This article was first published by Daily Cargo News.
The term “Brexit” has well and truly entered into regular use and represents one of the top topics for news and current affairs at the moment. The world is transfixed by developments in the UK including close attention to the (non) passage of legislation to implement the Exit Agreement brokered by the UK Government with the EU and the associated pressure on the UK Conservative Government. As the day of departure from the EU approaches (29 March 2019), the absence of a clear exit process gives rise to more concerns on how the world will cope if no deal (or a bad deal) is struck.
Brexit goes beyond the movement of goods
Although the natural focus of this publication lies in cargo, trade and the movement of goods in the supply chain it is worth remembering that the impact of Brexit on those issues only comprises a portion of the problems associated with the uncertainty of the UK’s departure from the EU. Brexit will affect the movement of persons across borders (including truck drivers carrying cargo) and require the reinstatement of a “hard” border between Northern Ireland and the Irish Republic which may be in breach of the 1998 “Good Friday Agreement”. The operation of financial markets will be seriously affected with the City of London likely to lose its status as the financial centre of Europe and one of the world’s main financial capitals.
How did we get here? The UK’s uncertain EU experience
However, before looking into the current Brexit impasse, it may be instructive to consider the history of the UK’s engagement with the EU. To be fair, it has not always been a happy relationship. The UK was not a party to the three original treaties which contributed to the establishment of what was originally known as the European Economic Community. Applications by the UK to join in 1963 and 1967 were vetoed by the French President. Ultimately, after De Gaulle left office in 1969, the UK was successful with the UK becoming a member of the EC on 1 January 1973.
The membership was tested in a referendum in 1975 in which the electorate clearly voted for the UK to remain within the EU. There have subsequently been a number of unhappy moments for the UK in the EU. The undercurrent of tension regarding ongoing membership of the EU, its costs and perceived loss of sovereignty for the UK led to regular political controversy and the eventual 2016 referendum which voted for the UK to leave the EU.
Where do we stand now?
The issue now becomes what may happen and what could be the consequences, in light of the recent Parliamentary vote to reject the UK Government’s “Exit Agreement”. However, the UK Parliament then failed to support a “no confidence” motion in the Government. It would seem that Parliament wants the same Government (sort of) to provide a better Brexit, which appears to be a difficult task.
What could happen from here?
There are a number of possible outcomes, some of which are summarised below. Of course, there are a number of other options, depending on the conspiracy theory to which you subscribe.
Please note that this information is correct as at 12 February 2019, and things may change.
- Nothing is resolved and Britain exits the EU without any deal (also known as a “Hard Brexit”) and no set tariff rates (yet to be negotiated with the WTO) or other border controls. This could resemble a border trade apocalypse for both the UK and the EU. There could be particular problems at the border between Northern Ireland and the Irish Republic
- The EU and the UK agree to extend the exit date for a period to allow for additional negotiations even though according to the relevant EU agreements and notifications from the UK, the UK leaves on 29 March 2019. Further, the EU has stated that it will not be negotiating any other deal
- The UK Parliament relents and passes the proposed legislation leading to a “Soft Brexit” with the UK joining a form of EU Customs Union for a short time bound by EU border laws and tariffs until they work out a more comprehensive deal. However, that still does not deal with most duty rates and other import requirements with all countries. To this end, the UK Government has advised businesses that it cannot guarantee that the British economy will be covered by “most” of the EU’s global agreements (including 40 preferential trade agreements) even if it proceeds with the current Exit Agreement.
- The Labour opposition in the UK comes up with its own version of an even softer Brexit (like Norway’s engagement with the EU) and proposes that to Parliament which gets support from other parties in Parliament and some Conservative MPs. That could drive another election
- The UK Government comes up with another form of “hybrid” deal such as one with elements of a “Free Trade Area” with the UK still in the single market but politically separate
- The UK could unilaterally revoke its intention to withdraw from the EU and everyone could go on like nothing ever happened (akin to that whole series of “Dynasty” which was supposed to be a dream sequence)
- The UK Government could hold a new referendum on the current proposed Exit Agreement in the hope that the electorate changes its position, appreciating the chaos which could follow a “hard” Brexit (or any Brexit)
- The UK Government could call an early election to seek support for the proposed Exit Agreement or other compromise
Of course, all of these options have their own degrees of risk, uncertainty and likelihood, taking into account political considerations, the impracticality of further recourse to the electorate in the UK, the unwillingness of the EU to change the Exit Agreement and the proximity to the current exit date.
What should we do now? How can we prepare?
In large part, those involved in trade with the UK have no ability to influence the outcomes. In those circumstances, the best which parties can do is to prepare for the worst and hope for the best. Such preparations could include the following:
- Remain alert to developments, including steps taken by governments to address the issue for their importers and exporters. Some examples are as follows:
- The Australian Government has entered into agreements with the UK Government designed to “protect” existing trade. One agreement replicates the existing EU – Australia Wine Agreement so that the UK Government will accept Australian labelling standards, certification procedures and winemaking practices.
- A second agreement is the new “Australia – Britain Mutual Recognition Agreement on Conformity Assessment which provides that a drug, car or medical device can be certified against British Standards before leaving Australia for export to Britain and vice versa. That allows pre-shipment testing and approval. New Zealand has reportedly agreed on a similar agreement.
- In the UK on 4 February 2019, the HMRC issued a letter to companies registered for VAT in the UK announcing “Transitional Simplified Procedures” (TSP). The TSP will allow those companies to move goods into the UK from the EU with deferral of full documentation and payment of duty until the following month.
- Map out which goods being exported to the UK rely on EU standards or approvals as they may now require an entirely new approval regime. It will be important to ensure that whenever those border issues are resolved that compliance takes place as soon as possible
- Carefully review material and advice being provided by Governments. For example, NZ has appointed a representative in the UK to deal with Brexit. Further, the UK, New Zealand and Australian Governments already provide significant guidance on their websites.
- Move more goods now into the UK for stockpiling – although storage space in the UK is becoming more limited
- Review agreements – would Brexit constitute a “Force Majeure” to terminate or renegotiate existing agreements?
- Get good advice – in Australia, in the UK and the EU as to developments and what can be done to preserve the legal position and to facilitate trade. I am already working with a variety of colleagues overseas to assist where possible.
Remain at your station and try and remain calm
There is no question that the current impasse is not an ideal situation. The international supply chain relies on certainty and predictability and the move towards Brexit appears chaotic. Hopefully, some form of accommodation is achieved quickly even if that denies us some of the entertainment value of the UK Parliament
As always – if pain persists contact your friendly neighbourhood customs and trade lawyer.