I may regret this! The words ‘Brexit’ and ‘Prediction’ should not be used in the same sentence. The one thing we learned since the 2016 Referendum is you never know what is around the corner. Even now, 20 days before the UK finally leaves the EU, there is that small chance that the Withdrawal Agreement is not signed due to the many approvals required yet, plus the risk that Dominic & Boris, well, do a Boris on it! Hopefully not.
Hopefully the UK leave as planned now on January 31st, starting the transition period (due to end on December 31st) and finally the facts of Brexit should emerge as opposed to the rumours and risks batted about over the last 3 years. Some businesses may not like the outcome, but at least in 2020 we can start planning with certainty as the shape of EU-UK customs, regulations, borders, logistics, VAT treatment, security controls etc. emerge from the comprehensive and ambitious negotiations.
So to those ‘crystal-ball’ predictions (which will make interesting reading on the 1st of January 2021!);
- “Backstop” is replaced by “Frontstop” (as a raft of new jargon emerges)
For the past 3.5 years, we have been introduced to terms such as the Article 50, Backstop, Divorce bill, Yellohammer and the Withdrawal Agreement. Now that we enter the Transition period, a new wave of Brexit jargon will emerge such as bilateral trade, general agreement, tripartite, ratification period, zero dumping etc., plus many more yet to be baptised.
Strategic Sourcing Tip;
These terms will filter through the media, and deciphering them won’t be everyone’s cup of tea. Therefore, be armed with accurate and factual sources of Brexit Information such as the;
- Brexit Risks migrate from No Deal to No Agreement
With the threat of “No Deal” hovering over many businesses in 2019, the imminent approval of the Withdrawal Agreement by the UK and EU Parliaments, is a welcome conclusion to this matter. However, do not dump your No Deal Brexit Plan yet as the likelihood of a No Free-Trade Agreement outcome in 2020 is highly likely for the following reasons (plus many more which exist);
- The time-frame is first major problem. The Transition Period will expire in 11 months and it will take 2-3 months at the end to ratify the Free-Trade Agreement. Therefore, there are at most 9 months to deliver the most “comprehensive and ambitious agreement” ever seen by the EU. To provide some context, the original Transitional period was conceived of as 21 months, itself thought too short by virtually all experts. Expect many gaps or grey areas in this 9 month production.
- Time and resources prevent the success of most projects. Human resources, expertise and knowledge are lacking in the UK to undertake this mammoth task (FTA negotiation). Notwithstanding what we have learnt about the UK’s negotiation capabilities over the past 3.5 years, their exit from the EU next month means all EU-negotiated privileges with third-countries disappear also, which will require negotiation time and resources from the UK civil service to recuperate, while they separately debate with Barnier, Hogan & co. Just to note, these current EU-negotiated privileges with third-countries are captured in over 600 pieces of legislation of which the UK may have to re-build.
- Convergence V Divergence. Most trade agreements have two entities trying to converge and work closer together. The UK unashamedly want to diverge, which is a lot more complex, more unusual and from an EU perspective, unprecedented. This simply adds another layer of complexity, while it must be asked does such ‘diverging negotiation’ expertise exist on either side of the table?
Strategic Sourcing Tip;
If you were to design a ‘perfect storm’ of negotiation hurdles, the above scenario would be pretty close. Therefore, do not expect a comprehensive resolution to this trading quandary in 9 months (presuming Boris does not extend this Transition Period as most experts recommend) and ensure your No Deal Brexit Plan is maintained as a UK crash-out is still very possible in January 2021.
- Phoenix rising from the ashes (those, Cash-for-ash ashes!)
After 3 Years, Northern Ireland has a Government again. Following the ‘cash for ash’ controversy which led to the collapse of its devolved Government in January 2017, the NI Government is back at a pivotal time in Brexit negotiations. As home to the only land border between the UK and the EU, Northern Ireland has been central to trade negotiations throughout. With the frontstop now in place, the reality is that the economic regime for Northern Ireland will be different from that of Great Britain.
Truth be told, the current Withdrawal Agreement should be good for NI as this cross-border location would seem to have privileges to access both markets, which is very attractive for FDI. However, the customs-free world of the past seems to be diminishing so expect trading costs to affect SMEs with customs administration, declarations and training required to overcome such paperwork challenges.
Strategic Sourcing Tip;
Rules of Origin specifics in the ambitious FTA will have a profound impact on the movement of goods in/out of NI, plus the associated paperwork which may be required. For our NI clients, it is highly recommended to identify, employ or up-skill a customs administration resource as Boris’s promise to NI businesses in November that “there will be no forms, no checks, no barriers of any kind”, is unrealistic and unviable.
- Virtual Border is where it is at
If you have a huge amount of optimism that a comprehensive FTA will emerge, then a No Deal on products is somewhat averted, but No Deal on services may be the trade-off for this. Trade within the EU is protected by a vast amount of legislation and regulation, which the UK is trying to escape from. It is common knowledge that Boris intends to be distant from the EU in all aspects of goods and services, including specific removal of the “high alignment” text from the Withdrawal Agreement, which Teresa May fought for. The renegotiation of non-tariff barriers to trade is much more important than tariff barriers, but politically less spoken about. However, the time has come in the Brexit journey for the discussions and realities to emerge about non-tariff barriers a.k.a regulations such as REACH, GDPR, food hygiene standards, financial services controls, environmental and social regulation, mutual recognition of standards and qualifications etc.
Strategic Sourcing Tip;
We at Arvo have always been more concerned for businesses on the island of Ireland about the divergence of EU standards and regulations in the UK/NI. Tariffs on goods would lead to cost increases, inflation and shortage of certain products in the worst case scenario. However, the lack of alignment of non-tariff barriers will cease the delivery of services (& some goods altogether). As the facts of this outcome emerge, we will continue to publish these insights so get them first from our Weekly Brexit Newsletter.
Brexit has not disappeared but now the true impacts of the UK’s 2016 Referendum decision will finally emerge.
Just so you know, Arvo have produced a Brexit eBook with practical strategic sourcing tips for Businesses to navigate the above Brexit Risks. We have gathered case studies, templates and many helpful tools and solutions to support your Brexit risk management, so order your free copy today via;
Finally, if you have any Brexit queries, feel free to email [email protected] for a prompt response (or call +353 (0)21-2362902)