3 minute read 14 Jul 2020
Why a hard Brexit appears to be inevitable

Why a hard Brexit appears to be inevitable

Authors

Franky De pril

EY EMEIA Global Trade Leader

Helping clients navigate global trade.

Lize Martens

EY Belgium Tax Senior Consultant

Global trade advisor.

3 minute read 14 Jul 2020
Related topics Global trade Tax Supply chain

The negotiations on the United Kingdom’s economic exit from the European Union are at stalemate. A hard Brexit appears inevitable. There are only losers in this impasse – on both sides of the Channel. Particularly the many SMEs in Belgium. They must bring out their emergency plans urgently.

Britain left the European Union on 31 January. Until the end of this year, we are in a transition period, in which the United Kingdom still belongs to our customs union and the single market. During this transition period, the European Union and the United Kingdom are negotiating about their future relationship. But – six months after the start of the negotiations – we have got nowhere. That’s what both camps say.

The last four negotiating rounds were tough and didn’t lead to a major breakthrough. The sticking points that existed at the start of the negotiations persist, particularly fishing and the level playing field. In June, the British government formally confirmed that it won’t extend the transition period. As a result, the Brexit deadline is firmly set at 1 January 2021 – deal or no deal.

Six months after the start of the negotiations about the future relationship between the EU and the UK, we have got nowhere.
Lize Martens
EY Belgium Tax Senior Consultant

Border checks

With the economic exit in sight, fears are growing in the UK that they won’t be able to sustain the increasing number of checks at the borders post-Brexit. Leading to congestion in their ports. For this reason, the UK has decided to phase in border checks gradually.

This means that European exporters will initially have six months – from 1 January 2021 to 1 July 2021 – to submit their customs declarations and pay any duties. However, strict checks will be carried out on alcohol and tobacco from the EU from 1 January 2021. Pre-notification for food products won’t be required until 1 April 2021. By this phased approach, London hopes to lessen the next blow to the economy, after a severe contraction due to the coronavirus crisis.

For its part, the EU has announced that it won’t deviate from the EU customs obligations. It will apply stringent checks to imports from the UK from 1 January 2021. EU governments are urging companies to prepare for the new import and export requirements right away. According to the experts, Brexit will lead to an increase in customs declarations in Europe of up to 40 percent. Fears are great that companies with little experience of import and export – such as many Belgian SMEs – will be insufficiently prepared. They will find the blow of Brexit particularly hard to take.

Import duties

The costs for businesses associated with an increase in customs declarations and avoiding longer journey times will make exporting to and importing from the UK more expensive from next year. A hard no-deal Brexit will substantially increase this price tag for companies, because they will then have to pay higher import duties.

Meanwhile, the UK has published its tariffs. For certain product categories, these differ from the EU tariffs. Import duties are mostly reduced to 0 percent, but at the same time the country will maintain high tariffs to protect its local manufacturing, with tariffs of 12 percent on clothes, for example.

Businesses need to dust off their emergency plans and brace themselves for a no-deal Brexit – that’s more likely than ever now.
Franky De pril
EY EMEIA Global Trade Leader

What’s the next move?

The chief negotiators recently agreed to step up the talks from July and break the deadlock in the negotiations in the hope of still reaching a ratified deal by the end of this year. To escape from the Brexit impasse, both parties need to make concessions. The question is whether a compromise is still possible after months of distrust.

Businesses need to dust off their emergency plans and brace themselves for a no-deal Brexit. That’s more likely than ever. We’ve known for some time that there are only losers in the Brexit saga – including in Belgium.

Key dates

31/1/2020: The United Kingdom leaves the European Union. At the same time, an economic transition period begins until the end of the year.

1/1/2021: The United Kingdom leaves the EU customs union and single market. The EU introduces stringent checks on UK imports.

1/1/2021: EU exporters have six months to submit their customs declarations and pay any duties. This delay does not apply to alcohol and tobacco.

1/4/2021: This pre-notification requirement now applies to food as well.

Brexit Trade Scan: Is your business Brexit-proof?

The EY Global Trade team has developed a Brexit Trade Scan in order to help companies assess the risks and define the strategy to react appropriately.
 

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Summary

A hard Brexit appears inevitable. Businesses must bring out their emergency plans.

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