A hard Brexit is obviously the least-favoured option for many in British government or in the EU.
However, absent of meaningful progress as each day passes, the dawning of a hard Brexit (or a ‘disorderly withdrawal’, in EU parlance) becomes an uncomfortable reality.
The European Commission’s document on no-deal preparedness highlights the growing anxiety on the other side of the negotiating table, with senior officials warning of the heightened volatile political situation in the UK.
Meanwhile, multinational manufacturers such as Nissan, Siemens and Airbus are sufficiently concerned about a hard Brexit that they have gone public over the potential impact to their investment plans.
These weighty voices state that new UK projects have been shelved and that existing UK production will migrate overseas unless free trading arrangements can be maintained with the EU.
These corporations have the luxury of being internationally mobile – many others are no so blessed. For numerous retailers, mobilising their troops and setting up operational camps elsewhere is simply unviable.
Nevertheless, there are other ways in which retailers can plan for a hard Brexit, and these are the big questions they should be asking themselves:
How much do I actually source from the EU and how much more will it cost me after a hard Brexit?
All goods sourced from the EU currently arrive in the UK free of any customs duties and other customs costs.
In the event of a hard Brexit, the Government would be legally obliged to charge these imports at the UK’s standard rate of customs duty.
Rates vary considerably across product category. Food and drink would attract the highest rates of duty (sometimes as high as 80%) and footwear tariffs are between 11% and 16%.
Other products are zero-rated for tariff purposes (eg, most toiletries). However, the devil is in the detail. Retailers must analyse their sourcing at a granular level to ascertain exactly where new costs would emerge.
Will costs increase from my UK suppliers?
Products sourced from British suppliers do not necessarily mean they are British products.
A UK supplier may source products wholly from the EU or may use components or ingredients from the EU.
In either event, a hard Brexit will increase costs for UK suppliers, which in turn may be passed on to retailers.
Consequently, retailers should discuss this issue with their suppliers to obtain clarity over how Brexit will affect supplier costs and associated impacts on retailers’ prices.
Will Brexit affect sourcing costs from non-EU countries?
It is erroneous to assume that a hard Brexit would exclusively affect sourcing costs from the EU.
Goods from certain non-EU countries currently face lower tariffs when imported into the UK. This is as a result of trade deals the EU has signed.
When the UK leaves the EU, it will no longer be a party to these deals, hence imports could suddenly face standard rates of duty when they enter the UK.
“Retailers must follow developments closely to understand which deals have been rolled over and those which have not”
Various supplier countries face greater risks than others. Those at lowest risk are developing countries whose ‘preferential access’ – ie, lower duty rates – has already been guaranteed by the Government.
Conversely, Turkey is at the other end of the spectrum and existing duty-free access is the result of its customs union with the EU. A hard Brexit would also mean leaving the customs union with Turkey, resulting in Turkish imports being subject to the full rate of duty.
Lower duty rates on imports from Canada, Mexico, Chile, Korea (and a few others) could continue, but only if the UK Government secures agreements with those countries to extend their EU deals to include the UK.
These agreements would have to be secured one by one. Therefore retailers must follow developments closely to understand which deals have been rolled over and those which have not.
Can I mitigate new costs by sourcing goods elsewhere?
There may be alternative, lower-cost sources for certain products.
For example, duty rates for many products imported from developing countries are typically lower than standard rates that would apply to the same imports from the EU in a hard Brexit scenario.
Conducting a thorough duty rates assessment for goods from other countries can highlight opportunities for lower sourcing costs.
However, in considering alternatives to EU sourcing, retailers must be careful not to run up against non-tariff barriers.
For instance, non-EU countries must receive veterinary approval for animal products before obtaining permission to export to the UK. If a country lacks veterinary approval to sell the product in the first instance, the rate of customs duty becomes irrelevant.
Will a hard Brexit affect logistics and delivery times to the UK?
Yes – a hard Brexit is likely to have a significant impact on logistics and EU delivery times.
For example, food products would face new checks at ports concerning animal welfare and food safety. Resultant delays could add an average of two days from performing mandatory checks.
Arguably, the biggest challenge faces companies that currently bring goods into the UK via Dover. Dover is not a customs inspection post and lacks the vital facilities and infrastructure to handle imports.
“Unless Brexit negotiations result in alternative arrangements, these various risks will materialise on March 30, 2019”
(Everything that arrives from the EU is not an ‘import’ because it is already in free circulation and therefore is not subject to customs checks or controls. Without customs infrastructure, Dover is unable to serve as an entry point for EU goods following a hard Brexit. Retailers must review their delivery arrangements to accurately gauge their level of risk.)
Unless Brexit negotiations result in alternative arrangements, these various risks will materialise on March 30, 2019.
A surprising number of retailers appear to be in denial about the potential risk and disruption this will cause to their business. Retailers need to plan, prepare and be ready to efficiently execute changes in order to be ‘Brexit ready’.