United StatesChange Country

Checklists May Help U.S. Businesses Affected by Brexit

By Karen Lynch

Many import-export and global supply chain strategies have come into question in the three unpredictable years since the U.K. voted to exit the European Union (EU). With Brexit now postponed until at least October 2019, it seems like a good time to review a sampling of significant checklists and considerations that can affect U.S. companies doing business in the U.K.

It’s important to remember that many U.S. companies not only do business with the U.K., but also rely on the U.K. as a gateway to the EU. For these companies, large and small, an open question is whether Brexit will be “soft” or “hard.” In other words, observers wonder if there will be a transition period and some ongoing association with the EU’s Single Market and Customs Union, or if the U.K. will leave without any deal, relying instead on World Trade Organization (WTO) terms until a new U.K.-EU trade agreement is negotiated.

 

This uncertainty appears to have put businesses affected by Brexit in a bind. “Private sector organizations … will want to avoid the prospect of preparing for ‘no deal,’ with the significant investment it could require, only for a lengthy transition and soft Brexit to be agreed,” according to the Institute for Government (IFG), a think tank. “They will want assurances that they are not spending money in vain.”1

 

Potential Effects of Brexit on U.S.-EU Business

 

“Thousands of American companies have invested in the U.K. with the express intent of accessing the EU market,” according to the U.S. Chamber of Commerce.2

 

Shipping companies have published detailed checklists applicable to trade through the U.K. to the EU and its 433 million consumers (that is, minus the U.K.’s 67 million). DHL, for example, has recommended that companies should identify their strengths, weaknesses, opportunities, and threats (SWOT analysis) under a hard Brexit scenario. Considerations could include new customs declarations, duties, taxes, transit times, added customs surcharges, and, possibly, additional inspections.3

 

Management consultants have suggested focusing on alternatives to pre-Brexit supply chains, as well as greater automation to accommodate changes. “Changes could be dynamic and rapidly evolving, and cross-border trade will likely become more complicated,” said Pablo LeCour, Lead of Deloitte’s Global Export Controls & Sanctions Practice.4

 

European government promotion agencies, such as IDA Ireland, have confirmed that some companies have adopted a dual-hub strategy for separate distribution in the U.K. and rest of the EU. “There’s a strong potential for tariffs and new regulations on goods going in or out of the U.K. Not only might this increase the cost of goods sold but the added complexity boosts the cost of doing business,” said Deirdre Moran, IDA Senior Vice President, Technology.5

 

At a more detailed level, freight forwarders, such as Flexport, have suggested incorporating within the EU or finding a third party established in the EU to act as importer of record. Tips on its website include reevaluating the location of warehouses to minimize border crossings and delays—even reconsidering sourcing and manufacturing.6

 

Beyond merchandise trade, services, people, and data would also be affected—the latter under the EU’s General Data Protection Regulation, according to the U.S. Chamber of Commerce. Until the European Commission determines that U.K. data protections are adequate, for example, data will not move freely between the U.K. and EU, the U.S. Chamber said. “Likewise, firms operating in the U.K. may be restricted in their ability to send workers on temporary contracts to the continent, with particular negative effects on the U.K.’s dominant services sector.”7 Banks’ “passport” rights to provide services seamlessly between the U.K. and EU are also at stake in Brexit.

 

Contracting could become another complicated issue. “Small business owners, along with multinational companies, must understand that hundreds of laws, rules, and agreements governing everything from trade and immigration to agricultural subsidies will be rewritten, and that will impact contractual agreements,” Christina Wojcik, VP of Legal Services at Seal Software, said in an interview with Fast Company.8

 

Ultimately, many believe that cash flow is a consideration if shipments are delayed. “More complex port procedures could mean businesses need to be prepared to carry more inventory, tying up additional working capital,” noted the Institute of Chartered Accountants in England and Wales.9

 

HM Revenue & Customs has issued advice for businesses,10 as well as “Day 1” customs administration details.11 So has the European Commission posted its checklist for businesses to prepare for Brexit—including implications for key aspects, such as rules of origin. Specifically, “Post-Brexit, you can no longer count on U.K. input to a finished product being considered as EU content.”12

 

Potential Effects on U.S.-U.K. Business

 

While U.S. companies will also face changes in trading directly with the U.K., not all Brexit news is bad for them. In March 2019, for instance, the government announced tariff reductions on imports from non-EU countries, in the event of a no-deal Brexit.13 “The new tariff regime would mark a shift in favor of products from non-EU countries,” the BBC reported.14

 

Meanwhile, the value of the dollar has risen against the British pound, making it less expensive for U.S. companies to buy British imports. However, their exports have become more expensive in the U.K., potentially harming their ability to compete with local products.15

 

Preliminary talks are underway regarding new U.S.-U.K. and U.S.-EU trade deals. “If your company does business with the U.K. or EU, look out for new trade agreements over the next couple years,” wrote Harper Partners, a trade finance firm. “But know that both entities are economically incentivized to have strong, fruitful relations with the U.S.”

 

Overall, “the effects of 2016’s historic vote are not binary. These effects have had—and continue to have—a more profound and dynamic impact on businesses dependent on their location, geographical markets, size, supply chains, and customer bases,” according to the Trading Places report from Bibby Financial Service, a financial advisory.16

 

Still, most companies remain unprepared for Brexit, according to PwC’s “readiness scale.” Only 21 percent say they are “ready for anything,” while 27 percent describe themselves as “ready if we have a deal or long extension.” Of the remaining respondents, 43 percent say they have made a start, but have more to do; nine percent simply declared themselves unprepared.17

 

The

Takeaway:

Observers agree that U.S. businesses affected by Brexit face myriad challenges, not the least of which is the uncertainty about how Brexit will unfold. Checklists and considerations for preparation are being offered by a range of advisors, shippers, government agencies, and others—all of which can help. But for all that, companies are still finding it difficult to invest in preparations when the outcome remains unclear.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1. Implementing Brexit: Customs, Institute for Government; https://www.instituteforgovernment.org.uk/sites/default/files/publications/IfG_Brexit_customs_WEB.pdf
2. “Quick Take: Your Primer on Brexit—and Why It Matters to U.S. Businesses,” U.S. Chamber of Commerce; https://www.uschamber.com/series/above-the-fold/quick-take-your-primer-brexit-and-why-it-matters-us-businesses
3. “What Will Change for Me?,” DHL; https://www.dhlexpress.nl/en/brexit
4. “2019 CFO Priorities: Experts Predict Top Trends,” D!gitalist Magazine; https://www.digitalistmag.com/finance/2018/12/18/2019-cfo-priorities-experts-predict-top-trends-06195293
5. “How Brexit Will Impact the European Sales of U.S. Companies,” CustomerThink; http://customerthink.com/how-brexit-will-impact-the-european-sales-of-u-s-companies/
6. “The Deal (or No Deal) with Brexit: How You Can Plan for Impact on Your Supply Chain,” Flexport; https://www.flexport.com/blog/the-deal-or-no-deal-with-brexit-how-you-can-plan-for-impact-on-your-supply
7. “The Harsh Consequences of a No-Deal Brexit,” U.S. Chamber of Commerce; https://www.uschamber.com/series/above-the-fold/the-harsh-consequences-of-no-deal-brexit
8. “How Brexit Could Affect Small Businesses and Startups in the U.S.,” Fast Company; https://www.fastcompany.com/3061340/how-brexit-could-affect-small-businesses-and-startups-in-the-us
9. “How to Prepare for Brexit—Checklist,” Institute of Chartered Accountants in England and Wales; https://www.icaew.com/technical/economy/brexit/brexit-checklist#Data%20protection
10. “Prepare Your Business or Organization for the U.K. leaving the EU,” HM Revenue & Customs; https://www.gov.uk/business-uk-leaving-eu
11. “Customs Agents—What to Expect on Day One of a ‘No Deal’ Scenario,” HM Revenue & Customs; https://www.gov.uk/guidance/customs-agents-what-to-expect-on-day-one-of-a-no-deal-scenario
12. “Seven Things Businesses in the EU27 Need to Know in Order to Prepare for Brexit,” European Commission; https://ec.europa.eu/info/sites/info/files/factsheet-preparing-withdrawal-brexit-preparedness-web_en.pdf
13. Tax Information and Impact Note for the U.K. Tariff 2019,” HM Revenue & Customs; https://www.gov.uk/government/publications/tax-information-and-impact-note-for-the-uk-tariff-2019/tax-information-and-impact-note-for-the-uk-tariff-2019--2#summary-of-impacts
14. “Most Imports Tariff-free Under No-deal Plan,” BBC; https://www.bbc.com/news/business-47551266
15. “XE Currency Charts: GBP to USD,” XE; https://www.xe.com/currencycharts/?from=GBP&to=USD&view=10Y
16. Trading Places, Bibby Financial Services; https://www.bibbyfinancialservices.com/about-us/news-and-insights/reports/2017/trading-places
17. “Where Are You on the ‘Planning for Brexit’ Scale?,” PwC; https://www.pwc.co.uk/the-eu-referendum/beyond-brexit-insights/planning-for-brexit-scale.html

Related Articles

U.K. Customs Proposal Aims to Keep Import-Export Trade Flowing with EU
United States-United Kingdom International Trade
EU Pursues International Trade Deals Worldwide