Fourth Quarterly UK Retail Brexit Trade Review

    View Authors September 2019

    Welcome to the Fourth Quarterly UK Retail Brexit Trade Review.

    In appointing his Cabinet, the new Prime Minister Boris Johnson made far-reaching changes that shifted the government decisively towards a rapid conclusion of the Brexit process, potentially leaving on 31 October 2019 without a deal if so required.

    However, an alliance of opposition parties and (now former) Conservative MPs opposed to no-deal has passed legislation that will require the prime minister to seek another extension of Article 50 beyond 31 October should no-deal be agreed by the EU and the UK.

    So, with the Parliament having been prorogued until mid-October, we are still faced with considerable uncertainty, particularly with the unknown outcome of a possible snap election sitting in the background and the outside possibility that the UK may still leave the EU on Halloween.

    Companies should continue to prepare no-deal contingency arrangements. Indeed, we have seen a number of retailers publicly setting out their Brexit stall:

    On one side of the fence, we have Lord Wolfson, Chief Executive of Next Plc, who says, “better preparations under Boris Johnson have improved the UK’s prospects” and “The encouraging thing is that we are rapidly moving from the gridlock and chaos camp into the well-prepared camp.”

    On the other side, we have Lidl’s Irish business confirming that “All existing Lidl contracts contain a DDP (Delivered Duty Paid) clause.” In essence, Lidl has confirmed that its British suppliers will be responsible for additional tariffs in the event of a no-deal Brexit.

    In this final edition, we will focus on:

    • Brexit Update – The risk of a no-deal Brexit on 31 October has been reduced, but has not disappeared. The risk of no-deal at some point in the future remains. At this stage, either leaving with a deal (which would include the implementation period), or a further extension to allow for a UK General Election, look to be the more likely outcomes for 31 October.
    • Practical Steps for UK Retailers to Prepare for a No-deal Brexit – It is important that plans for a no-deal are put into action now. In planning for no-deal, businesses should:
      • Review all relevant regulatory frameworks and prepare for the immediate loss of automatic EU regulatory approvals in the event of a no-deal exit. Please refer to our Brexit Readiness Guide, published early this year.
      • Prepare for the additional measures that will be required for when personal data is transferred from the European Economic Area (EEA) to the UK and vice versa. The ICO recommends using pre-approved contract terms.
      • Review supply contracts, and logistics and warehousing arrangements
      • Factor possible increased costs into cash flow projections to mitigate any liquidity issues
      • Think about the impact of tariff changes and challenges on market competitiveness
      • Consider timing issues that might be created by border delays in terms of meeting supply and demand
      • Consider issues that might be created by removing frictionless movement of people and goods
    • Trade, Customs Duties and Tariffs – We review 2018 imports and the impact of customs duties on the future cost of tariffs on retail products.
      • A no-deal Brexit would add up to £2 billion on the cost of importing from the EU and Turkey, but would reduce tariff costs on imports from elsewhere by a similar amount.
      • The UK imported around £154 billion of retail products in 2018 very similar to 2017.
      • The EU’s share of UK retail imports rose from 54% to 55% between 2017 and 2018, continuing a four-year trend towards increased EU sourcing.
      • Volatility in trade relations led to new duties on retail imports of £37 million from the US in 2018, with possibly more to follow.
    • Views From Inside the EU27 – We have insights from:
      • France – The French Parliament authorised the government to take any measure relating to the control of goods to and from the UK, including ensuring the continuity of transport of persons and goods through the Channel Tunnel and a temporary regime to ensure facilities and infrastructure are in place, as required.
      • Spain – In view of the good relationship between the two countries, the Spanish government aims to maintain the status quo of their mutual commercial relationship and to preserve the rights of UK and Spanish citizens and companies operating cross-border.
      • Poland – The most important issue for the Polish government is the status of Poles living in the UK, which the government states is dealt with satisfactorily in the Withdrawal Agreement. A key area of focus is to support businesses exporting to and importing from the UK with regard to customs, tariff and regulatory issues, with particular emphasis on customs duty and VAT registration.
      • Germany – The general principle prevailing in German politics and the economy is still that it favours a potential revocation of the Article 50 notice. The extension to 31 October 2019 has been welcomed.
    • Sector Analysis – Standard duties would disappear completely on all imports of electricals, health, beauty, DIY, gardening, furniture, flooring, sports, toys and leisure. New duties on imports of food and drink from the EU would be partially (or wholly) offset by reductions in duties on imports of food and drink. A net increase in duties would apply to imports of clothing as a result of new duties on imports from the EU and Turkey.

    Please contact us if you would like to speak to one of experts.