No-one can deny it’s an unsettling time at the moment for the UK economy, but especially the SME sector with the ever looming Brexit deadline and still no concrete deal or way forward.
After the last week’s events, a way forward seems even more shrouded in mystery & uncertainty, and now the request by the Government to potentially delay Article 50 until June.
Having attended a briefing recently aimed specifically at SME Manufacturers, it was unnerving to hear that Government statistics and media state that SME’s are clearly not ready for Brexit, never mind a no deal Brexit.
A no deal agreement would result in the worst impact for businesses, according to Muckle LLP, as it means we’re out of both the single market (resulting in removal of no tariff barriers) and the customs union (allocating common external tariffs and removing all free trade agreements).
No deal would mean we would have to fall in with the World Trade rules that apply to all countries outside of the UK. Perhaps not a bad thing in some people’s view I am sure. However this brings to the manufacturing industry, and in fact all industries, a reality of complicated supply chains and tariffs (think compound effects of border crossing tariffs and port delays to mention a few).
Apparently there is a middle ground – we agree a free trade deal.
In a free trade deal agreement, 55% of the value added to a product must be within a country that has a free trade deal agreement.
But…how do you ensure that this happens or even start to prove that is the case? Ultimately it might be that SME’s, certainly in the manufacturing industry, find themselves paying the tariffs anyway to reduce delays & just getting products sold, which would negate the deal in the first place.
So there’s very much a double edge sword here. And for the manufacturing industry it is critical that there is a large amount of preparation, planning and control taken in advance of any exit plan that is agreed by the Government in the coming months.
Either way, if it is agreed to delay Article 50 until June, the issues are still looming & there is little time for preparation. Indeed, if a longer extension were to be agreed, then this would only delay the inevitable & the EU have been at pains to state that they may agree to one extension but there will be not an opportunity for any more.
The advice from Muckle LLP is to plan for a no deal Brexit as this is considered the worst case scenario for industry.
But what can manufacturing or other industry SME’s do to get ready for the worst case scenario?
Here are some tips taken from Muckle LLP:
- Get a steering group involving expertise across the business, at board level, legal & HR
- Decide on a clear remit & terms of reference within the group
- Create a strategy with set principles, for eg. how to protect your IP in event of a no deal
- Audit your business in preparation of the no deal requirements – review supply chain up & down for direct & indirect impact (raw materials, tariffs, air freight vs shipping, stockpiling, weak suppliers, where you can shorten the supply chain)
- Report regularly within the business
- Assess & measure against the criteria the steering group has set
- Do your due diligence on the supply chain you rely on to ensure their compliance & preparations
- Consider what increased costs might there be – audits, admin certification
- Do you ned to appoint an authorised economic operator and obtain certification to prove your supply chain is secure & authorised?
- Consider free movement & employee profile
- Determine what external help might be required
- Look for any business & diversification opportunities
- Open discussions with suppliers, local chamber of commerce etc.
- Complete a legal risk analysis – is there industry specific legislation to be adhered to, technical notices, contact mapping, use the GDPR preparation exercise as experience
- Look at your commercial contracts and see if there are any ‘get outs’ if required or amendments that can be made. Legal consultation does highly recommended.
On a final note, according to the information gathered, there are @ 240k SME’s that will need a EAO id number (certifying a secure, validated & compliant supply chain in to EU countries).
So far only 40k have registered to date.
Freight forwarders or customers brokers your business may be involved with may already have this in hand, but are you confident? Have you asked the question?
Road haulage permits may disappear – have you applied in advance of this?
Do you have a due diligence questionnaire to send through your suppliers?
The key takeaway is basically to open dialogue with every element of the supply chain and customer base so there is clarity, understanding and a plan to act going forward whatever the scenario being faced.
Having read this back before I posted, it makes the situation sound pretty gloomy & scary to say the least.
Well in my opinion it is!
The UK is in a position of uncertainty where not even members of our government can agree terms of how we should leave the EU, never mind any other influential parties.
Nevertheless, the situation is real and we, as SME’s, must prepare for the worst, as if our preparations are thorough & counteract whatever a no deal brings, we can be assured that anything less than that should simply be a breeze!
If you’re wanting further information on technical notes or requirements relating to your industry and business model, go to https://www.gov.uk/business-uk-leaving-eu
And for a legal perspective or support contact www.muckle-llp.com or 0191 211 7777