Brexit Guide 2021
Things are about to get uncomfortable. This guide gives you the clues on how to relax.
A “no-deal” trade scenario between the UK and the EU is highly likely on Jan 1 2021. Understand what the major impacts will be, which sectors will be most affected and what you can do about it. It’s not too late for planning.
After 47 years of integrating with the EU, the UK now appears set on a total cliff-edge break, with all the implications for business it implies on top of disruption caused by coronavirus.
With 5 months to go, the normally reliable Daily Telegraph newspaper reported on Wed July 22 that no trade deal with the EU is now the expected outcome in UK government circles.
What happens next?
As of 1/1/2021, the UK withdraws from the EU’s Single Market and Customs Union meaning trade and other agreements surrounding the UK’s membership of the bloc terminate.
Businesses have been told to start preparing for a “no trade deal” exit on that date.
However, and it is a significant caveat, political moves are almost certain to occur. We cannot guess at their scope or outcome but the landscape on exit may not be as bleak as it appears now. The UK Parliament is in recess until Sep 1 so nothing will happen quickly.
The previously agreed Withdrawal Agreement stands. That defines the main “divorce” issues –citizens’ rights, Northern Ireland, and the UK’s financial obligations to the EU.
This analysis looks only at the facts impacting business as we know them to be today, so you can plan appropriately for any necessary actions.
High profile impacts
In 2019, the EU accounted for 46% of all UK exports, worth £170 billion ($215B) at zero or minimal tariffs and with frictionless movement of goods, capital, services and people. That’s history now. Brexit will impact almost every business in the UK with varying severity.
The fallouts with the most widespread disruption are likely to be:
Frictionless UK/EU trade will cease if the current scenario plays out unchanged.
Customs paperwork and processes will delay UK-EU inbound and outbound logistics. Businesses will need an EORI number (Economic Operators Registration and Identification) to move goods between the UK and EU.
VAT taxes for UK/EU trade in both directions will change, including reciprocal arrangements with the EU.
WTO customs tariffs: The assumption is that the UK will “fall back on WTO terms.” That means the tariff schedule that the EU has registered with the WTO for so-called non-EU third countries. The change will be dramatic on many (but not all) products. For example, the tariff on beef carcasses imported from, or exported to, the EU is 0% today. From Jan 1 it would jump to 84%. The London School of Economics (LSE) published an analysis, which concluded that the tariff schedule would be “over 4.5 times worse for the UK than the EU on average.”
UK Trucking companies will automatically lose the right to provide road transport services in the EU and instead enter the European ECMT scheme. This allocates every country a limited number of permits to transport most types of goods (or drive an empty vehicle) to or through 43 other European countries. There are about 8,500 UK-registered international road hauliers. The UK’s permit quota is 2,088 so about 75% of them will not get one in 2021.
GDPR (EU’s General Data Protection Regulation): The UK intends to incorporate GDPR into local legislation, which means little expected change. However, any UK business with no base in the EU that holds data about EU citizens must assign a representative in Europe to act as a direct contact for GDPR Supervisory Authorities and provide that in writing.
Talent: While London currently has the one of the most internationally diverse pools of technical talent across all of Europe, restricting the free movement of European citizens into Britain will throttle the inbound flow of vital expertise.
US businesses selling into the UK
As Brexit affects trade only with the EU, UK import regulations governing goods and services from non-EU countries should not change. Customs processes, documentation and costs will change to a UK-only model, and logistics may be impacted. Operational incidentals such as travel insurance and car hire for staff traveling to the UK may be more complex and costly.
However, it is the business interruption and impact on supply chains that will have the greatest effect on US businesses with UK operations. What applies to all UK businesses will also matter to the US parent companies.
What sectors will be most seriously affected?
The UK has a strong track record in the technology and innovation sector with tax incentives, investment and funding, and also R&D. As of 2019, London has 45 unicorn startups (worth at least $1B) while tech sector investment grew by 44%.
These are just some of the sectors that will need to adjust quickly:
- Telecoms and media – regulatory change, roaming charges and wholesale rates, ecommerce and over-the-top services, consumer protections.
- Manufacturers with JIT supply chains – Aerospace, automotive, chemical, pharma, computer systems, and many more.
- Agriculture – EU subsidies paid to UK farmers will end, and tariffs will hit exports.
- Life sciences – regulatory disconnect surrounding product standards leaves a void until the UK enforces a regulatory regime that meets with EU approval.
- Banking & Financial Markets – European banks warn that financial access must be agreed by Oct 1 to avoid serious disruption. An Equivalence agreement would avoid the need to relocate operations and staff to the Euro zone. That requires negotiation. It’s a tight call.
Conclusion – What are the main takeaways?
UK economic, trade and immigration policies will change in time. Non-UK businesses with a UK presence must be alert and keep their UK-based employees and operations compliant.
This high-level preparedness checklist is generic of necessity, but may prove useful. See below for online resources that drill down into more granular detail.
Plan ahead: Some jagged edges of “no deal” Brexit may be smoothed at the last minute. Regardless, common sense suggests contingencies be put in place now. Last minute actions may be significantly more costly with reduced probability of success.
Financial contingency: Whether for warehousing buffer inventory or higher inbound material and running costs, additional OpEx is highly likely. Make provisions now.
Customs: Exporters, importers and manufacturing businesses should consider obtaining Authorized Economic Operator (AEO) certification for simplified customs procedures and fast tracking certain shipments. AEO is an “internationally recognized quality mark indicating that your role in the international supply chain is secure, and that your customs controls and procedures are efficient and compliant.”
Exchange rates: £ to $/€ exchange rates will depend on the severity of the exit. Consider buying forward as a hedge. A weakened GBP initially is likely. December rates will be telling.
Contractual risk: Review logistics and insurance terms for inbound and outbound transactions. Investigate supply chain alternatives now should potential disruption cause risk of contractual breaches by your company.
Contract terms: Consider including a Brexit clause in contracts with new and existing EU clients to cover unquantifiable Brexit implications. Define a cost-sharing approach, covering any new laws or regulations that increase the cost of doing business between the parties.
Collaborate with suppliers and customers to engage them early in preparations. Bottom out new requirements in some detail and identify process flows, with deadlines and names for roles, responsibilities and clear expectations.
Outsource: Take the time now to evaluate the opportunities to enhance supply chain processes and the performance of your current contract manufacturers, suppliers, and logistics strategies. For example, if you have OEM appliances that you are marketing across the EU, look for opportunities and advantages to outsource manufacture of servers and technology appliances with companies like AMAX in Ireland.
The one silver lining of the pandemic is that many organizations have already put measures in place to protect their supply chains and make them more resilient. This goes some way to preparing for trading in the new post-Brexit environment.