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Brexit: the long goodbye

Jul 02, 2020
By Paul Rodgers and Simon MacAllister

The Withdrawal Agreement of 17 October 2019 brought a wave of optimism after the tedious doom and gloom surrounding Brexit. It bought time and goodwill, as it seemed that the dreaded hard Brexit had been avoided. Fast-forward to today and time is running out, goodwill is in short supply, and a hard Brexit still looms on the horizon. So, what has been decided and what remains unclear as we approach 2021?

Quick recap

The UK left the EU on 31 January 2020. However, the transition period has meant a continuation of the status quo to allow time for the future relationship to be agreed. The UK Government has categorically stated that it will not seek an extension of the transition period, which means 1 January 2021 is a hard deadline. The goal of a comprehensive Free Trade Agreement (FTA) by the end of the year looks as far away as ever, with both sides still disagreeing on several critical issues. If no FTA is agreed, the new relationship will be based on WTO rules – the dreaded “hard” Brexit.

What is clear

From 1 January 2021, there will be a customs border in effect between the UK and EU for the first time in over 25 years. Customs formalities (import/export declarations, presentation of documents, customs checks) will take place for movements between the UK and EU. Regardless of the outcome, trade compliance processes and procedures should be in place for 1 January 2021.

What isn’t clear

Hard Brexit or FTA?: In the case of a hard Brexit, WTO tariffs will apply to trade between the EU and UK. In some sectors, such as agri-food and apparel, high duty rates will have a material impact on landed costs. An FTA would mean that UK- and EU-originating goods could, subject to specific criteria, clear customs at a 0% duty rate. This would be a significant cost saving for traders in the high duty sectors mentioned above. However, there is a compliance burden and cost associated with FTA management.

Customs easements: The UK has announced that it will ease the customs impact of Brexit for imports from the EU for the first six months of Brexit until 30 June 2021. Depending on the type of goods, there may be significant clearance simplifications and cash-flow benefits available to traders. The operational details are still being worked out. At the time of writing, Ireland has not yet confirmed any reciprocal arrangements.

Northern Ireland: Despite the Northern Ireland Protocol, the customs and operational treatment of goods to/from Northern Ireland and Great Britain are still being worked out. Squaring the circle of Northern Ireland being part of the customs territory of the UK, while simultaneously being subject to EU customs and regulatory laws to keep it aligned with the EU customs union and single market, is proving as difficult as it sounds. However, one point is clear: there will be no hard border on the island of Ireland.

Get ready

There will be no more delays or extensions, and the transition period will end on 1 January 2021. Irish companies trading with the UK must put measures in place now to ensure that they are operationally ready to import/export and to prepare for the additional compliance costs, and potential additional duty costs, of a hard Brexit.

Paul Rodgers is Global Trade Director at EY and Simon MacAllister is EY Brexit Lead - Island of Ireland.