Key messages for business planning
Areas for business to assess their current position and what might happen next largely fall into two broad categories:
- ‘At the border’ issues, essentially customs and immigration.
A customs border is coming but this will, by now, be familiar to many businesses, although easements that have previously been promised (e.g. temporary tariffs, transitional simplified procedures (TSPs) or light touch compliance) may not be available this time. Similarly, with a Free Trade Agreement (FTA), there is a clear framework in many sectors based on existing EU agreements, e.g. Canada and Japan.
- ‘Behind the border’ issues including regulatory divergence.
These issues are more fluid and less familiar for many. Nevertheless there is a clear opportunity to influence and extend previous no deal planning. Businesses may want to consider the merits of establishing a footprint in the EU, as has been done by many in the financial services sector.
Some of the activity needed to prepare for the end of transition will have a significant lead time (e.g., implementing FTA agreement technology might take 6-9 months, engaging with supplier base and gathering documentation will also take time) so we are suggesting that businesses build out the timetables now. An example approach would be:
- Within Q1: As an extension of previous no deal planning, assess readiness against no deal but with the expectation that previous easements will no longer apply and against a proxy FTA such as Canada or Japan.
- In Q2: Pull together the plan, sign off with stakeholders and agree the budget. This will likely take a full quarter given the large numbers of stakeholders involved.
- Q3-4: If no extension to transition period in July, then press proceed and begin plan implementation.
In tandem with this activity, business should continue to engage with the Government – either directly or via trade bodies – so the Government is aware of the challenges.
Negotiations on future trading arrangements
The relationship that the EU and UK will have following the end of the transition period remains subject to negotiation. In early February, both the EU and the UK are expected to publish their negotiating positions for the future relationship, although it is suggested that negotiations will not commence until 3 March 2020, given the need for the EU to get agreement from all Member States on the negotiating mandate. There is some debate about whether 11 months (or in practice 8 or 9 months) is sufficient time to agree to a comprehensive free trade agreement.
There has been speculation that separate “bite size” agreements may be possible, which could leave some areas unaddressed on 31 December 2020. However, latest rumours suggest a deal modelled on the existing trade deal between the EU and Canada may be more likely.
It has been reported that the EU and 16 other World Trade Organization (WTO) members agreed to work together to develop an interim appeal arrangement that will allow WTO members to preserve a dispute settlement system. This is important for multinationals operating in countries with no bilateral dispute resolution mechanisms in place and may become relevant to UK businesses if a free trade agreement is not reached with the EU (and other countries) by the end of the year.