Cross border trade Beyond Brexit

One of the recurring topics of conversation at our recent 'Beyond Brexit' conference in Manchester was the potential impact on cross-border trade arising from the decision to leave the EU. What was clear from the day was that trade, in its broadest sense, is a subject at the very heart of the debate about the longer term impacts of Brexit on UK businesses.

What kind of trading relationship do we want with the remaining 27 member states after Article 50 is invoked? Will we have a WTO model, an EEA model, or something different? Will there be new tariffs and taxes on UK exports to the EU? What other trade barriers are likely to go up in the next 2, 3, 5 years? How will the UK manage in the new world where we are suddenly "cut-adrift" from the largest trading bloc in the world? These were just some of the questions that were raised, and that the panel of experts in our trade breakout session attempted to tackle. 

The impact on trade due to Brexit means different things to different businesses, and depends on a number of factors. That said, some common themes emerged, which focused on three core areas: people; cost; and compliance.

People

Perhaps the most immediate reaction, and one that was reflected elsewhere in our day, was to question what Brexit means for people, both in terms of the longer-term mobility of work forces, and with regard to more general implications for trade across the EU. There is a common theme among businesses that stakeholders including the workforce need to be informed on a real time basis with regard to decisions that affect their personal and professional lives (e.g. the ability of mobile workers to enter and leave the UK as required without unnecessary obstacles or delays). The fundamental common concern from cross-border traders is that Brexit should not be allowed to overly impede the current relatively free flow of people, and that steps should be taken within the new trading model that the UK adopts with the EU to limit the disruption caused.

Cost

Concerns about the financial cost of Brexit are perhaps equal to people issues for businesses trading cross-border. Costs that could increase include the obvious such as trade tariffs, but there is also a raft of potentially significant but less obvious ones, including customs handling fees (on an item-by-item or shipment-by-shipment basis). Depending on the trading model adopted with the EU, another layer of additional cost could arise from withholding taxes on cross border flows of dividends, royalties, and interest. At the moment, most such withholding taxes are reduced to nil under existing EU directives to which the UK is party. However, once the UK is no longer a member of the EU, new arrangements, including new tax treaties, may need to be negotiated between the UK and the remaining 27 member states to get the UK back to the current position. Such renegotiations in themselves may be possible, but they are likely to take some considerable time to complete, and the intervening period of uncertainty is unlikely to be welcome to businesses.

Compliance

Businesses trading across the EU accept, and currently work within, complex sets of rules and regulations, including quality control, health and safety, and other harmonised European-wide standards. These rules are likely to change once the UK leaves the EU, but it is clear from our conversations that businesses do not expect regulation to simply disappear or even reduce significantly. The current rules are likely to be replaced by new ones, and whereas this represents an opportunity for significant simplification, it remains to be seen whether this will actually be achievable.

So what are cross border businesses doing to get themselves ready for Brexit? Well, many that we are speaking to are adopting a "wait and see" approach. That is not to say they are sitting on their hands; on the contrary, many we work with are adopting an informed approach by modelling potential duty cost impacts, speaking to key stakeholders including their work force, and engaging with government and trade bodies. In this way, and regardless of where they stood on the original vote in June, many business leaders we speak to are now positively taking the opportunity to help shape the future of Britain's trading place in the world. 

If you would like to discuss issues or options for your cross-border business, please speak to your usual PwC contact, or call Adrian Young on +44 (0) 161 245 2672 or Email: adrian.young@pwc.com

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