Dmitry Grozoubinski, a former Australian trade negotiator at the WTO and founder of ExplainTrade, explains why trading on WTO rules in the event of a no-deal Brexit will vastly increase the workload of businesses of all shapes and forms
This article is the view of the author and not necessarily of Ready for Brexit
The politics of Brexit remain fluid and outcomes difficult to predict. A no-deal outcome remains the preferred outcome of neither Prime Minister May’s Government nor that of the European Commission and the EU27 Members. Still, business leaders considering whether to take the threat of no-deal seriously need only look at the millions being spent on no-deal preparation by governments on both sides of the English Channel. Those with the most intimate knowledge of the negotiations and political reality are worried and spending accordingly. That alone is cause for concern.
The departure of the UK from the EU without a transition period or negotiated agreement means the two could revert overnight from treating one another’s businesses, products, and services as if they were from the same country to treating them as if they were from Mongolia. In fact, possibly worse.
It is difficult to overstate the scale of such a shift. Whatever one’s views of the European project more broadly, the EU unquestionably represents the highest level of regional integration, internal liberalisation, standards alignment, and trade facilitation achieved anywhere to date. UK businesses of all sizes have evolved inside this integrated ecosystem, with assumptions and business models implicitly or directly reliant on it.
The potential pain points
Your business is unique, and so is its exposure to the UK’s European integration. A robust, bespoke no-deal preparation plan suited to your business is something best created with the assistance of customs brokers, import/export professionals and trade consultants. There are several areas you can look to as a starting point for identifying where no-deal could cause issues for your business. In considering them, remember to think beyond the needs of your own firm to those of your suppliers and customers up and down the supply chain.
When discussing physical products (goods), ‘market access’ refers to the tariffs importers pay when bringing in foreign products. Currently, all trade between the UK and EU is tariff-free. In a no-deal scenario, the UK and EU will be obliged, under WTO rules, to apply to one another’s goods the same tariffs as they provide to those with whom they have no trade agreements.
In many cases, the tariff will remain at 0%. However, this is far from universally true and in some products could lead to competitiveness destroying tariffs of 40% or higher. A simple way to gauge whether the products your business sells or the components it imports could face a tariff, and how high, is to use the EU’s Tariff Market Access Database. Select an economy with which the EU has no free trade agreement (such as China or the United States) and look up the ‘third country duty’ rate for the products you’re interested in.
Remember, if your business relies on selling into one of the 40+ non-EU countries with which the EU has a free trade agreement, there is a chance this agreement will not apply immediately after a no-deal scenario. Most countries have an equivalent to the EU’s database where you can find their applied tariff rate for ‘third countries.’ This will be the rate applied unless and until the free trade agreements are ‘rolled over’ for the UK.
When it comes to services, the so-called ‘Four Freedoms’ of the EU facilitate the ability of services firms to establish, offer their services within other countries in the EU and to bring in personnel from across the EU to do so. A no-deal Brexit eliminates this guarantee and could have a significant impact on your businesses’ ability to operate in the EU, as well as on your ability to bring in EU nationals to fill vacancies.
Services market access is an incredibly complex area, where the rules vary considerably from business to business. The no-deal preparatory notices of the European Union and the United Kingdom for your specific sector are a good place to start, but you may want to seek professional legal advice or that of your industry association/professional body.
Paperwork, Administration and Legalities
The EU Single Market meant that if your UK business sold exclusively to customers in the EU28, you may not have even needed to register as an exporter or trader. The paperwork and bureaucratic requirements for exporters and importers are different and exponentially greater than for those selling domestically.
Under various Brexit scenarios, the paperwork requirements for customs formalities will significantly increase. Consider also that customs is just one area where the paperwork requirements are likely to increase. Managing disruption means finding out the documentation you’ll need, where to get it, and how to fill it out to the satisfaction of authorities. Engaging early with customs brokers and other professionals is invaluable here. Trying to find timely, accurate and affordable advice on day one of no-deal Brexit may be difficult.
Supply chain disruption
The added documentary requirements described above will, almost invariably, delay the time it takes truck-borne freight to pass through the UK’s borders. The simple act of verifying the proper completion of what could be hundreds of customs declarations per truck will, once multiplied across the full volume of EU-UK freight traffic, spell considerable potential delays. If your business, or those of your suppliers and customers, relies on swift and reliable freight movements by truck, a risk mitigation strategy may be a wise investment. Some of the official predictions give cause for concern.
Standards assessments and compliance
Chances are, if something you sold or imported met the standards requirements of the UK or EU the day before Brexit, it will continue to do so the day after. Unfortunately, the documentation or testing you relied on to demonstrate that compliance to the importing country’s authorities may no longer be valid. For example, a certificate from a UK veterinarian may no longer be sufficient to import certain types of meat and live animals into the EU, because the requirement is for a certificate from an EU laboratory. Your products and services may find themselves ineligible for import overnight despite being functionally unchanged. Once again, the no-deal preparatory notices of the EU and the UK for your sector should spell out where UK and EU certificates will no longer be sufficient.
Measuring and mitigating risks
Just how much you choose to invest in mitigating the risks of a no-deal Brexit, and how, is a question unique to your business. These are uncertain political times, and many confident predictions regarding how Brexit negotiations with the EU would evolve have since proven misguided. The best advice I can offer beyond seeking bespoke advice from relevant professionals is to carefully test the underlying systems and assumptions your business relies on to identify where these are built on EU structures. That’s where the greatest risks will lie.