What impact will Brexit have on trade and on the UK economy?
For SMEs and large organisations trading within the European Union, Brexit has delivered little comfort and much infuriating uncertainty.
Trade is one of Brexit’s most contentious issues – and with good reason. Leaving the EU without a deal will bring enormous challenges for British importers and exporters. And if a deal is agreed, more uncertainty awaits as a trade deal with our largest trading partner is thrashed out.
The economic impact of Brexit will undoubtedly present challenges; however, the opportunities must also be explored: a weaker Pound, renewed interest in locally produced food and products, and trade openings outside the EU provide scope for growth.
In order to take advantage of Brexit-generated possibilities, you must have a clear strategy to access capital and skills over the coming years, in an economic climate which may prove turbulent.
If you are concerned about how Brexit will affect your business, read on for our Frequently Asked Questions or contact us for a free 15-minute legal consultation with one of our lawyers.
Brexit FAQs | Impact on trade, exporting and importing
How will Brexit affect exports?
After Brexit, exports to any EU country will be treated as an export to a country currently outside the EU. This is dependent on what the terms are reached in the withdrawal agreement between the UK and the EU which may have a transition period.
How will Brexit affect exports in a "No-Deal" scenario?
If the UK leaves the EU on 31 October 2019 without a deal there would be immediate changes to the procedures that apply to businesses trading with the EU. It would mean that the free circulation of goods between the UK and EU would cease.
For businesses trading with the EU, the impacts would include:
- Businesses having to apply the same customs and excise rules to goods moving between the UK and the EU as currently apply in cases where goods move between the UK and a country outside of the EU (customs duty may also become due on imports from the EU. (Please refer to the separate ‘Classifying your goods in the UK Trade Tariff if there’s a no Brexit deal’ technical notice).This means customs declarations would be needed when goods enter the UK (an import declaration), or when they leave the UK (an export declaration). Separate safety and security declarations would also need to be made by the carrier of the goods (this is usually the haulier, airline or shipping line, depending on the mode of transport used to import or export goods).
- The EU applying customs and excise rules to goods it receives from the UK, in the same way it does for goods it receives from outside of the EU. This means that the EU would require customs declarations on goods coming from, or going to, the UK, as well as requiring safety and security declarations
- For movements of excise goods, the Excise Movement Control System (EMCS) would no longer be used to control suspended movements between the EU and the UK. However, EMCS would continue to be used to control the movement of duty suspended excise goods within the UK, including movements to and from UK ports, airports and the Channel Tunnel. This will mean that immediately on importation to the UK, businesses moving excise goods within the EU, including in duty suspension, will have to place those goods into UK excise duty suspension. Otherwise, duty will become payable.
Will I still be able to sell my products and services in Europe after Brexit?
UK businesses looking to import or export goods after Brexit must have a UK-issued Economic Operator Registration and Identification (EORI) number.
An EORI number takes 3 days to issue – it is imperative that businesses apply for this now. The EORI number will allow UK businesses to trade with the EU. It may also allow businesses to become authorised for simplified customs procedures.
Please note that an EORI number is not required for goods passing across the Irish border. An EORI number is also not required for the provision of services.
For UK businesses selling and using services across the EU, the UK Government has produced sector-specific guidance which sets out the implications for each particular sector. If your business is a service provider, we advise that you read this guide, which can be found here.
Could my shipments be held up and delayed?
Without a transition period (which would likely allow UK exports to any EU country to follow the same procedures as now), practically speaking, a UK company exporting to any EU country will need to complete an export declaration form and potentially an import declaration form (including payments of any customs or duties) at the country of import.
Can British companies still operate in Europe after Brexit?
This depends on the withdrawal agreement concluded between the UK and the EU. If there is no agreement, then it is likely that a British company will need to comply with local laws to operate in an EU country. Your industrial trade body should have further information in relation to this.
Will the UK continue to be part of the Single Market?
This depends on the withdrawal agreement concluded between the UK and the EU. Under the current stated stance of the UK government, the UK will no longer participate in the Single Market following Brexit.
Will the UK become a member of the WTO (World Trade Organisation) after Brexit?
The UK is already a member of the World Trade Organisation. The UK’s membership of the WTO began when that body was formed in 1995 marking the biggest reform of international trade since the end of the Second World War.
Whereas the fore-running General Agreement on Tariffs and Trade (GATT) had mainly dealt with trade in goods, the WTO and its agreements also cover trade in services and intellectual property. The birth of the WTO also created new procedures for the settlement of disputes. The EU as a trading bloc has been a member since 2009.
Will I be able to continue trading without tariffs with the European Union in the future?
If the UK leaves with a deal which includes membership of the Customs Union then those who trade in goods with other EU countries would be able to continue trading in goods without the imposition of tariffs and without the imposition of WTO rules to govern the relationship.
The UK would need to align with the EU in other respects:
- EU goods related trade deals would have force in the UK also, but there would be no free movement of people across the UK’s borders, either in, or out.
- Trade in services would be subject to WTO rules initially while, throughout the transition period, the UK government works towards a trade treaty with the entire EU bloc, one which would govern a cross-border trade in services between companies here in the UK and any trading partner located within an EU member state or states.
If the UK leaves with a deal which includes membership of the Single Market then those who trade in goods OR in services with other EU countries would be able to continue trading in those goods and services without the imposition of tariffs and without the imposition of WTO rules to govern the relationship.
The UK would need to align with the EU in many respects: EU goods and services related trade deals with non-EU member states (e.g. Israel, China, Japan, Canada and the USA) would have force in the UK also, and there would be free movement of people across the UK’s borders, both in, and out.
If the UK leaves without a deal (a ‘No Deal Brexit’ as it has been called) then trade in goods and services with other EU countries will initially involve imposition of tariffs on the basis of WTO rules to govern the relationships.
Trade in both goods and services would be subject to WTO rules initially while, throughout the transition period, the UK government works towards a trade treaty with the entire EU bloc, one which would govern a cross-border trade between companies here in the UK and any trading partner located within an EU member state or states.
Will my goods be subject to new customs rules, procedures and inspections at the UK or EU border in future?
See first the reply to “Will I be able to continue trading without tariffs with the European Union in the future?”
The extent to which rules, procedures and inspections will be necessary when the UK leaves the EU is as yet unclear. This will really depend on the degree to which standards in a newly separate UK will diverge from those of the EU.
As an example, cheese in the UK has generally been pasteurised over the past many years because EU rules dictate that trade in unpasteurised cheese is to be heavily restricted if not totally banned. UK cheese makers make and sell unpasteurised cheese, but not for retail. The French government pays a fine to the EU each year so that French farmers can continue to produce and retail unpasteurised cheese. If the UK government removed the former EU restrictions on importation of pasteurised cheese then this would change controls and inspections at our border but were we to ship unpasteurised cheese in the opposite direction then we would probably find the same barriers to trade in place.
What are the border issues if there is a no-deal Brexit?
In a no deal scenario, both the UK and EU would need to apply customs and excise rules and VAT to goods moving between the UK and EU, as they are currently applied to goods traded in the rest of the world. Every consignment would require a customs declaration, and so around 240,000 UK businesses that currently only trade with the EU would need to interact with customs processes for the first time, should they continue to trade with the EU. HMRC has estimated that the administrative burden on businesses from customs declarations alone, on current (2016) UK-EU trade in goods could be around £13bn.
What are the Northern Ireland implications if there is a no-deal Brexit?
The impact from a ‘no deal’ scenario is expected to be more severe in Northern Ireland than in Great Britain, and to last for longer, due to their geographical position.
In a no-deal scenario, there is an expectation of disruption to closely interwoven supply chains and increasing costs that would affect the viability of many businesses across Northern Ireland.
Northern Ireland is particularly vulnerable given its high proportion of, and reliance upon SMEs (75% of all private-sector employment) and the number of businesses who trade directly with Ireland (Northern Ireland’s largest international export market). It is particularly vulnerable given its reliance on cross-border supply chains in the production stage and in finished products.
Brexit FAQs | Impact on the economy and on financial services
What is the economic impact of Brexit?
It is expected that Brexit will have a significant impact on the UK economy. Companies have started, and are expected to continue, to leave the UK and headquarter their businesses in EU countries (particularly Ireland).
The price of certain goods, particularly food products, is likely to become less secure when the UK leaves the EU.
Being in the EU has a positive effect on trade because there are no customs tariffs, and there is free movement of goods. This will no longer be the case after Brexit.
However, there will likely be reductions in UK contributions to the EU, which may lead to tax cuts and increased government spending in the UK.
In addition, although some commentators expect property prices to fall in the UK, a great deal of property investment (particularly in London) comes from Asia and is therefore not likely to be impacted by Brexit.
What are the economic implications if there is a no-deal Brexit?
The UK economy would be 6.3-9% smaller in the long term in a no-deal scenario (after around 15 years) than it otherwise would have been when compared with today’s arrangements, assuming no action is taken. There would also be significant variation across the UK (Wales -8.1%, Scotland -8.0%, Northern Ireland -9.1% and the North East of England -10.5%).
How will Brexit affect banks?
UK banks, like other financial services firms, will need to apply for permission to operate within EU countries. UK banks currently rely on EU passporting to be able to provide services throughout the EU without border restrictions.
UK banks currently have a significant amount of EU customers. Brexit is likely to trigger some of these customers moving their business to EU-based banks.
It is also expected that UK banks may relocate their headquarters to the EU, which could result in redundancies or relocation of workers. The end result is therefore likely to be that employment in the UK banking sector will be lower than pre-Brexit.
How will Brexit affect financial services?
If financial services firms only do business in the UK, the impact will be limited.
For firms that operate across the EU border, if there is no Brexit deal, the Financial Conduct Authority (FCA) has plans in place to ensure that financial services will continue to function, even if there is no transition period. For firms that function in the EU, they are advised to consider local laws of EU countries and speak with local regulators to consider the activities they can and cannot perform in EU countries.
The UK Government is currently putting in place laws so that EEA firms can continue to provide services in the UK. There will be a temporary permissions regime in place for these firms, which will operate until they can get permanent FCA authorisation.
Will financial services regulation radically change under Brexit?
This depends on the withdrawal agreement concluded between the UK and the EU. The UK is likely to seek “equivalent” status in relation to financial services regulation (as is the case with many financial markets such as the US, Hong Kong and Singapore). However, following Brexit, the UK will be able to diverge from the EU in relation to financial services regulation and will no longer have a say in determining such financial regulation.
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