New guidance from the European Union this week warns businesses to start preparing for the UK to leave the Single Market and the Customs Union.
The European Commission this week published a Q&A on the draft negotiating directives for its talks with the UK on their post-Brexit trading relationship. In it, it says that it expects to see a free trade area with customs and regulatory cooperation. The aim is to have zero tariffs and zero quotas. But this will depend on a level playing field for fair competition.
“As in every negotiation, the risk of not reaching an agreement is there,” the European Commission document says. “Regardless of whether a future partnership will be in place, all businesses need to prepare now for the end of the transition period, as the UK will no longer be in the single market or the customs union.”
Customs checks and tariffs
In practice, even a “best in class” free trade agreement (FTA) would be unlike the frictionless trade that currently takes place as a result of the EU’s Customs Union and Single Market. Customs checks, including sanitary and phytosanitary controls, will take place at its borders. The document says that “In an FTA context, rules of origin and customs formalities will apply; all imports will need to comply with the rules of the importing party and will be subject to regulatory checks and controls for safety, health and other public policy purposes.”
If there is an FTA, there may be no customs tariffs. But if no trade agreement is agreed, tariffs and quotas will apply to all trade between the EU and the UK. “In this scenario,” says the document, “we must apply what is known as “MFN tariffs”. It says it will aim to “facilitate digital trade, such as ecommerce, while respecting consumer rights and personal data rights,” adding, “This is something that the EU has been doing in its FTAs for a long time.”
The logistics impact
The Commission advice says the EU will aim to continue connectivity both in the air and by road, with high levels of safety and security standards and sector specific level playing field provision for open and fair competition. But if no agreements are struck, the fallback situation would be that no flights could take place between the UK and the EU. That, however, seems unlikely.
Ecommerce solutions provider PFS, which opened a Southampton distribution centre at the end of 2018 in response to customer demand, says its number of clients has gone up by three times, and the orders it processes by five times, “all due to Brexit fears”.
Joe Farrell, VP of international operations at PFS, said: “Measures taken to safeguard brands’ fulfilment experience include assessing inventory pools, determining product popularity and customer base by geography, and then splitting inventory between our Belgium and UK distribution centres. As a result, brands have seen a reduction in cost and faster in-country fulfilment to their UK customers.”
He added: “Often overlooked in the case of Brexit is the impact retailers’ customer service teams will undoubtedly bear. Customer uncertainty, disrupted supply chains and unpreparedness for Britain’s exit from the EU could see an increase of in-store, online and telephone customer contact. If retailers have not taken adequate measures in the other areas of their business, customers will be sure to let them know. This potential impact on customer service must not be underestimated. Many brands would have scaled back their customer service following peak season and, if managing customer relations in-house, may be ill-prepared for the potential onslaught. An outsourced or shared customer service model could help offset potential issues.”