Five big Brexit issues yet to be resolved

Date : 14 June 2019

Readiness for a ‘no deal’ Brexit varies considerably from business to business. Some have worked extremely hard at this, while others have accepted the risk of taking little or no action. However, it has become clear that no company is able to get itself entirely ready because several areas simply can’t be prepared for with certainty. 

 

In this article, we pick out our top five Brexit issues still pending.   

 

1. What delays will there be on the main trade routes?

 

The busiest trade route is through the Dover Straights where No Deal border procedures have been getting clearer. For instance, the French Customs Authority has provided advice here and the UK has outlined transitional procedures here.

 

Even so, no-one can predict the degree of congestion on this route with confidence. Two big variables are the readiness of companies and the tolerance of the system to error.

 

On readiness, the evidence is concerning. The first step for any UK company to keep trading with the EU after No Deal is to ensure they have an EORI number. It’s a simple procedure that takes only a few minutes but the government estimates that fewer than 30% of those required to register have done so.

 

With very limited holding capacity at the borders, vehicles setting off without making the right preparations could quickly cause queues that hold everyone up. That could be lessened through procedures to check, identify and redirect non-compliant vehicles before the border. The UK government does have plans to introduce pre-border checks but hasn’t been precise about what, where and how this will work. It’s equally unclear what checks might be applied in France for vehicles approaching Calais.

 

We also don’t know how strict border officials will be in the event of No Deal, particularly on the EU side. With no official published estimates of traffic flow, companies can only build their inventory plans on guesswork.

 

2. How will the Irish land border function?

 

The Irish border has been the single most contentious item in Brexit negotiations to date. The UK, Ireland and the EU all agree the border between the north and south should remain as open as possible, and this is enshrined in the Good Friday Agreement … but how open can it be in practice, if there’s No Deal?

 

The EU has to protect the integrity of its Single Market and can’t allow goods to flow in entirely unchecked from the UK. Also, the anticipated difference in EU and UK tariff regimes will need to be policed even if no tariffs are applied between the two parts of Ireland.  

 

The EU’s “backstop” proposal, keeping Northern Ireland within the EU customs union and single market, if no alternative is agreed, has not been supported by the UK Parliament. Eventually, technology might be able to enforce the border entirely invisibly but not in time for the October 2019 deadline. 

 

So, what will apply if the UK leaves without a deal this autumn? The UK government has announced proposals which, for a temporary period, would involve keeping the land border open, without tariffs, but relying on declarations and payments if items are sent from the Republic via Northern Ireland to Great Britain.

 

There are however lots of missing details. We don’t yet know how secure the system would be, how the checks would apply for goods travelling between Northern Ireland and Great Britain, and for how long these interim arrangements would apply.  

 

There is even less clarity in the reverse direction. The EU and the Irish government held discussions in March about protecting the Single Market but no conclusions were announced, leaving room for speculation. Will the Irish side impose a form of physical border or could the EU insist on declarations and checks on goods transported between Ireland and the rest of the EU? 

 

Until this is settled, in both directions, no company can plan for any trade via Ireland with complete confidence.

 

3. What tariffs will apply?

 

The UK government published a proposed tariff schedule in March, in case of leaving the EU without a deal. However, that schedule still needs to be approved by Parliament.

 

It is quite likely that a new Prime Minister will take a different view on tariffs and propose a new schedule. That might be further amended by Parliament, or it might prove impossible for any proposal to gain parliamentary approval. In that scenario, under WTO rules, the UK would default to zero tariffs, although the stalemate could be broken at any time thereafter.

 

Tariffs are a big factor in buying decisions, particularly in the food industry. Until there is certainty in this area, companies will be reluctant to make any long-term buying or selling commitments.   

 

4. How many trade deals will remain in place with the rest of the world?

 

The UK participates in around 40 trade agreements negotiated by the EU with more than 70 countries, representing c11% of the UK’s total trade. All of these would legally cease to apply as soon as the UK leaves the EU.   

 

The UK government has been working hard to replicate these deals but it has not been easy. Many of the UK’s trading partners have been biding their time or pressing for amendments. There has been a reasonable degree of success though, including continuity deals with Switzerland, Norway, Israel, Peru, Chile and several smaller countries. A full list is available here.

 

An ‘agreement in principle’ has been reached with South Korea but, at the time of writing, this has not yet been finalised. Many other deals have yet to be completed including with Canada, Mexico, Egypt, South Africa and Kenya. The government has ruled out rolling over the agreements with Japan and Turkey.

 

In other cases, negotiations will continue and could be resolved at any time, before or after Brexit, perhaps with amendments. It’s also worth remembering that rules of origin within these agreements will apply differently once the UK breaks from the EU, meaning that tariffs will be added to some goods regardless. The complexity behind rules of origin is explained here.

 

5. How readily will companies be able to hire from beyond the UK?

 

The UK government has issued a White Paper outlining proposals for immigration policy post-Brexit. This was developed on the assumption of reaching a deal and it remains to be seen how a No Deal scenario would affect it.

 

As things stand, for “skilled foreign workers”, there would be no limit on numbers and no rules about origin. For others, tight new restrictions would apply. Additionally, some time-limited permits would be available for seasonal workers.

 

The immigration proposals hinge on the definition of “skilled”, which the White Paper provisionally defines as those earning over £30,000 per year. However, many people often considered as skilled are paid below this threshold.

 

The government’s Migration Advisory Committee maintains a ‘shortage occupation list’ to provide exemptions to the restrictions, and has just published a new set of recommendations. It suggests adding chefs (provided they fit certain criteria), vets, web developers, artists and various health and social workers to the list: raising those eligible from 1% to 9% of the workforce. This applies to the existing immigration regime, and proposals on a post-Brexit list are still to come.

 

Other areas of uncertainty on immigration include:

  • How the new rules will be phased in
  • How effective the registration scheme will be for EU citizens already settled in the UK - how many will fail to register and what the consequence of that will be
  • Who will qualify for a temporary permit
  • What the wait time will be for new work permits
  • How people who change profession or gain promotion will be treated

 

The proposals remain under consultation and companies have the chance to influence policy, but until this is finalised they will have no clarity on long-term direction. A strategic review planned for 2025 adds further uncertainty. 

 

Conclusions

In normal circumstances, any one of these areas would represent a major challenge. In combination, they create a fog of uncertainty, especially as there are other issues yet to be resolved including on food labelling, certification, pallets, haulage permits, legal jurisdictions and data protection.  

So, the stakes are still extremely high and we strongly recommend that every company remains on high alert for further developments. For up to date information, we recommend you refer to the new Brexit Food Hub.

Brexit and Economics

BREXIT AND ECONOMICS

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