Brexit is complicated.
It is the biggest change to the UK economy and society since World War II.
As one City lawyer said to me, “every time we look at a practical issue related to Brexit we find ten more issues that also need to be solved”. Government has recently published a series of papers that start to unpack what Brexit could mean. Inevitably these have prompted much heated debate and political posturing on all sides. This has rather overshadowed the fact that they do provide some useful analysis of some of the issues businesses face in assessing the impact of Brexit.
I have pulled out some of the key points and useful nuggets in these documents that may help organisations to map how Brexit could impact on you in areas such as customs and borders for import and export, transitional arrangements for goods and services, contract law and insolvency, data, and doing business between and through Ireland and Northern Ireland. I have set this out with a link to each of the government documents, so you can look at the detail if you so wish.
Continuity in availability of goods:
This paper looks at how the UK and EU might treat products that are already on the market on ‘exit day’, goods ordered but not yet delivered and services linked to products already sold (N.B. this is relevant to financial services as well as repair and maintenance services etc.). These are therefore relevant to a wide variety of businesses: importers and exporters, retailers, manufacturers and service providers.
The principles proposed are that:
- Goods placed on the Single Market before exit should continue to circulate freely in the UK and the EU, without additional requirements or restrictions.
- Where businesses have undertaken compliance activities prior to exit, they should not be required to duplicate these. This includes contracts to purchase goods before they are made (e.g. pre-ordered cars) and any product and production testing and inspection.
- Continued oversight of goods: the EU and UK should be able to continue to trace products through the supply chain and market surveillance authorities can ensure action is taken with respect to non-compliant goods.
- Where goods are supplied with services, there should be no restrictions to the provision of these services after exit day.
As noted above these apply to products on the market on ‘exit day’ – they do not relate to future arrangements for new products released after we leave the EU. The aim is to provide businesses and consumers with some legal certainty during the transition before and after Brexit. These provide a good guide for businesses to plan Brexit transition in their business. But note that the principles have yet to be agreed and there is a possibility that no agreement is reached.
In scenario planning it is also worth considering not only the ‘legal principles’ but also expected behaviours: in practice how would you expect trading standards or regulators to behave and how do you expect your customers and suppliers to behave?
Ongoing EU judicial and administrative proceedings:
This paper applies similar principles to those above to legal proceedings and legal cases already underway on ‘exit day’. It is worth noting that this states that the UK will incorporate pre-existing case law from the European Court of Justice (ECJ) into domestic law in the UK. This should provide greater certainty for organisations who have based operational decisions on ECJ case law and will be particularly relevant in areas such as ECJ case law on VAT.
There are also a number of areas where other EU institutions have quasi-judicial and administrative roles, such as on anti-trust and competition investigations, mergers, food safety and aviation enforcement. Businesses covered by these EU regimes should track the continued negotiations on this point.
Future cross-border judicial cooperation on civil and commercial matters
This paper sets out initial UK government thinking and seeks further views on the future judicial arrangements between the UK and EU after we leave the EU. This explores issues around insolvency law, contract law and small claims in cross-border cases after we leave the EU.
This confirms UK intention to incorporate into UK law the EU framework for contractual and non-contractual civil law (Rome I and Rome II) – providing continuity for businesses and other organisations. It also confirms the UK intention that direct jurisdiction by the European Court of Justice (ECJ) will cease when we leave the EU – and proposes establishing new arrangements for UK and EU courts to cooperate on cross border cases.
The UK Government’s aim is for a comprehensive, reciprocal framework for civil judicial cooperation between the UK and EU, based on a UK civil law framework that closely mirrors the current EU system and supports continued use of English contract law in global commercial arbitrations.
The UK proposals provide one basis for scenario planning. As noted above, organisations should also identify the impact of a ‘chaotic Brexit’ scenario where no new agreements are reached on EU-UK civil judicial co-operation and we would rely on the existing international frameworks set out in this paper (eg UNCITRAL on cross-border insolvency).
Future Customs Arrangements
This is a discussion paper which seeks the views of business on future customs arrangements between the UK and EU. It is most significant in that it is the first time the UK Government has officially proposed a transition period, after the ‘exit day’, during which the UK would remain in the EU Customs Union.
The paper acknowledges just how complicated it will be to introduce an alternative ‘frictionless’ customs arrangement with the EU and therefore proposes a transitional period to allow for new arrangements to be developed and put in place. It does not say how long this transition period should last – and seeks views on this issue.
The UK proposes two approaches (not mutually exclusive) to our future customs arrangements with the EU:-
- Streamlining processes and using technology to minimise delays and costs: making the administrative process of customs and border management as simple as possible, using technology and accreditation processes to minimise border delays.
- A new customs partnership with the EU: this could include the UK mirroring EU customs rules for imports from the rest of the world where their final destination is the EU (e.g. import-export from a third country to the EU via the UK or import of components to the UK for finished goods exported to the EU). For these goods that ‘pass through’ the UK on their way to the EU, the UK would adopt EU customs rules.
Both of these approaches are innovative and untested so would require time and goodwill on both sides to achieve. Hence the UK is suggesting that in the meantime the UK should stay within the EU customs union after the official ‘exit day’ when we leave the EU, with shared external tariffs for third country imports and with duty free and trade between the UK and EU.
On international trade the paper confirms the Uk Government’s intention to negotiate trade deals with third countries. Given these would involve agreeing customs duties for third countries they could not come into effect whilst the UK remains in the Customs Union.
The Uk Government intends to develop these ideas further in a Customs White paper in the autumn. This will then lead up to a Customs Bill, which will legislate to give the UK Government the powers to make changes to the VAT and excise regimes, whilst intending for the time being to maintain consistency with EU law. If you have ideas or views on the proposals for future customs arrangements do share them – there is a big opportunity to shape this thinking.
This paper also helpfully describes the worst case scenario – what happens if the UK is unable to negotiate future arrangements and the EU does not agree to a transitional continued membership of the Customs Union. It is worth quoting this in full as it provides a good basis for scenario planning:
- “In this scenario, without any further facilitations or agreements, the UK would treat trade with the EU as it currently treats trade with non-EU countries. Customs duty and import VAT would be due on EU imports. Traders would need to be registered. Traders exporting to the EU would have to submit an export declaration, and certain goods may require an export licence. The EU would also apply the customs rules and VAT to imports from the UK that it applies to non-EU countries. The Government is actively considering ways in which to mitigate the impacts of such a scenario. Other EU Member States will also need to make contingency preparations to mitigate the risk of delays resulting from their own customs processes."
- “The UK would seek to recognise the unique circumstances of Northern Ireland and aim to protect individuals and traders by making maximum use of the UK’s flexibility in relation to our own operation of the border. As elsewhere, the processes on the other side of the border would be constrained by the relevant requirements of EU law.”
This gives me an opportunity to shamelessly plug a new Grant Thornton service. To understand how different Brexit customs and excise scenarios translate into your bottom line, Grant Thornton has developed the Brexit Indirect Tax Impact Analysis, a data analytics platform to assess the possible Customs Duty and VAT costs for your business and develop contingency plans. Using duty rates and your real import and export data, our platform assesses the impact of a range of possible Brexit scenarios, providing you with a personalised analysis of the potential changes in duty and import VAT. My colleagues Karen Robb and Vinny McCullagh can provide more information if you are interested.
Northern Ireland and Ireland
This paper looks at how to maintain the unique relationship between Ireland and the UK and the Northern Ireland peace process. The proposals on cross-border trade are particularly relevant to businesses, including those that use Great Britain as a ‘land bridge’ for the movement of goods between Ireland and the rest of the EU.
These echo the proposals in the discussion paper on customs (see above) and also make two additional proposals for businesses in Northern Ireland and Ireland:
- A simplified customs process for ‘trusted traders’.
- A customs exemption for small businesses.
The paper confirms that the UK government is committed to maintaining the historic Common Travel Area across Ireland and the UK, protecting the ability of people to move freely within the UK and between the UK and Ireland with no practical change from now. As part of this, it is clear that the UK Government does not support a new customs border between Northern Ireland and Great Britain as a way of enabling an open border between Ireland and Northern Ireland.
Exchange and protection of personal data
This paper explores the issues related to data protection and how best to protect the UK’s strength in digital industries and applications. This notes that the UK will be compliant with EU data protection law (with the General Data Protection Regulation coming into force in May 2018) and that this could provide the basis for mutual recognition of EU and UK regimes when we leave the EU.
It also notes that at present EU membership provides the basis for recognition of the adequacy of regimes between the UK and third countries; and that the UK will need to liaise with third counties to establish new adequacy arrangements with each of these in order to ensure continued recognition of regulatory regimes internationally. Page 12 of this paper provides a basis for contingency planning by businesses; here it sets out the alternatives if the UK fails to negotiate adequacy agreements, noting that these are not as wide ranging as an adequacy agreement and that they can also be costly and onerous for business. If your organisation depends upon cross-border data in any way then it is worth looking at this section and considering how it could impact your business model.
These different papers by the UK government are part of their negotiating position in complex negotiations with the EU. They therefore don’t represent the Uk Government’s ultimate fall-back position or what the final agreements could look like. But they do help to flesh out some of the issues and possible directions of travel, as well as showing what some of the less favourable but equally realistic scenarios could look like for business.
Every organisation operating in the UK needs to map how Brexit will impact on your operations and start developing contingency plans. There is lots of guidance available and at Grant Thornton we have put together some simple guides to help people start to think about this: grantthornton.co.uk/brexit
Do let me know what you think – and what other Brexit related issues you would welcome further information about.
Getting business ready for Brexit In the face of ambiguity, it is important for you to review contingency plans, assess the possible risks and harness the opportunities for your organisation.