This article is part of the FERMA/AIRMIC joint Brexit Newsletter which is designed to give risk professionals unique insight into Brexit related risks and mitigation strategies.
“No matter what the framework of the new relationship is, trade with the UK will become more complex than it has been within the framework of the EU. Diverging legislation and customs formalities will cost companies money and time,” according to Franky De Pril, Partner Global Trade at EY.
He explains how businesses can structure their Brexit preparation plans.
Relationships with British companies
Brexit will trigger macroeconomic consequences that need to be taken into account by all EU 27 and British companies. One of those consequences is likely to be a more volatile British pound. Increasing exchange rate fluctuations might impact your investment and those of your partners. It is, therefore, key to map your links with specific sectors, companies, production sites and business models.
Supply chain optimisation
All parties involved in a cross-channel supply chain will be impacted by Brexit and will face affected profit margins and more expensive products.
According to Franky De Pril says most obvious place to start your analysis is the impact on your physical trade flows. “Trade with the UK will no longer be intra-EU trade but will become import/export. Will you be able to get your goods into the UK or out of the UK?” One cannot move goods across an EU border without an Economic Operator Registration and Identification (EORI) number at each side of the border.
These EORI-numbers are the starting points for normal import and export procedures. However, Franky De Pril also points to many special procedures, simplifications as well as transitional procedures, that have been specially developed for Brexit. He says, “Using these procedures can help you saving costs and/or time. External help is available if you need to find out how you could benefit from these procedures.”
But there is more you can do. Reach out to your suppliers, customers and transporters to assess whether they are ready for the post- Brexit reality. Can you and they cope with delayed deliveries? Can they manage customs clearance processes? This is a major challenge to many transport companies supplying goods across the Channel, as well as for business who today only have intra EU trade?
Find out whether the import/export of the goods concerned is subject to specific authorisations/licenses/registrations, such as dual use, REACH, steel, and so on. What is the role of the UK in your supply chain with Ireland? Are the incoterms you are currently using fit for purpose when the UK is no longer an EU Member State? Make sure these incoterms reflect reality.
Besides your physical flow of goods, your impact analysis should also include IT, sales, people, tax, data protection, etc. People from all these departments need
Carrying out such exercise will give a better understanding of exactly where Brexit will impact your business. This will help you in developing alternative solutions for your supply chain strategy. You can look for alternative routes to market to avoid heavily congested ports, for example.
Review of contracts
Franky De Pril highlights the importance of legal contracts in place. You should carefully screen your existing contracts, especially if they are governed by UK law or if disputes will be submitted to UK courts.
Consider whether you will be able to fulfill your contractual obligations after Brexit. Think about price setting, delivery times, conformity, and so on. In many cases, Brexit will not be a sufficient reason to terminate or review the contract.
Tax inventory
Franky De Pril recommends companies to also make a proper tax analysis. Many expect the UK to enact an advantageous tax framework to attract businesses. That framework will no longer fall under the jurisdiction of the Court of Justice of the EU.
Within the EU direct tax has mainly remained a national competence with the EU aiming for a harmonisation of national systems and preventing tax competition among the Member States. However, there are some relevant directives that will no longer apply in the UK such as the Parent-Subsidiary Directive.
The British VAT system will remain in place after Brexit. Nothing seems to be changing for intra-UK transactions. Nevertheless, the taxable base for VAT may increase with the applicable import duties. A postponed accounting regime will however be introduced, deferring import VAT to the VAT return.
Depending on your sector, import duties at both sides of the Channel may have a significant impact. This will definitely be the case for some agricultural products. Clearly, products that are moved back and forth several times during the production process will be affected. A possible future Free Trade Agreement might mitigate this impact.
Data analytics to assess the risks and opportunities
Franky De Pril suggests companies start looking at the data that are already available within the company. He argues: “This is very important as the ultimate landscape post Brexit is as yet unclear. Brexit data analytics are designed to model the impact of alternative scenarios to enable the business to assess the potential impact and disruption to its operations of possible Brexit outcomes.
“This helps companies to plan effectively for eventualities. The data analytics outputs typically come from a workshop where the company’s stakeholders and the data analytics experts highlight and discuss the key impacts. This is a powerful and efficient approach to navigate through the turbulent Brexit waters.”
Read related articles from the FERMA-Airmic Brexit newsletter:
https://www.ferma.eu/brexit-and-what-it-teaches-us-about-political-risk/
https://www.ferma.eu/brexit-an-update-on-contract-continuity/
https://www.ferma.eu/the-impact-of-brexit-on-cyber-security-law/
https://www.ferma.eu/how-prysmian-has-dealt-with-its-brexit-exposure/
https://www.ferma.eu/brexit-a-wake-up-call-in-an-unstable-global-trade-environment/
Access all the other articles from the FERMA-AIRMIC Brexit Newsletter