The UK Government is working towards a situation where, on 29 March 2019, there is a withdrawal agreement covering the rights of UK and EU citizens, the Northern Ireland border and a transition period until December 2020 while the UK remains in the single market.
During the transition period, it would be business as usual as far as imports and exports are concerned. Politically, however, the UK would be outside the EU and would not have representation in the European Parliament or the European Commission. Although this has been touted as a period in which businesses can prepare for Brexit, in reality it will be the period in which the UK and the EU negotiate a trade deal.
No withdrawal deal
So what does a no-deal Brexit actually mean? In short, it describes a situation where the UK leaves the EU without having agreed the terms of a withdrawal agreement and without an agreed transitional period: the UK would exit the single market and begin to trade with the world under World Trade Organization (WTO) rules; there would be no agreement relating to the Northern Ireland border; and there would be no agreement on the rights of EU citizens in the UK and UK citizens in the EU. This is the no-withdrawal deal possibility.
No trade deal
But there is another form of no deal. Even if the politicians sign a withdrawal agreement and reach a consensus on trade deal principles by 29 March 2019, it won't be binding until a full trade agreement is signed. And regardless of whether a withdrawal agreement is signed, if the trade deal talks fail we will have a no-trade deal situation at the end of the transition period. The UK would then be faced with trading under on WTO rules, although the transition period may have given the UK the opportunity to reach trade deals with other countries.
What does this mean for businesses?
In addition to the potential economic effects, there are many ways in which a no-withdrawal deal or a no-trade deal situation could affect a business. Factors may vary depending on the sector in which the business operates, its supply chain and its customer base, but key common issues are likely to include:
- Customs tariffs and administration – if there is no agreement on the UK’s continued participation in the customs union, tariffs would be payable on trade between the UK and EU countries. Businesses will need to follow the same customs procedures when exporting to or importing from a non-EU country. For instance, customs declarations will be required which could add delay and bureaucracy to the process. WTO tariffs and rules will apply.
- Supply chain – you may have a no-deal Brexit plan – but does your supply chain? Where your supply chain crosses borders, it is likely there will be delays.
- Contracts – contracts entered into by your business may no longer be fit for purpose if they don't take into account the changes that a no-deal Brexit brings. Businesses should consider how delays would be dealt with and who would be responsible for the additional duties. Legally the importer bears any import duties and the exporter bears any export duties. However this may be the driver for further commercial negotiations. Where the contract can no longer be performed, what is the contractual implication?
- Regulation - the UK will no longer be part of EU regulatory bodies or agencies and therefore any required authorisation or product testing becomes more complicated. This could delay or prevent trade of regulated goods or services into the EU.
- People - the Government has assured that the rights of EU nationals living in the UK will be protected, even in the case of a no-withdrawal deal. It has launched a new ‘settled status’ scheme on a test phase basis, which is expected to be fully open by March next year. Under this scheme EU nationals currently living in the UK, and those arriving before 31 December 2020, will be able to apply for a new status, subject to eligibility. The deadline to make such an application will be 30 June 2021. The Government has also announced that freedom of movement for EU nationals will come to an end after 31 December 2020. EU nationals arriving after this date will be subjected to some sort of visa requirements. The Government has indicated that applications from highly skilled migrants will be given preference over low-skilled workers.
- Data – the UK becomes a ‘third country’ for the purposes of the new GDPR which means that personal data can only be transferred to the UK where an 'adequate level of protection is guaranteed'. This could be determined by a European Commission adequacy decision, although the European Commission has said it will not take an adequacy decision until the UK has left the EU. Effectively, the position is that the UK currently regards EU data protection law as “adequate” (although this may be subject to change), but it has not yet been confirmed that the EU will reciprocate, despite both having identical data protection laws. Therefore businesses wishing to transfer EU personal data to the UK (or continue to hold or receive EU personal data) should consider adopting the standard data protection clauses, pre-approved by the European Commission, within the relevant contract rather than relying on a presumption of adequacy (even though such a presumption is likely to prove correct).
These issues cut across business of all sizes and from all sectors. However there are many other ways in which businesses might be affected by a no-deal Brexit. Businesses should be preparing for Brexit – and that now includes the possibility of a no-withdrawal Brexit.
To learn more about our views on the legal implications of Brexit, visit our dedicated Business of Brexit pages or contact Kate Westbrook from our Brexit team. We also offer a Brexit MOT for your business.