Brexit Update: Today is the day when the UK will leave the EU
Today is the day. Tonight at midnight Central European Time the United Kingdom will leave the European Union. Brexit is a fact. Well, sort of. Not much will have changed for companies doing business with the United Kingdom, after today.
The European Union gave its final approval to the Brexit deal with Boris Johnson on Wednesday, with 621 votes for and 49 votes against Brexit, with 13 members abstaining.
What’s Next for Europe?
The United Kingdom will still follow the European rules and there will still be free trade. That is as we know for now, until December 31 of this year. The transition period will end then. As we wrote in our Brexit Update of last week: The European Commission will negotiate on behalf of the 27 nations that remain in the EU. The European Commission will present its plans and objectives to the 27 governments on February 25, 2020. The same will happen in the UK. At the end of February, both parties will have an internal agreement, so the negotiations can start in March.
While Boris Johnson believes there is ample time, the EU disagrees. And if you look at everything that needs to be done, and the available time it looks like a huge challenge. A lot of areas need to be covered: finance, customs, energy, security, to name a few. It looks like they have until December 2020, but after the negotiations, the agreement needs to be translated into multiple languages and needs to be checked by a variety of lawyers. Keep in mind that there are over 20 different languages and multiple stakeholders and opinions in the EU. By October 2020 they should be ready for legal checks and translations, to make sure everything is ready to be in effect in January 2021.
What’s Next for the Rest of the World?
The Trade Agreement with the EU is just one of the many trade agreements the United Kingdom now has to renegotiate. The EU has over 50 trade agreements in place with third countries. When the United Kingdom leaves the EU these trade agreements are no longer valid and need to be renegotiated
Until these renegotiated trade deals are in place, there will still be a lot of uncertainty for business both in the United Kingdom as well as in countries trading with the UK and covered by all these trade deals.
Deal or No Deal?
Euler Hermes has assessed the risk of “no trade deal” at the end of 2020 and thinks it has a 15% probability.
We forecast the UK’s GDP growth to fall to +0.6% in 2020 (from +1.0% in the central scenario) before a recession in 2021 (-0.6% vs. +1.6% in the central scenario, see Figure 3) should there be a Hard Brexit, i.e. exit under the WTO conditions as soon as 31 December 2020. This would imply an average import tariff of 5% on average on goods imported from the EU and the rest of the world. We think there is a very small probability for the UK to be able to replicate some of the EU FTAs already in place (Australia, Canada) as soon as the end of this year, or negotiate new ones (with the U.S., for example). The EU applies an average tariff of around 9% to imports from the U.S., while the U.S. applies a tariff of around 5% to imports from the EU. In the absence of an FTA, and whether Brexit is hard or orderly, the UK would apply these same tariffs to the US. A FTA with the U.S. seems very unlikely in 2020, given that the UK has said it will to give priority to an agreement with the EU over the U.S. this year.
The full article by the Euler Hermes analysts can be found here.
What Can I Do to Prepare?
As we wait for the outcome of the negotiations there are still several things you can and should do to prepare for the upcoming execution of Brexit. To minimize the impact the Brexit can have on your company and your import or export operation, you should do the following:
- Make sure your ‘master data’ is correct and readily available within your company.
- Have processes in place to efficiently share them with Customs Agents.
- Have a full insight into all flows of goods from and to your company between the EU and the UK. Make projections, so you know the amount of work that is needed to complete these.
- Make sure your legal documentation is in order (PoA, commercial contracts, etc.) so Customs Agents can clear your goods, ensuring your logistics operation runs smoothly and without disruption.
- Do You Already Have an EORI Number?
Companies importing from or exporting to the United Kingdom from the European Union will need an EORI number. Read more about what an EORI number is here. You can find an overview of where you can get one here. It depends on the country where your business is registered, what you need to do to get one.
Be in the Know
If you have any questions about importing from the UK or exporting to the UK, please contact one of our experts. We are prepared to take the load off your mind.