Five ways to Brexit-proof your business

03 April 2017

Leanna Byrne presents a guide to help your business survive the slings and arrows of Britain’s departure from the EU. Featuring commentary from Carol Lynch, Partner, BDO Customs & International Trade.

After all the sound and fury, it’s done. Last week, Article 50 was triggered. When Theresa May’s letter, which informed the European Council of Britain’s intention to leave the European Union, reached EC president Donald Tusk, it signalled the moment that all Irish companies must face up to Brexit. 

In export terms alone, Britain is worth €15.6 billion to us. It is our main trading partner, our primary investor and our neighbouring market. But as this economic crutch slowly gets pulled from underneath us, there are a few steps you can take to cushion the fall.

1. Accept the new economy

SMEs need to understand that a new economy is fast approaching. Brexit will affect all kinds of businesses, regardless of whether they trade directly with Britain. 

“Brexit is something we just have to accept. If imports get more expensive because of tariff barriers, that puts pressure on prices more generally in the economy. That will affect every firm in some way or another, ” said Edgar Morgenroth, association research professor for the Economic and Social Research Institute (ESRI).

Companies now need to think about Brexit as a variable, or an externality, when assessing the market now. Everyone will be impacted.

What can be assessed, however, is level of your company’s exposure.

“It all depends on how much you sell to Britain and how much you buy from Britain. In some cases, it may be indirect,” said Morgenroth.

“Assessing your exposure is the first step in knowing how much you will be negatively affected. You need to know your exposure to do something about it”

2. Assess your supply chain

When gauging how Brexit will affect your business, the first port of call is to look at your supply chain. Go through it carefully and find the weak links.

“At the moment, with the single market and the customs union, there’s a free movement of people and goods. But the trade barriers that will arise as a result of Brexit - which means the removal of the single market - they won’t be part of the customs union. That will mean going in and out of Britain will give rise to additional tariffs, ” said Fionn Uibh Eachach, director at KPMG.

“Some companies can argue that they have cross-border sales to Britain If you are going cross-border several times, that could theoretically result in potential duty and tariffs payable and a lot of paperwork involved in that as well. It’s prohibitive in terms of cost and compliance.”

Companies now need to look at restructuring their supply chain. In other words, identify where the raw materials are coming from. Ask yourself: can you restructure or change your supply chain?

“If you are selling into Britain but you get 60 per cent of your raw materials for a particular product from Britain, can you look at other sources of getting that raw materials? Can you get that material domestically or can I get it elsewhere in the EU, which will result in zero cost of duty, ” said Uibh Eachach.

For some companies, however, their supply chain is unchangeable. If you are buying from Britain, it could be the case that these materials cannot be sourced elsewhere.

In this instance, said Uibh Eachach, companies can assess whether entering into Britain would be beneficial for the business.

“Can the production and manufacturing be done in Britain and potentially service the British market? You can do that by starting from fresh and building your own manufacturing plant in Britain, or you go in and you look at an acquisition of an entity or manufacturing organisation that is already in Britain That then means you’re producing and manufacturing the raw materials that you would have been bringing across border when you can obtain them in Britain and sell locally to avoid duties.”

3. Plan for customs

For many Irish companies, trading with and exporting to Britain is their lifeblood. Britain remains in the top three export target markets for Irish companies, with Enterprise Ireland clients exporting over €550 million a month across the Irish Sea.

The value of exports to the Britain by Enterprise Ireland clients reached €7.5 billion in 2015.

Carol Lynch, customs and international trade services partner at BDO, said that Irish companies need to plan ahead before new tariffs and duties come down the line.

“A lot of companies won’t have had to deal with customs issues in the last 25 years. Since January 1, 1993, we’ve had the single market. We really haven’t had any interaction with customs rules or the customs authorities, so we are really starting with a pure blank page as to what is to happen next,” said Lynch.

Lynch suggests combing through your company’s products and assigning each of them a tariff code, a customs classification that will determine the customs duty rate.

“You need to work off the resources you have. Look at your products, divide them into product families and try work each product line into a tariff code, ” said Lynch.

“The tariff code and classification is harmonised under the World Trade Organisation [WTO] rules at a six-digit level. No matter what structure or agreement the EU and Britain put in place going forward, that six-digits thing is going to remain the same.”

The best case scenario would be if there was a preferential trade agreement, where these rates could be as low as 0 per cent.

For companies exporting to Britain, the rates that Britain will eventually implement is anybody’s guess. But the WTO rates are bound, said Lynch, so Britain cannot go higher. “At least you know what is the highest rate that you could possibly be hit with,” she said.

Export and import declaration, even for crossing the border to the North, is also a likely outcome. For these declarations, companies will need to perfect the process because if any of their details are incorrect, the goods will be stopped.

“It’s very important over the next few years to understand those declarations and to understand the information that needs to be on them. Work on it, put in place a procedure, draft it up and ensure your agents are familiar with it.”

4. Judging the law

Possible restrictions on freedom of movements in and out of Britain includes workers. While a deal has yet to be reached between Britain and the EU on this front, Irish companies need to prepare for the worst.

“If you have an Irish organisation where you have employees that work in Britain, or vice versa, they could be treated as non-EU nationals seeking employment in Ireland, ” said Mary Brassil, employment group partner at McCann Fitzgerald.

Brassil advises looking at a company’s staff and see if you need to start applying for employment permits. “In a situation where one of their parents is an Irish citizen, they can apply for citizenship on that basis. Those grandfathering provisions are there,” she said.

“Again, it may be the case that they’re not but if they are, that may be something that would safeguard that position and you apply for an employment permit.”

She added that employers need to check their contract of employment for new hires, to ensure it has a right to work clause to support a contractual basis for change in the event that it is needed.

“In essence, the contract would say that you need to have as a condition of employment a right to work in Ireland. That’s only really for looking down the road if we don’t reach an arrangement.”

But employment law is only one area of legal concern when it comes to Brexit Dr Vincent Power, partner at A&L Goodbody, warns that almost every area of business life is covered by EU law.

"There are more than 100,000 EU laws which have become part of British law over the last four decades. Even if they are all absorbed into British law on day one, they will change over time and be interpreted differently by the British courts than the EU ones. Hence, we will see a divergence between British and EU law growing over time - just like the divergence between English and Irish law over the last 90 years,” said Power.

5. Seek opportunities in new markets

Brexit is a negative. But from this economic setback, companies have the opportunity to glean a new positive: entering a new market.

While Britain remains the old reliable for now, Enterprise Ireland has set in motion its Global Ambition campaign to encourage more exporters to scale up their export plans. In this new climate, diversification is crucial.

“There’s going to be a lot of options again around the hedging and diversifying into new markets. This can be done now,” said Fergal O’Brien, Ibec’s director of policy and chief economist.

“We are very fortunate that the Irish economy is in really great shape facing the Brexit challenge, and it is a challenge. There will be lots of opportunities for us, the economy and for business." 

Originally published by the Sunday Business Post. 

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