This note provides an introduction as to what the business environment will look after the UK leaves the EU.
Whilst there is a lot of uncertainty about the details of the UK’s relationships with the EU and the rest of the world, in each scenario there are many common features that we can use as rule of thumb examples.
Industry Needs to Educate Itself – Quickly
It is essential that industry understands the way that supply chains and trade will be altered in March 2019, as failure to future-proof your business could be disastrous – it could also lead to very difficult questions from investors and shareholders as to why directors did not plan ahead for the opportunities and risks of leaving the EU.
Rule of Thumb Changes to Supply Chains
Even falling back on WTO rules, inevitable and unavoidable consequences of leaving the EU are that:
- tariffs between the UK and EU will be re-imposed, and
- services agreements are likely to fall away (trade between countries need many agreements to enable frictionless trade – right and left hand drive lorries being permitted on roads, for example).
Businesses therefore need to be ‘future proofed’.
Future Proofing: Examples
The changes to business caused by leaving the EU have recently received high-profile press coverage showing how great the changes are expected to be:
These examples have one thing in common – an agreement that is necessary for these industries to operate is scheduled to fall away, leading to uncertainty.
Whilst not as immediately catastrophic, but also of great concern is the reimposition of tariffs between the UK and EU.
- For example, some beers carry a 19% tariff, beer imported into the UK from the EU will be 19% more expensive in the UK (good news for UK brewers), but the converse is true, UK brewed beer exported to the EU will also be 19% more expensive in those markets (bad news for UK brewers and good news for EU breweries).
Bringing the increase in tariffs and services agreements together, therefore:
- Where does he buy his bottles/cans from? Are they imported, if so they are likely to be subject to other tariffs.
- The labels on beer bottles – is there anything special about the paper, if imported, more tariffs. The glue used to stick the labels on the bottles, is it imported? More tariffs.
- Where are the labels physically put on labels, are they sent out of the UK and reimported before the beer is put in the bottles? More tariffs.
- The ingredients – is anything imported? If so, there are likely to be tariffs or even quotas – will the quota be enough for domestic demand?
- Finally, sanitary measures will need to be considered. Have storage temperatures been complied with – checks may need to be carried out at the border. Are the bottles cleaned to an EU compliant standard – proof may need to be furnished prior to importation or at the border. Will there be an agreement between the UK & EU in place?
- Who drives the beer to the distributors? Will UK lorry drivers need to transfer the load to EU lorry drivers – left hand drive vehicles?
The entire supply chain needs to be considered, in order that businesses can function post-March 2019.
Conclusions/Lessons
A change of mind-set is required: The UK has been a part of the EU in its various forms since the early 70s. Since that time the EU has gradually lowered barriers to trade – this will come to an end in March 2019, and barriers to trade will increase overnight and, it is expected, that the agreements will also stop overnight.
Whilst the Ryanair, cancer radiation and banking examples are very dramatic, other industries that rely on an agreement at some level of the supply chain, even if it is a trade partner that needs the licence, need to prepare. If the trade partner cannot function for want of a UK-EU agreement, it can have knock-on effects.
Also, businesses need to prepare for the inevitable increase in prices of most goods that cross borders, even if the item is merely an input for a finished product, manufacturing costs will increase. Costings need to be reviewed to ensure financial viability.
Our lawyers have many years experience of working on EU law matters and also, rather uniquely for London, have experience negotiating bilateral trade agreements and have worked at the World Trade Organisation. This unique perspective of UK-EU-WTO-FTA laws is very useful in helping clients identify risks to their businesses as the legal process moves forward.
[1] https://www.theguardian.com/business/2017/jul/24/ryanair-profits-take-off-but-airline-reissues-brexit-warning
[2] https://www.ft.com/content/185175e4-f9cd-11e6-9516-2d969e0d3b65?mhq5j=e1
[3] http://www.thisismoney.co.uk/money/markets/article-4350852/Where-banks-going-post-Brexit-s-s-leaving.html
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