How will trade tariffs impact your business’s bottom line post-Brexit?

The British public voted to leave the EU way back in June 2016 and much has happened since then – from rejected deals and delayed deadlines to a general election, new Prime Ministers and now a possible deal! The one thing that hasn’t happened, however, is the very catalyst for all these events: Brexit.

If one positive can be taken from the Brexit saga, it’s that this painfully protracted process has meant the UK continues to benefit from EU trade arrangements – for now at least. However, the days of free trade in both goods and services across the EU will become a thing of a past. And even if a deal is eventually agreed, we still don’t know exactly how the fine detail would impact trade for UK businesses in the long-term.

Deal or no-deal

Under Mrs May's deal – which was rejected by Parliament several times – the UK would have entered a 21-month transition period, during which trade would have continued while it negotiated a future relationship with the EU. Armed with details of his new Brexit proposal, Boris Johnson addressed his party conference, stating that “we will allow the UK – whole and entire – to withdraw from the EU, with control of our own trade policy from the start." 

Far from being put off by anti-no-deal legislation and the illegality of his attempt to suspend Parliament, Mr Johnson remains adamant that the only alternative to his Brexit proposals is no-deal. So, how would a no-deal Brexit impact trade tariffs for UK businesses that import or export goods and services? Failure to agree a deal would result in the UK leaving the EU with immediate effect, without reaching an agreement about a UK-EU trade deal. The UK would subsequently separate from the single market and customs union overnight, potentially exposing UK exports to a range of EU imposed checks and tariffs.

Back in March, the government set out its contingency plan for trade tariffs in the event of a no-deal Brexit. The temporary programme would mean 87% of imports by value will be tariff-free – the current figure is 80%. The new schedule would see products from non-EU countries receive preferential treatment, with 92% of imports from the rest of the world being exempt from border duty – up from 56%. While 82% of imports from the EU will be tariff-free – compared to 100% currently.

Click here to find out about the impact of Johnson's new deal...

What is the 'no-deal' WTO option?

A reoccurring phrase in the Brexit trade debate is "the WTO option". The World Trade Organisation (WTO) – of which there are 164 members – is the only global organisation responsible for dealing with the rules of trade between nations. At its core are the WTO agreements, negotiated and signed by its members and ratified in their parliaments.

So, doesn't the UK already trade with multiple countries under WTO rules? It does but as part of the EU. The EU has around 40 free trade deals, covering over 70 countries. Therefore, as a current member, the UK can trade with these countries without having to pay tariffs on imports on most goods. However, if the UK exited the EU without a deal, it would automatically lose tariff-free access to these markets – such as Canada – and would have to trade under WTO rules.

If the UK does Brexit on 31st October, it can negotiate and sign trade deals with countries the EU has no trade agreement with – the US being the prime example, which accounted for 19% of UK exports in 2018. However, the UK would also have to negotiate a free trade deal with the EU to guarantee ongoing tariff-free trade there – something UK cross-border business will be extremely keen to see happen, with it accounting for 46% of UK exports last year.

To account for the possibility of a no-deal Brexit – and a sudden change in trade relations – the UK is working to replicate the EU's trade agreements "as far as possible", which is worth around 11% of total UK trade. So far, it has signed 13 "continuity" deals: South Korea, Central America, Andean countries, Norway and Iceland, Caribbean countries, Pacific Islands, Liechtenstein, Israel, Palestinian Authority, Switzerland, The Faroe Islands, Eastern and Southern Africa, Chile.

Planning ahead with help from the experts

With so much uncertainty surrounding the eventual outcome of Brexit, the future of the UK’s trade arrangements with the EU and the rest of the world remains up in the air. UK cross-border businesses are, therefore, left powerless as they try to predict whether the UK will exit the EU with or without a deal, and the impact of each scenario on tariffs. Any increase in the level of tariffs imposed on them – something a no-deal Brexit, in particular, could trigger – is likely to be compounded by Brexit-fuelled pound weakness, driving up the cost of conducting business overseas yet further.

So much is out of your control when it comes to the future cost of conducting international trade, as you wait for the powers that be to make Brexit a reality – deal or no-deal. Thankfully, you can take charge of your international payments by managing your exposure to currency market risk, with the help of a currency specialist.

The award-winning service provided by RationalFX is convenient, cost-effective and secure. A combination of expert market guidance from your very own account manager and access to effective exchange tools will help your business implement an effective currency strategy. For example, with RationalFX you can secure an exchange rate for up to two years using a forward contract. When your business executes an international payment, you will know exactly what your revenue or costs will be, no matter what direction the market moves in the meantime.

If you'd like more information about our services or further details about managing your FX risk during and post-Brexit, get in contact with our currency experts!

Email: brexit@rationalfx.com

Call: 0207220 8181 or create an account with us.

For more information about importing from the EU, click here.

For more information about exporting from the EU, click here.

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