On leaving the EU, it is likely that in addition to the UK ceasing to benefit from the customs union of the EU, it will also lose access to the existing free trade agreements the EU has in place. While it is possible that the UK could benefit from transitional measures to bridge the gap between formally leaving the EU and the agreement of any new UK trade deals, we will only know the details once negotiations start progressing.
Consequently, UK businesses that trade extensively with EU and non-EU parties should consider their risks and form contingency plans to mitigate the effects of Brexit and the worst case scenario that would be the so-called ‘hard’ Brexit.
Absent a trade agreement (or interim agreement), exports from the UK would be subject to the EU’s standard tariffs currently applicable to third country imports not made under trade agreements, for example from the USA, rendering UK importers at a disadvantage against EU-based competitors. The additional administrative burden and cash flow cost that may arise to the customer as an EU importer of goods from the UK may prove sufficient disincentive for some customers to consider UK suppliers.
In order to protect against the prospective increased costs and administration, UK importers may wish to consider establishing an EU based distribution function to allow continuity of benefits currently in place within the EU, such as free trade agreements; this could extend to the consideration of an EU based corporate structure to enable clients to continue to benefit from other EU facilities that could be available to them.
By establishing an EU-based distribution function, UK importers can continue to benefit from the EU customs union and the single market conditions for procurement from EU and non-EU based suppliers and continue to enjoy the benefits of the free trade agreements the EU has in place with countries that include India, Sri Lanka, Korea, South Africa, Mexico and, to be implemented shortly, Canada.
Sales to EU customers would be supplied from the EU distribution function, helping to maintain current ease of trading, maintain cost structures, as well as protecting margin and, potentially, customer loyalty.
For more information please get in touch with Brad Ashton, or your usual RSM contact.