Brexit: Talking trade

Whilst the major Brexit preoccupation is the ongoing relationship between the UK and the EU and what that means for continuing trade, another important consideration is the UK’s ability to trade with other non-EU countries once outside the bloc.

It is not a given that the UK will be able to continue to trade on the same terms as currently exist with these countries. The Department for International Trade has confirmed that it will not complete a ‘rollover’ of all existing EU trade deals by 29 March when the UK is scheduled to leave the EU. To date, just six of the 40 or so trade continuity agreements the UK needs to enable trade with non-EU countries have so far been signed. Whilst exports to Switzerland and Chile for instance, will continue on almost exactly the same basis as today, negotiations with major trading partners, including Japan and Turkey, will not be concluded in time. For businesses exporting to countries where there is no rollover, it is unclear what will happen to their goods on arrival.

As for imports, publication of the Government’s plan for tariffs on goods coming into the UK has been delayed amidst speculation there will not be blanket zero tariffs. The Government faces a difficult choice here: zero tariffs would be simpler to administer and keep trade flowing in the short term. But, zero tariffs could damage the competitiveness of some UK industries who have been protected to date by EU tariffs.

I asked George Riddell, a trade specialist in Deloitte’s Brexit Insights team for his take on what businesses need to know:

• In the event of a no-deal exit, any EU trade agreements which have not been rolled over will automatically cease to apply to the UK from 30 March 2019. And it’s not all about goods: UK traders will likely lose access to preferential tariffs, but also to market access for UK services and public procurement opportunities offered by the agreements.
• Goods being exported to distant markets are already impacted. Shipments to Korea typically take up to five weeks, while South Africa and Peru are four weeks away by sea. UK businesses have in fact already started shipping products without knowing the terms upon which they will be received.
• We don’t know what tariffs the UK intends to apply to imports on Day One in the event of a no-deal. The default option is the EU’s agreed World Trade Organisation tariff rates – but that would mean that EU goods entering the UK would suddenly face potentially significant tariffs. The British Retail Consortium warned last week that a no-deal Brexit could lead to tariffs of 40% or more being imposed on food such as beef and cheddar cheese which would almost certainly lead to an increase in cost to the consumer. The Government could choose to lower its tariff rates to protect UK consumers, but it would have to offer the reduced tariff rates to all WTO members, not just the EU, which threatens the viability of UK producers in sensitive sectors such as agriculture, steel and ceramics.
• If the UK leaves under the terms of the Withdrawal Agreement or something very similar to it, then the UK would have to continue to offer the same terms to third countries as it does currently as a member of the EU. Conversely, the EU would request that those countries continue to treat Britain as though it were a member of the EU - but neither the UK nor EU could compel them to do so. There is a risk of creating a ‘one way street’ for trade, but both the EU and the UK hope to avoid this.

Though time is now short, there are still actions that businesses reliant upon existing EU trade agreements can take:

1. Conduct a trade continuity and market access review to understand your exposure to third country trade deals; assess International Commercial Terms (INCOTERMS) for who bears the impact of losing beneficial trade terms.
2. Make sure you know how to complete and submit the necessary customs declaration procedures and forms for both imports and exports.
3. Ramp up your operational response capability; take steps to manage disruption as and when it occurs, including accelerating imports/shipments, identifying alternative suppliers and/or markets.
4. Continue to monitor developments regarding Day One tariffs in a no-deal scenario as well as any additional trade agreements being rolled over.

In an era of unprecedented trade uncertainty and friction, companies that are aware of the risks and actively engaging with their stakeholders have the best chance of effectively landing their goods or finding a way to continue to access markets.

Find more information on how to plan for trade continuity in our technical trade paper here: Download Trade Technical Update.