UK files divorce papers with the European Union: What IOE&IT members need to know now
29 March 2017
Article by Arne Mielken, Young President, IOE&IT
In a way, the actions we are witnessing between the United Kingdom and European Union are just that; a divorce.
How clean cut - or messy it will get is anybody's guess. As global trade professionals , it is important to understand the implications of this divorce - during and after.
Put into more formal language, the UK has today formally notified the European Council of its decision to withdraw from the trading bloc of 28 countries. The letter, signed by Prime Minister Theresa May, will be hand delivered to European Council President Donald Tusk at around 12.30pm.
This has started the clock on a two-year countdown to Brexit and means that in a few weeks time the Prime Minister will begin possibly one of the most complicated negotiations of political history.
How long is the waiting period before the UK and the EU are officially divorced?
Britain's complex negotiations to exit the EU can only begin when Article 50 of the Treaty of Lisbon is formally triggered by the UK. Article 50 states that that EU law will automatically cease to apply in a maximum of two years from today, unless it is unanimously decided by the UK and the EU to extend this period.
Everything but the kitchen sink: Will the EU and UK also conclude a settlement agreement?
We hope so! Ideally, the EU and the UK should spend the next two years working on a withdrawal (settlement) agreement. There are lots of issues to agree on beyond trade in very little time, from financial matters, rights of EU/UK, transfer of regulatory responsibilities to name but a few. Of course, the big question, what happens to the “children” – in this case Northern Ireland, Scotland and Wales need to decide if they want to stay with the UK or EU. (There isn’t an option for co-parenting and weekend visits).
What is the future relationship between the European Union and the United Kingdom?
We don’t know! We know that the UK is hoping to secure a bespoke deal that secures a high degree of access to the EU Single Market in goods and services through a Free Trade Agreement. But allow me to remind you: First of all, these negotiations are a two-way street – the EU Council, European Parliament with its veto powers, and the 27 Member States (and possibly some regional parliaments) with different interests will also have to agree to any future deal. Secondly, negotiations will not only focus on future trade arrangements. Any of the many other, amazingly complex, issues can derail an agreement on the future collaboration of the UK and the EU.
To sum up the challenge for the UK and the EU, I am often reminded of two important British sayings which encompass the essence of the magnitude and grandeur of the task ahead: “Nothing is agreed until everything is agreed” and “Too many cooks spoil the broth.”
What is at stake for UK and EU business?
Potentially a lot. Trading with the UK and the EU may become more complicated, especially where supply chains include the UK.
EU and international trade agreements, customs and border arrangements will need to be revised carefully to take account of the UK’s exclusion from the EU. A UK “outside the EU” needs to re-think its entire trade and customs policies, including everyday essential global trade matters. This will affect the quota, tariff, valuation, origin and supply chain security of every company trading with the UK.
How are supply chains affected by Brexit?
Overall, it’s fair to say that many UK supply chains are firmly integrated into the European Union. Since last June’s historic decision, 40 years of supply chain integration between the UK and European countries have been examined. Scenario planning and procurement options are being discussed behind closed doors in boardrooms and warehouses alike.
Mergers and acquisitions, like the takeover of the UK’s Vauxhall/Opel plants by French Peugeot Citroen in the beginning of March 2017, mean that the ultimate decision on the future of these supply chains no longer resides solely and exclusively in the UK. Add to this the imposition of duties and non-tariff trade barriers like licenses and certificates and you see how in the future, well established supplies chains can shift over time, especially in areas of high regulatory control (take for example the car manufacturing trade or the textiles and apparel trade), in particular where there is no access to the EU Single Market and the Customs Union. This can have significant impacts on supply chain directions in the future.
Is a deep and comprehensive Free Trade Agreement between the UK and the EU the best option ensuring free trade between the EU and the UK?
It is important to recognise the limitation of a Free Trade deal. It is a contract between two nations and can never be as ambitious as sharing a free and open Single Market, like the EU has with its member nations now.
- “Free trade” may mean a duty reduction, but it will require of the development and passage of massive administrative infrastructure, documentation and certificates.
- Rules of Origin will need to be understood within businesses and rigorously managed.
- Long Term Supplier Declarations may need to be solicited.
- The contracting of partners put in place based on WTO trade rules set rules; and this does not eliminate red tape, contrary to free movement in a Single Market and a Customs Union.
I fear that an EU-UK FTA is not the solution for frictionless trade that most UK business are asking for. And don’t forget that border clearance, even though as electronically advanced as possible, will have to be re-introduced on both sides.
Contingency planning for trade delays and disruptions may be necessary in the early stages and this will bring strained relationships with disruptive delays.
How does the IOE&IT support our members in these divorce proceedings?
Our Post "Brexit" workshops help you to examine your existing exports and imports in the short and longer term. Helping you to establish where to go from here to spread your risks.
Our academic customs qualification (Diploma in World Customs Compliance & Regulation) covers a comprehensive and in-depth range of topics in customs compliance and regulation to get you ready to trade on this new wider scale after Brexit.
And don’t forget our Technical Help for Exporters service and our Helpline will support you with any export issues you come across. While our team of experts can help with questions on documentation, export controls, Customs & VAT procedures, regulatory and compliance issues, insurance issues, payment terms, transport and logistics. As a member, you'll get free access to our experts.
The IOE&IT is ready to be your partner for export – before, during and after Brexit.