As Brexit negotiations continue to rumble on without a resolution, and the “Irish backstop” in particular proving very thorny, businesses need to plan seriously for the risk of a “no deal” that results in no transition period and a “hard” Brexit as of 11pm on 29 March 2019.
In the light of that looming deadline, both sides have been intensifying their “no deal” preparations. The UK Government has published a series of “technical notices” providing guidance on how to prepare for ‘no deal’, including 15 notices on importing and exporting. Some of these notices cover specific trade issues, including in relation to timber, animals and animal products, plants, commercial road haulage and objects of cultural interest. Businesses likely to be affected by those issues should study those notices closely.
Other notices provide more general information, including guidance on trading with the EU and the status of the EU’s existing free trade agreements with non-EU countries.
The notice on trade with the EU sets out the expected impact on customs and excise procedures in the event of a “no deal” Brexit. Businesses would have to apply the same customs and excise rules to goods moving between the UK and the EU as they apply to goods traded outside the EU, including producing customs declarations. This would be a significant change for UK businesses that trade with the EU, particularly if they do not also trade with third countries and so have no experience with customs declarations. As well as understanding these administrative requirements, businesses should review their contracts to ensure they can cope with the UK becoming a non-EU country.
The notice on existing EU trade deals with non-EU countries states the UK Government’s intention to replicate those EU arrangements in bilateral UK agreements. The Government believes the status quo can be maintained through any transitional period agreed with the EU, but in a “no deal” scenario trade with third countries would default to World Trade Organization (WTO) rules until a replacement bilateral agreement could be established. Businesses trading with third countries on the basis of EU agreements, whether directly or via their supply chains, should carefully consider how changes to the trade rules would impact them (e.g. if tariffs were imposed or the relevant origin rules were changed).
There may yet be a UK-EU withdrawal agreement that would put off any changes to trade rules until at least December 2020 and perhaps longer if the UK agreed to stay in the EU Single Market and/or Customs Union. However, with ‘exit day’ fast approaching and positions seemingly entrenched on both sides, Scottish and UK businesses who trade internationally should be doing what they can to ensure a “no deal” Brexit causes them as few surprises as possible.
Charles Livingstone, partner, government, regulation and competition, Brodies LLP. Visit http://www.brodies.com