With only 10 days to go until the end of the Brexit transition period, a trade deal with the EU continues to prove elusive.
Even if a deal is reached before the end of the year, businesses could still face a period of effectively having to trade with the EU on WTO terms. Here's a reminder of what that means in practice. We also discuss the likelihood of an extension of the transition period and the prospects for provisional application of a last minute deal, given that there is unlikely to be time for ratification before 1 January 2021.
What no deal means
In broad terms, no deal is likely to have two main impacts as compared with the position if the EU and the UK had managed to agree a free trade deal of the type which has been under discussion:
- Tariffs: no deal is likely to mean that tariffs will be applied to UK-EU goods trade. In some sectors, such as automotive or food, the tariffs will be significant and may undermine the viability of some businesses.
- Lack of cooperation/facilitation measures: equally, if not more importantly, no deal may well lead to a lack of cooperation/facilitation measures, exacerbating the difficulties and disruption that businesses will face across a range of areas, particularly in relation to goods supply, data flows and service provision (especially services involving a physical presence in the EU).
The CBI has recently produced a list of 48 measures which it believes would help to mitigate the disruptive impact of Brexit (whether or not there is a deal). These measures will be all the more important in a no deal scenario – but the risk is that fewer of them will be made available.
IMPLICATIONS OF A LAST MINUTE DEAL
Even if a deal is reached in time, businesses are now unlikely to have time to put the necessary measures in place to comply with key aspects of it, such as proof of origin requirements on goods (which will be needed to avoid tariffs, at least on entry to the EU). Businesses affected by that issue – or their customers, as the case may be – may need to be prepared to pay tariffs in the short term in order to ensure that goods get through in time (we recommend keeping detailed records with a view to ensuring that, if customs authorities are prepared to allow tariffs to be reclaimed retrospectively on compliance with relevant origin rules, the possibility of such a claim is preserved).