A new chapter in the Brexit process, a new history of uncertainty

Brexit- Dos Aguas Blog

In recent weeks Brexit have been back in the news. Since the referendum on the permanence of the United Kingdom in the European Union, Europe has been plunged into uncertainty due to the future relationships between both parties. It is well known that uncertainty is not good for business and economy. At Dos Aguas Consulting we are making a list of those risks that importers and exporters may face in the new scenario, as well as we explain how Dos Aguas Consulting can help making safe business in Spain.

What are the risks for importers and exporters?

We are not facing an easy issue, considering the growing fear among businessmen about this new situation in which tariffs in the trade between the UK and EU may be raised.

First of all, it must be borne in mind that the situation will depend on the political sphere and the negotiations between the EU and the UK. These negotiations began in March 2017 and some experts see the final agreement far away, especially after the latest statements by Theresa May in the European Parliament, opening the possibility to extend the transition period of the Brexit beyond December of 2020.[1]

In the event that both parties do not reach an agreement, the basic rules of the World Trade Organization (hereinafter, WTO) are applied, which implies the existence of various tariffs for both imports and exports. In this scenario, tariffs will reduce competitiveness and benefits for Spanish and European exporters, as well as for British importers.

However, we must take into account that since the UK is a member of the WTO (prior to its membership in the EU), the most favored nation (MFN) treatment must exist between the EU and the UK. In this way, the British exporters would face the EU Common Customs Tariff, while the EU exporters would face the tariffs that the UK freely chose to apply. In addition to the already mentioned tariffs, the exporters of both parties would face other non-tariff barriers when exporting to the other party because the compliance of the regulations in force would not be automatically secured any longer.[2]

Secondly, within the scope of the WTO the customs tariffs set by the WTO will apply to British exports (10% to the automotive sector and 36% to agricultural products in 2014). This fact will put British companies at a competitive disadvantage, even more because there is no room to negotiate other rates within the organization. In this regard, main product groups will be affected by this alleged situation:

Dos Aguas Blog- United Kingdom exports from Spain 2017

Source: Elaborated by Dos Aguas Consulting

Dos Aguas Blog- United Kingdom imports from Spain 2017

Source: Elaborated by Dos Aguas Consulting

On the one hand, the EU is one of the main export partners of the UK, since 47.43% of British exports are destined to a member state of the EU. In fact, 3.05% go to Spain, being the main groups of products: vehicles, machinery, pharmaceutical products, mineral fuels and electrical machinery.

On the other hand, Spain also finds in the British market sales opportunities for its products. In the period between 2013 and 2017, Spanish imports increased by 20.56%. Among the groups of imported products include: vehicles, machinery and food products.

In short, the increase in business costs between the UK and the EU after Brexit can be divided into three parts:

  1. Higher tariffs on imports;
  2. Greater non-tariff barriers to trade (derived from different regulations, border controls, etc.);
  3. The UK can not be part of future EU actions to achieve a deeper integration and the reduction of non-tariff barriers in the EU.

Recommendation for the British in the event of a non-agreement:

The British Government has prepared a series of guides and informative material in case the agreement between both parties cannot be reached. Information can be obtained on different aspects such as agriculture, export and import, money and taxes, health issues, study in the UK or the EU and rights in the workplace.

Conclusion

Given the situation of uncertainty surrounding the negotiations, we recommend to pay special attention to the drafting of contracts when exporting or importing, as well as to choice the most advantageous INCOTERMS, the currency to carry out the transaction, the insurance contracting, etc. At Dos Aguas Consulting we can help companies with these issues and others business problems in the Spanish market. Remember our motto: “Information is Safe Business”.

Methodological Note:

Information trade between the United Kingdom and Spain from International Trade Center.

Sources:

[1] EC/Agencies (22th October, 2018) May abre la puerta a extender el periodo de transición del Brexit. El Confidencial website.Available online (link). Last accessed: 25.10.2018.

[2]  Spanish Department of Agriculture, Food and Environment in London (2015) Implicaciones de la salida británica de la UE
para el sector agro-alimentario. Spanish Ministry of Agriculture, Fisheries and Food website. Available online (link). Last accessed: 25.10.2018.

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