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Clifford Chance and CBI report gives business tools to analyse Brexit business impact

12 February 2017

Clifford Chance and CBI report gives business tools to analyse Brexit business impact

  • Report also calls for more engagement with Government before negotiations begin
  • Identifies little-understood supply chain risk, and solution: UK and EU supply chains could be disrupted after Brexit. Solving this should be a priority in the negotiation

With the UK Government set to begin negotiations to leave the EU in early March, international law firm Clifford Chance and leading business group, the Confederation of British Industry (CBI), today launch a guide for UK businesses seeking to understand the prospect of a new global landscape of trade between the UK and the rest of the world. It also includes practical advice on how to influence and manage the potential changes.

The Future of Trade for the UK: A Guide for Business assesses trade scenarios for Brexit and their potential impact on UK businesses, including: Article 50 withdrawal agreement negotiation; UK/EU long-term agreement negotiations; WTO negotiation; third country FTA negotiations; temporary interim arrangement negotiations.

The paper also focuses on practical considerations for business, many of which could face unfamiliar and complex trade rules for the first time. Advice for businesses addresses how to identify and prepare for the challenges and opportunities ahead, including: supply chain analysis; assessment of impact of tariffs; assessing impacts of non-tariff barriers, assessing potential restrictions to trade in services, mapping global corporate footprints; sharing economic and industry knowledge with Government; obtaining proof of foreign certificates and obtaining certificates of compliance with standards.

Jessica Gladstone, Clifford Chance international law and trade partner, said: "The UK is about to renegotiate a complex web of agreements built up over decades. This will pose challenges, but business has an incredible ability to adapt and there are two important steps that they can take to address these challenges.

"First and foremost – understand the issues and how this could affect your business and your sector. And second, don't be backward in coming forward to make sure that the Government understands your needs – it isn't too late to make your case. Better still, club together with peers or through a trade association such as the CBI so that the Government hears industry speaking with one voice."

Josh Hardie, CBI Deputy Director-General, said:

“As it negotiates the UK’s exit from the EU, the CBI and the business community will support the Government to make Brexit a success for the whole economy.

“A new relationship with the EU is potentially only two years down the track, so it is critical that businesses – of every size, sector and region – know, understand and feel comfortable navigating information and data about trading globally in order to make informed decisions for their futures.

“We hope our joint report with Clifford Chance serves as a useful practical guide for firms getting to grips with the complex potential scenarios that now lie ahead for the UK’s global trading relationships. By being fully prepared for these situations, firms can confidently make the choices that will ultimately lead to the creation of a more prosperous, fairer economy and a truly Global Britain."

Little-understood risk/solution: UK and EU supply chains could be disrupted after Brexit

As well as being an important export market, the EU's many trade agreements play an important role in both direct and indirect UK exports outside the EU. Taken together the EU and countries which have trade arrangements with the EU account for 85% of UK trade. The details of these trade agreements pose a potential risk to businesses on both sides of the Brexit negotiations.

An obvious implication of this is that a company exporting from the UK to South Korea, relying on the EU-South Korea Free Trade Agreement (FTA) could find it more difficult to export post-Brexit, at least until a new UK/Korea FTA were implemented. Some businesses may pause before investing, or choose to invest outside the UK to avoid the uncertainty.

Less obviously, EU27 exporters may find it harder to rely on UK suppliers post Brexit. For example, the EU-South Korea FTA requires that at least 55% of the value of a product comes from the EU or South Korea. If using a UK supplier brings the value of the product from inside the EU/South Korea below 55% then the EU27 exporter will lose access to the FTA's reduced tariffs.

Gladstone, further comments: "The changes to come won't just affect big UK businesses that export to the EU or through EU trade deals. For example, any UK or EU27 manufacturer that is part of a complex EU supply chain could be at risk because of the way FTAs work. This is just one of many issues that could trip businesses up if they aren't prepared."

"However, there is a potential fix. If the UK and the EU can agree 'cumulation' of rules of origin between them, this could benefit all parties. In the future, UK suppliers could be considered equivalent to EU suppliers for EU27 exporters. And conversely, EU27 suppliers could trade through UK exporters relying on the UK's new FTAs with the world. Both sides would win because this would enable the complex cross-border supply chains that give Europe a competitive edge to continue to work together."