How will Brexit affect my supply chain?

As the date of Brexit comes closer with no end in sight of finalising the withdrawal agreement or a future trade agreement with the EU, businesses will be making plans and making commitments to the post-Brexit future. For those that rely on goods and services coming from the EU the prospect of World Trade Organisation (WTO) tariffs being imposed is a risk that looms large on the horizon but is difficult to accurately quantify.

The UK and EU have agreed in principle that there will be a transitional period from Brexit until 31 December 2020, during which the UK will remain part of the EU’s common external tariff and can trade tariff-free with the EU. However, the transitional period is set out in the withdrawal agreement, which needs to be agreed in full by 29 March 2019 (Brexit day) to come into effect. Considerable progress has been made in the negotiations but there are some parts of the agreement that are still in the process of being negotiated (such as in relation to Northern Ireland and Gibraltar) and the possibility of an alternative government coming in that could seek to renegotiate the UK’s position cannot be ruled out. While it is likely that the withdrawal agreement will be agreed and come into effect, it is not a given.

If the withdrawal agreement is not agreed then the transitional period will not apply and WTO tariffs (and other non-tariff barriers) would come into effect from 30 March 2019.

After the transitional period (or if the transitional period does not come into effect) then in the absence of a trade agreement:

  • Goods/services coming from the EU into the UK will be subject to the UK’s own WTO goods and services schedule. As the UK will be leaving the EU’s common external tariff it will need to establish its own schedules to rely on – this has not yet happened. At the moment the level of those tariffs is not known so we cannot ascertain the impact that this would have on imports of goods and services;
  • Goods/services going into the EU will be subject to the EU’s common external tariff (which is known  and available on the WTO site).

Businesses should consider mitigating tariff-barrier risk for contracts that will span 29 March 2019 to cater for the possibility that the withdrawal agreement does not come into effect. For any commitments that go beyond 2020, consideration of the tariff-barrier risk posed by Brexit should be a priority. Mitigation measures can include re-negotiation provisions and/or a right to terminate, as well as individually negotiated risk sharing arrangements. 

If you require advice on the impact of Brexit on your trading arrangements or on ways to mitigate the risks posed by Brexit please call us on 0161 941 4000 and ask for our Commercial department or email us at lawyers@myerson.co.uk.

 

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