• Brexit Status: What now?

Brexit Status: What now?

22 March 2018

We look at the key Brexit updates from this year so far and clarify in practical terms what this means for exporters.

A lot has happened in March 2018 in relation to Brexit and its impact for Irish exporters. In summary:

  • In Theresa May’s Mansion House speech on 2 March, Mrs May confirmed, again, that the UK will leave the Customs Union and will leave the EU Single Market.
  • On 5 March Michel Barnier welcomed this as giving clarity to the way forward.
  • On 7 March President Donald Tusk stated, in the draft guidelines on the framework of the future relationship with the UK, that the result of the UK leaving the Customs Union and Single Market meant that “the only remaining possible model is a free trade agreement. I hope that it will be ambitious and advanced – and we will do our best, as we did with other partners, such as Canada recently – but anyway it will only be a trade agreement.
  • He went on to say that Our agreement will not make trade between the UK and the EU frictionless or smoother. It will make it more complicated and costly than today, for all of us. This is the essence of Brexit”
  • Finally, in Brussels on 19 March an agreement was reached for a transition period to apply which will cover the period before the new Trade Agreement.

What does the Transition Period Mean?

The UK will formally leave the EU on 29 March 2019. However, it is unlikely that a Trade Agreement will be concluded by this point. This would mean that trade between the EU and the UK would take place under WTO rules – with similar duties, tariffs and restrictions to those that currently apply to trade between the EU and USA for example.

The Transition agreement however provides for the UK to effectively remain within the Customs Union until 31 December 2020 and therefore means there will be no impact on trade during this period. Nor will duties or controls be introduced.

Is 31 December 2020 therefore now the new date for Brexit?

Yes and no.

  • Yes, in so far as if the talks between the UK and EU on the future trading relationship are successful, and all outstanding issues such as the NI Border are resolved, then yes Brexit will occur in full on 1 January 2021.
  • No in so far as, under the EU Rules “nothing is agreed until everything is agreed”. So March 2019 could still occur.

Where does this leave companies?

The problem for companies at this point is whether to continue to prepare for March 2019 or hold off on the basis that political discussions will be successful and no change will be required until January 2021.

This involves an element of gambling and therefore the approach being taken by most companies is to implement the minimum amount of planning to ensure that this can be utilised should things take a turn for the worse later in the year.

As the work required is the same, regardless of the time frame, this ‘no regrets policy’ is seen as the best option.

What are companies preparing for?

Based on the events during March as laid out in the first paragraph a reasonable working assumption is that post-January 2021 companies will be trading with the UK under a Free Trade Agreement similar to the agreement that currently exists with Canada.

This will allow for reduced / zero customs duties as long as goods qualify as originating and companies have origin certification to prove it.

Import and Export Declarations will be required as normal.

What’s next?

The next crunch meeting will be the June Council meeting at which there needs to be substantive movement on

  • The Border
  • The unagreed “White” and “Yellow” items of the Withdrawal Agreement
  • The future trading relationship between the two blocs

At this point the advice is, as before, to review your supply chain and identify the costs and potential duty impacts for exports to and imports from the UK.

Along with Customs the Import VAT requirements, Direct Tax and HR costs also need to be budgeted for.

We recommend adapting the following co-ordinated approach and taking advantage of the grants and funds that are available to support this.

The bloc wants to have agreed on solutions to the Irish border problem, have ironed out remaining differences in the Brexit withdrawal treaty text, and nailed down what sort of relationship the two sides are going to have after 2020.

For further information or to arrange a meeting please contact Carol Lynch on [email protected].

For more information about the partnership between BDO and Irish Exporters Association, click here.