Brexit – facts, fiction, and impact on global trade

The actual process of withdrawing from the EU is unprecedented – so far, no country has ever left the EU. Article 50 of the Lisbon Treaty stipulates a two-year window between voting to leave and actually leaving the EU. This means the UK would have two years to prepare if the “Vote Leave” campaign were to succeed. A number of considerations would then need to be addressed during this two-year period:

• Brexit would essentially mean an alternative agreement would need to be brokered in order for the UK to maintain its access to the EU Single Market once it ceases to be an EU member state.
• This would also apply to countries outside the EU that the UK maintains trading relationships with under current EU trade agreements.
• If these negotiations were to take longer than two years following EU exit, the UK’s trade relations would be governed by WTO rules. This bears the risk that the EU, for example, could apply a range of tariffs to goods traded with the UK – in contrast to the current zero tariff benefits as part of the EU Single Market.

Customs procedures would undoubtedly change as part of the Brexit process. The actual details of such changes would depend on the future economic model borne out by Brexit – it is likely that experiences of other countries that operate outside of the EU, for example Switzerland, Norway, or Turkey, would be considered. Either way, new border control processes and red tape should be expected if Brexit comes to pass.

Efficient customs procedures form a crucial part of successful global trade and supply chain management today. We would expect potential changes in this area following Brexit to lead to a greater mix of logistics services in the market and a greater demand for providers with broad ranging experience in non-EU global trade and customs management services. This is because not every business currently trading across UK borders is familiar with customs procedures and therefore likely to (at least initially) outsource the task.

Whichever way the UK population votes in the June 23rd referendum, being in the EU or outside of it, it’s important to bear in mind that global trade management will always be subject to continued development of customs and export control procedures. To stay competitive in today’s dynamic markets and mitigate against various possible risks of disruption, all internationally trading companies need to stay both flexible and agile, keeping one step ahead of shifts in the markets or the introduction of new legislation.

Despite its prominence in media headlines and relevance in this forum, global trade concerns are not the only drivers that will motivate UK citizens to cast their vote in June. As for every EU member state, national matters are of great concern, too, and will also strongly influence final decisions of voters.

For the undecided, it’s becoming ever more challenging to keep up with the flow of information that streams non-stop through multiple media outlets – from the daily news headlines to the pamphlets dropping through letterboxes. Separating fact from fiction is challenging due to the inherent uncertainties – not just those surrounding Brexit, but also those about the future direction of the European Union as a whole and the UK’s part within it. 

Over the last few weeks we have spoken and listened to many people in my everyday life about what the EU referendum means to them: friends and family, professional partners, business owners, politicians, taxi drivers, and shop assistants. It is very interesting to hear such a range of diverse opinions – from utter confusion and indecisiveness to very informed and fully determined.

It seems to come down to the conflict between the uncertainty about global trade impacts and the country’s desire to regain its sovereignty. Of course, these are also the main arguments on either side of the campaign. There are two official sources in the UK that provide arguments for each side – the UK government promoting to stay in the EU and the “Vote Leave” initiative campaigning for an independent UK outside of the EU. Considering that both sides frequently rebuke the information published or claimed by the other side, this may not necessarily fully dissolve any confusions out there. 

Whichever path the upcoming UK vote will lead us to: businesses are well advised to communicate with existing suppliers and customers in order to understand their options and discuss joint plans for a possible post-Brexit world. There are various different aspects to consider, for example:

• If Brexit and resulting changes would increase their costs – be it in the short, mid, or longer term – businesses need to find ways to ensure costs are streamlined and efficiencies maximised – for example in stock management or goods distribution – as part of their supply chain optimisation measures.
  
• Companies can use established contract review processes to investigate additional sourcing strategies and supply chain partners to offset possible tariff and trade deal changes in case of Brexit.
  
• It’s also important to look at current global trade IT systems and applications together with integrated business partners to determine their flexibility to manage new customs and global trade processes, and ensure budgets include options for upgrades or new installations in case of changes to legislation.
  

As always: it never stays boring in the world of global trade management. And upcoming developments for both the UK and the EU are certainly holding our attention. Make sure to sign up to the AEB newsletter to keep informed about developments.