Sally Jones, EY’s Brexit Strategy and Trade Leader, commented:
“The UK and EU announced an agreement in principle for the UK-EU Trade and Cooperation Agreement (UK-EU TCA), which will govern the economic and trading relationship after the end of the transition period on 31 December 2020 at 23:00 GMT+1.
“This agreement will now need to be ratified through the respective UK and EU processes. This starts with the so-called ‘legal scrub’ to ensure that the text is legally effective, translation into the remaining 23 official languages of the European Union, and then various formal approvals, including an emergency plenary of the European Parliament between Christmas and New Year.
The European Commission has proposed that the UK-EU TCA will be provisional applied until 28 February 2021 as not all the legislative procedures will have been completed in time before the end of 2020.
What does the deal mean for business?
“The agreement does not mean that businesses will no longer need to make any changes to their operations – far from it – but rather brings certainty on many of the new trading rules that will apply after the end of the transition period, most notably tariffs.
“The immediate effects of leaving the single market and customs union will be experienced by businesses (particularly those who move goods across UK borders) and employers. Whilst many companies have prepared as much as possible, reports consistently suggest a lack of readiness particularly amongst smaller businesses — a key element of cross border supply chains.
Behind border issues lurking in the shadows
“Yet trade covers much more than goods and immigration or ‘at the border’ barriers. ’Behind the border’ issues such as regulatory compliance, data privacy, and product conformity could be equally disruptive but less immediately apparent. Interdependency of issues across a business has been a key readiness challenge — complex supply chains, pressure on infrastructure, systems and support means that the reverberations of simultaneous change across hundreds of thousands of businesses, at different stages of readiness, is likely to compromise business as usual.
Significant change was inevitable either way
“Deal or no deal, the UK has always been heading towards ‘destination change’ throughout this whole journey.
“The end of the Brexit transition period will instigate the biggest simultaneous change to the UK’s trading, regulatory, immigration, and judicial system in decades. With no precedent for such wide-ranging implications and critical outstanding questions on how new processes will work, predictable and unpredictable disruptions to business continuity are guaranteed.
How can you fully prepare for the unknown?
“There is simply no way that businesses can be fully prepared for what’s coming as they haven’t known, up until this point, what they are preparing for. Delays in the rollout of UK government systems has also left traders unsure of what they need to do to remain trading with the EU in 2021.
“With a deal now agreed we continue to urge business to engage with government, their respective trade bodies and trade professionals to ensure they have as many bases covered as time, resource and budgets allow.”
Is it too late to prepare?
“No, absolutely not, below are the top five actions for businesses to take before the end of the transition period on 31 December:
Appoint a day one response team to include representatives from all the impacted business functions including supply chain, procurement, HR, legal and IT. Be sure to include appropriate cover over the holiday period with relevant contact details and planning rota.
Communicate with your priority customers and suppliers on any expected Brexit impacts on your business and understand their positions. Appoint appropriate contact points within your business for those customers and suppliers which can be reached over the holiday period.
Apply for relevant EORI numbers/VAT registrations in Great Britain, EU and Northern Ireland. These will be crucial to being able to complete the necessary customs procedures.
Closely monitor the impact of Brexit on your cost base. Prepare to reassess operations which may become unprofitable and quickly revise your pricing models.
Collate a priority checklist of regulatory requirements (including registrations, labelling and markings) required for shipments of products due to arrive after 31 December 2020. Be aware of the risks of non-compliance and implement changes needed.
Practical implications: a clothing retailer
“So how could the new trading rules affect UK businesses in reality? Take a clothing retailer, who for example sells handbags to EU customers.
“Its first issue is likely to be supply chain delays. It may need to warn its EU customers that orders placed before the end of the transition period will take much longer to be delivered, particularly for products containing leather – products of animal origin face additional checks and delays.
“It also needs to be fully up to speed on the paperwork and procedures to export its products into the EU, which might include having to pay a third party to become its importer of record into the EU.
“Then it needs to worry about labelling – it has to have an EU address somewhere on the packaging or the product itself – whose address? The third-party importer of record might not want to take on the additional responsibilities. Who will monitor correspondence? What if handbags are already sealed into packaging so new labels can’t be afixed? But the one thing that’s sure is that if during the first day of the January sales, the retailer is unable to provide the correct labelling under the new rules, they won’t be able to legally sell the product to EU consumers. This scenario could apply to thousands of product ranges and potentially result in the retailer missing out on crucial trading and revenue.
“Then there’s data. There will be strict new rules governing how UK companies receive and store private data about EU individuals. Every time an EU citizen places an EU order he or she provides sensitive details – home address, bank account details, etc – and the UK retailer needs to be sure that it’s first permitted to receive the data at all, and then that it’s treating the data correctly.”