Hope for the best, but prepare for the worst

Prime Minister Boris Johnson meets EU Commission President Jean-Claude Junker last month.

While waiting to hear if there is significant progress by the time the European Council meets in the middle of this month, he adds, it is still imperative to prepare for the eventuality of no-deal. “That is still the default outcome as even under the Benn Act passed by Parliament, any extension of Article 50 needs the agreement of all the other EU member states.”

Brodies is the only independent Scottish law firm with a presence in Brussels and has been helping its clients manage risk through its Brexit Advisory Group. “That draws expertise together from across the firm to form ‘a one stop shop’ for informed legal advice on the issues raised by Brexit,” says Livingstone, who is co-head of the group.

The potential pathways and options for which every business should be planning have narrowed, says Livingstone. “By October 31 there are only four things that can happen: there will be Brexit with a deal; there will be a no-deal Brexit; there will be an extension of the Article 50 deadline or the UK will revoke its Article 50 notice – and while there are lots of permutations within each of those outcomes and different ways they could be reached, at its most basic only one of those four things can happen – there is no fifth outcome.” One positive is that it is now somewhat easier to focus on a smaller number of potential outcomes rather than being overwhelmed by the sheer number of variables.

The challenges posed by a no-deal Brexit will have an obvious impact on manufacturing companies that are engaged in import and export with the EU. “We are dealing with a lot of very niche queries at the moment, related to specific areas and sectors of business,” says Livingstone. “There is clearly a lot of interest in immigration matters and settled status for employees and family members who are already living in Scotland but beyond that there is no one principal theme that is dominating the agenda, the queries we are receiving are all quite business specific.

“In terms of the areas we are proactively drawing attention to, it’s about the things that people can control now and thus limit the number of variables to which they are subject, making sure that they can adjust to whatever outcome transpires with minimal disruption – though that preparation itself might cause some disruption within a business.”

Larger clients, he points out, have the obvious advantage of possessing the personnel and financial resources to cope with that and the more heavily regulated businesses have already done their preparation some time ago. “Many of these companies who already operate outside the EU and have a presence there will have import/export procedures in place and while they would see a difference in volume, the procedures would not necessarily be substantially different from what they are already used to.”

It is the smaller companies and those in the SME sector who may not have done enough planning, and businesses who only import from, or export to, the EU who would see the most change. “These businesses will have to become familiar with procedures that will be new to them,” he says.

For many the administrative burden seems daunting but Livingstone stresses that there are some major areas that Brodies is encouraging clients to focus on. “In terms of importing and exporting the main area to address is Economic Operators Registration and Identification (EORI) numbers. This is one of the major things that businesses can take control of.” If a business only deals with import or export declarations in the UK, with a customer/client completing the equivalent declaration on the EU side of the border, it will only need a UK EORI number and if registered for UK VAT, a number should already have been assigned by HMRC.

However, if the firm is responsible for completing both the export declaration as goods leave the UK, as well as the import declaration when the goods are imported into the EU, (ie it is the importer of record in the EU) it will need both a UK and an EU EORI number. “The need to have two EORI numbers in certain circumstances,” says Livingstone, “is not an issue that has been very visible to businesses.”

The UK Government, he says has published a series of “technical notices” providing guidance on how to prepare for a no-deal Brexit, including 15 notices on importing and exporting. The notice on existing EU trade deals with non EU countries states the UK Government’s intention to replicate those EU arrangements in bilateral UK agreements.

“The plan is for the status quo with non-EU countries to be maintained through any transitional period agreed with the EU, but in a no-deal scenario trade with third countries would default to World Trade Organization (WTO) rules until a replacement bilateral agreement could be established. Businesses trading with third countries on the basis of EU agreements, whether directly or via their supply chains, should carefully consider how changes to trade rules would impact them (for instance if tariffs were imposed or rules of origin were changed).”

And while some businesses, particularly in the SME sector, are possibly assuming another extension to Article 50 on the basis of some of the current rhetoric and media reporting around the Benn Act, Livingstone stresses that Parliament can instruct the UK Government but cannot dictate the EU’s response. “So our message to clients is that this is not a situation where Parliament, or any one party, is entirely in control of what will happen.”

“Businesses should be aware of the challenges and perhaps the opportunities of Brexit that are specific to them – what they are exposed to and what are their sector’s risks in relation to any exit,” he says. In short, try to avoid surprises.

The right to move goods freely could end this month. (Image: Getty/yevtony)

Exporting and importing may become much more complicated

IN the event of a no-deal Brexit, the right to move goods freely between the UK and the EU would fall away as of 11pm on October 31st, 2019, and trade would revert to World Trade Organization (WTO) rules.

As a result, if you trade with the EU (whether importing or exporting) you may have to comply with the more onerous customs, excise and VAT procedures and rules that already apply to goods traded with non-EU countries – in a no-deal scenario the UK and EU will treat goods moving between them in the same way they currently treat trade with those countries (though the UK has said it will not impose any new requirements in relation to goods coming over the land border between Northern Ireland and the Republic of Ireland).

Full import and export declarations, and separate safety and security declarations, may therefore be required.

An EORI number (under the Economic Operators Registration and Identification Scheme) is currently required to trade goods with non-EU countries, and so will also be required to trade with the EU in a no-deal scenario (see main article).

In a no-deal scenario a range of goods would become liable to tariffs.

For goods exported to the EU, the relevant customs duty set out in the EU’s Common Customs Tariff would apply.

Goods coming into the UK from the EU would become subject to a new UK tariff.

A temporary UK tariff regime was published in March, setting out the tariffs that would apply to imports in the first 12 months of a no-deal scenario.

This would include imports from the EU (again subject to the UK Government’s position that goods coming over the Irish border would not be subject to UK tariffs).

If you export to or import from non-EU countries, you should be considering whether those are among the 70 or so countries that have a free trade agreement with the EU, and if so how the UK’s status under that agreement might be affected by Brexit.

In any transition period the intention would be for the EU, UK and third countries to continue to act as if the UK remains an EU Member State. If there is no deal the UK Government is aiming to put bilateral agreements in place with the relevant countries as quickly as possible and has already signed a number of “continuity trade agreements”.

However, there is likely to be a gap between Brexit and some agreements entering into force, and not all agreements are on track to be ‘rolled over’ in time or at all, which would mean trade with the relevant countries (if only temporarily) reverting to the same WTO terms as UK-EU trade.

Manufacturers should conduct reviews to keep goods flowing

IF you are a UK manufacturer of goods that are subject to EU-wide standards you should review whether your existing conformity assessments and certifications will continue to be recognised in the EU. You should also review whether you will need to obtain separate UK certification to cover use of your products in the UK.

UK bodies approved by the EU for certification purposes will no longer be recognised by the EU, so in a no-deal scenario the results of conformity assessments carried out by those bodies will no longer be recognised either.

Products assessed by UK bodies will therefore no longer be able to be placed on the EU market unless they have been reassessed and re-marked by a body that remains EU-recognised, or the manufacturer’s files are transferred to an EU-recognised body pre-Brexit. CE marking based on self-declaration of conformity will still be possible, including when exporting to the EU.

More detail is available in the EU’s preparedness notice and accompanying Q&A document on industrial products (the EU has also published documents specifically on the approval, certification and import of: vehicles and engines; chemicals; fertilisers; detergents; cosmetic products; recreational craft and personal watercraft; medicinal products; and transportable pressure equipment).

The UK Government has also published its own guidance on placing manufactured goods on the EU internal market (www.gov.uk/brexit). Meanwhile, the UK Government plans to introduce a new UK mark for new products, to indicate compliance with UK standards (which at the point of Brexit will be identical to the EU’s standards, but may then diverge over time).

Products that have a European CE marking will still be able to be placed on the UK market, though that option will be time-limited for products certified post-Brexit, and so a duplicate UK marking may ultimately be required.

This article appeared in The Herald on the 5th October 2019

For more information please visit www.brodies.com