Is Brexit the best exit?

For nearly two years now, since we learned about the result of the referendum in Great Britain, where the minimum majority of the British decided to leave the EU, the discussion has continued on how to find a way out of the lose-lose situation. It seems that any solution will be worse than the current one, when Great Britain is still a member of the Common Market. However, in the recent days, the negotiations have finally gained momentum. An initial 500-page draft agreement has been developed which is still being discussed in the British Parliament, where Theresa May must convince the House of Commons. By Tuesday, November 20th, 2018, the European Parliament will also have to present an opinion on the preliminary agreement, yet the final outcome still remains a great mystery. There is also talk of an alternative scenario in which the draft agreement will not be supported, and a new referendum will be needed, which is the only chance, and a quite real one, for backing out of the Brexit decision.

If, however, the agreement is concluded, we can talk about two “deal” and “no deal” scenarios, which mean agreement or lack thereof, as to what Brexit is supposed to look like. “No deal” will mean the end of the Customs Union, the lack of access to the Single Market and the lack of free movement of goods and persons. In practice, for countries trading with the United Kingdom, it will also mean restoring customs procedures, restricting the labour market, increasing production costs in the United Kingdom and, consequently, decreased competitiveness, which everyone is trying to avoid.

At the moment, the United Kingdom is a member of the Customs Union and the common EU Market, allowing you to move around the European Union countries just like inside one country, Brexit according to experts means a drop of GDP by 2% - GBP 40 billion.

After information on Brexit was publicised, the Pound Sterling has significantly weakened over the last two years to the lowest level in 31 years. In the short term, this means an increase in the competitiveness of British exports, perhaps until the transition period, i.e. until the end of 2020.  However, in the long run, especially since 2021, losses from British exports are estimated at GBP 4.5 billion per year. Mainly due to the increase in export costs, with the possible rates at the same level, the losses of profits of British exporters are estimated. This, in turn, will lead to a decrease in the number of orders from the UK to Europe, including Poland, which, given the current proportions of trade, will increase the existing gap between exports and imports from and to the UK.

The increase in costs and the decline in the competitiveness of the British economy will also be the consequence of the growth in the unemployment rate to 6.5%, as the terms of employment in the UK under single market agreements for EU citizens will change. There is talk of a maximum 5-year period for current EU citizens, after which they will have to apply for work permits according to a standard procedure, as they will not be covered by the Common Market privilege. The UK is already observing a large increase in interest in job offers outside the EU. According to experts, all this will lead to a drop in investments in this country by over 20%.

Quoting only a few international or British companies operating on the British market, such as Vodafone, Jaguar, Land Rover, Siemens or Nissan, you can hear mostly of the decisions regarding the relocation of the headquarters to the continent or the anticipated increase in production costs and consequently the prices. And also of the reduction of work places in the UK in favour of production plants on the continent, suspension or delay of decisions on previously planned investments in the United Kingdom.

The transport industry is mentioned as the first most exposed to the negative effects of the UK leaving the EU. According to all independent forecasts, one of the first consequences will be the imbalance of the current trade level with the EU, including with Poland. The United Kingdom is currently the third most important trading partner for Poland. If the forecasts come true, the above-mentioned consequences may change the position of the United Kingdom in the trade exchange with Poland, which will turn its interest to countries outside Europe (e.g. China, Australia, the USA, etc.).

The exchange with the EU27 countries will be more expensive after Brexit. The cost of exported products will be increased by the costs of customs duty and VAT, just as in the case of trading with non-EU countries. The transitional period was initially negotiated until December 2020, by which time the UK will remain a member of the Customs Union and the Single Market, and at that time the customs procedures are to be significantly relaxed. From January 2021, the UK will most likely lose these privileges and then trade exchange will resemble one with countries from outside the European Union. At the moment, we offer our customers daily connections and lead times from 3 to 5 working days in the door-to-door option. After March 2019, this time may change. 

That is the reason why, together with our forwarding partner from the United Kingdom, we are preparing process changes, adapting the current intra-EU service to new scenarios for the transition period to 2020, when the United Kingdom will be a member of the Customs Union and after it, from 2021, when trade with the Great Britain will be treated as if with any other country from outside the Union. 

From the point of view of our customers, businesses trading with the EU, it is definitely worth checking the tariff codes of goods which they export to or import from the UK, and estimating the costs of customs service, customs duty, VAT and also taking into account the potentially extended time of service due to the necessity of customs clearance. Currently, with the free flow of goods, every hour and minute is carefully counted so as to shorten the lead time and increase time flexibility and availability of goods. Taking Brexit into account, the fact should be verified and taken into account that, for instance, a pallet with goods from Wrocław can reach a partner in Essex at least one day later than before. It will be possible to obtain the status of a trusted AEO Operator, which will greatly facilitate customs procedures, and we encourage our customers to take some interest in this matter. It should also be taken into account that in the case of re-export, there is a risk of incurring the costs of double customs duty when importing into the EU and re-exporting goods.

The biggest challenge when it comes to Brexit is that we know for sure only the date of the UK leaving the EU, which is inevitably coming closer, and we still have to wait patiently for the final scenario for the coming months. The EU27 Summit on Brexit is planned for November 25th, 2018. 

For the transport industry, the UK leaving the EU means more ineffective hours, additional customs procedures, training of office workers and drivers in customs services for this market. All this, with the currently progressing problem of the shrinking market of resources and the growing demand for transport services as well as challenges for the TFL sector, will inevitably mean an increase in the costs of trade exchange with the UK for the final recipient.

If the second referendum does not take place and we have to face Brexit, then as a logistics operator we will focus on offering maximum assistance to our customers and adapting their trade to the new rules. We are planning extensive information and advisory campaigns regarding new procedures for our customers in order to make the process of shipping to Great Britain as easy and as trouble free as possible. Our customer service departments and customs agency will provide the necessary information on an ongoing basis.

 Author: Sylwia Maciejewska, Partner Network Director, Raben Group