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In conditions of total uncertainty, we have decided to create and publish a short guide on Brexit. The guide consists of three parts and contains general information on Brexit and how it will affect two main industries we work with: medical and automotive. Continue reading to find out what’s happening right now and what “deal” and “no deal” actually means.
On the 15th of January 2019, MPs rejected Theresa May’s Brexit deal by a majority of 230 – a vote that was described by media as a “total catastrophe”. The question that everybody asks is “So now what?”. Right now there is a grim spectrum of options: starting with a second vote (with a deadline for MPs to vote for the Prime Minister’s proposals on the 29th of January), and ending with a no-deal. Pressure and uncertainty grow more and more each day – a perspective of no-deal looks increasingly probable. Especially if we take into consideration that the House of Commons will have approximately 40 working days to settle the agreement. But what does all of this mean?
Until the 29th of March 2019, the United Kingdom remains a part of the customs union, has a free trade agreement and is a part of the single market for every imported or exported product. Starting from 29th of March we will end up with one of the three following outcomes:
The most difficult part here is to figure out what the essential difference between hard Brexit and a no-deal is.
A soft Brexit implies an agreement with limited tariffs and regulations. In the case of a soft Brexit, the UK will presumably stay in the single market or the customs union, or both, maintaining free movement of goods, capital and people, but at the same time continuing to pay the EU and follow the union’s rules.
The United Kingdom tries to negotiate a unique type of agreement that will be in line with its economic and political goals, but since there, so far, is no precedent of withdrawal from EU, the term “soft Brexit” is commonly referred to as an arrangement comparable to that of Norway or Canada have. Loosely described, Norway option presupposes a high level of access to the EU market, that comes hand in hand with a high degree of EU regulation. Canada option, in turn, is basically a lower level of market access, but at the same time a lower level of regulation.
“At this point, there is no certainty about anything”
A no-deal means that the two parts (UK and EU) won’t be able to come to any agreement before the 29th of March and, as a result, the UK will be treated as any other country that is not a part of the EU, meaning all standard barriers will be applied the next day. Since no agreement so far is in place, a no-deal option becomes more real with each day.
A hard Brexit means giving up a full access to the single market (restrict a free movement of goods, capitals and people) and stop paying to the EU budget, while gaining an opportunity to settle new trade agreements worldwide.
Theoretically, Britain could get a special agreement under hard Brexit and negotiate free trade deals with the EU, but right now there is no inclination for a free trade agreement to happen. Obviously, it will be very hard to negotiate a perfect deal under time-pressure and leave the EU, while keeping major benefits and dropping major obligations. Therefore, in the case of a hard Brexit, the consequences most likely will be pretty similar to those we would get in a case of no-deal, and we have to know what they are.
There are two types of barriers that could be applied to the UK trade:
The term “tariffs” usually refers to the WTO (World Trade Organization) tariffs. To protect domestic production, each country agrees to a number of trade tariffs. WTO’s aim is to limit them and eliminate any potential discrimination, meaning that whichever tariffs a country puts on a specific group of products should be applied to every trading partner worldwide. And no, we won’t be able to choose which tariffs are put on our exports, and yes, we will be able to choose which tariffs to put on our imports.
So which tariffs should we expect? It is difficult to tell, since all tariffs are very specific depending on the product. A good example is the food industry: an average tariff on food is considered to be 22%, but at the same time the tariff on milk could reach 70%. You can check the tariffs on products you are interested in here.
There could be a variety of non-tariff barriers, but mostly they are standards, licensing and regulations that could lead to delays on the borders, growth of bureaucracy and, therefore, a rise in costs. In case of a no-deal or hard Brexit, the UK will probably have to follow European regulations without having a say in their development.
“In the case of a hard Brexit, the consequences most likely will be pretty similar to those we would get in a case of no-deal”
We should of course not forget what the European Union has to say. Brexit is not only about the manner in which the UK decides to leave and which rules to follow, but it’s also about how the EU sees the withdrawal. A deal that would be mostly in favour of the UK, could set a problematic precedent, that the EU would understandably be apprehensive to accept.
In a Notice to Stakeholders published on the 22nd of January 2018, the European Commission announced the following effects setting in motion after the UK’s scheduled withdrawal date:
At this point, there is no certainty about anything. Some industries could be more vulnerable to tariff barriers and some could suffer more from non-tariff barriers. Tariffs on some products can be as little as 0% on some products, and rise over 100% on others. According to KPMG’s report, the products which should expect the high tariffs are, in descending order, food and drink, clothes and footwear, chemicals, automotive, FMCG, toys, aerospace, oil and gas goods. At the bottom of the list one could find pharmaceutical products and IT equipment, they attract 0 duty. At the same time, pharmaceutical products, food, drink and chemicals will be the most prone to non-tariff barriers.
We should answer two questions to be able to determine what consequences injection moulders should expect: a) how Brexit will affect the plastic industry; b) how Brexit will affect the industries in which our customers operate. Right now there are more questions than answers, but we can say that:
In the upcoming two parts of this guide on Brexit, we will provide additional coverage on the medical and automotive industries respectively. These follow-up articles will be published soon!