrections and Intrastat, which still applies despite export formalities.
  3. Customs is another key area, for example, putting in place carriers who are familiar with import and export, identifying and engaging customs agents with capacity and expertise in Belgium and the UK. We also applied for several customs and VAT permits to make the most of the available simplifications. The latter is particularly crucial to guarantee smooth trade flows.

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Summary

How far along is Brexit? The withdrawal agreement has been approved on both sides of the channel. We’re now in the transition period, which runs until the end of 2020. During this period, to all intents and purposes, the United Kingdom remains a member of the European Union, but with no political control. Although the EU has left open the possibility of an extension, this looks unlikely. Businesses will have to prepare very thoroughly.

About this article

Authors

Franky De pril

EY EMEIA Global Trade Leader

Helping clients navigate global trade.

Lize Martens

EY Belgium Tax Senior Consultant

Global trade advisor.

Related topics Global trade Tax Supply chain