Why is ‘No Deal Brexit’ a big deal?

Why is ‘No Deal Brexit’ a big deal?

On the 31st of December 2020, the transition period will end, and the UK will leave the EU single market and customs union. It is becoming increasingly likely that before this time the UK will not have agreed to a trade deal with the EU, resulting in a No-Deal, ‘Hard’ Brexit.

The EU and UK are no strangers to last-minute deals, and EU chief negotiator Michel Barnier and his British counterpart, David Frost, have had several discussions around this topic. Still, with the added impact of the coronavirus pandemic, progress had been slow.

What will happen if there is a no-deal Brexit?

If a trade deal is not reached between the UK and the EU we will fall back to the World Trade Organisation (WTO) terms, ending decades of frictionless customs and border agreements. The UK would then be faced with a broad spectrum of implications, notably the return of tariffs and quotas on the movement of goods between the two parties.

Currently, the UK operates with no tariffs or regulatory checks when trading with the EU, and the prospect of now having to re-introduce these operations would ultimately result in higher prices, as costs of the tariffs would most likely be passed on to the customer.

If no deal is agreed upon by the end of the transition period, the UK would likely be hit by significant tax increases when trying to sell products within the EU. Currently, the EU’s average WTO tariffs are 11.1% for agricultural goods, 15.7% for animal products and 35.4% for dairy. British carmakers are also expected to be hit with a 10% tariff on exports to the bloc, which could amount to €5.7bn per year—increasing the average price of a British car sold in the EU by €3,000.

With the removal of product standard equivalencies, full controls would apply to imports. Goods imported into GB from the EU will need to comply with GB standards and certifications (and vice versa) unless either side decides to recognise the other’s standards and certifications unilaterally. This risks manufacturers having to seek approval from both British and European regulatory bodies – potentially forcing them to produce goods to two standards. For companies involved in services, the additional regulations could likely result in substantial paperwork, inevitably costing time and money.

What will happen at the border if there is a no-deal Brexit?

It will also be likely that leaving without a trade deal would result in new border checks for both exports and imports, on both sides of the border. A lot of businesses worry that more extensive import checks will mean a delay in shipping times, due to border backlogs. The UK government has accepted the fate of delays and backlogs across the new single market border, and has been making provisions for such, for example; large lorry parks to cope with queues at the border.

To smooth this transition and protect against widespread disruption, the UK Government has delayed its plans to impose full border controls. The Government has released guidance on what companies should expect, deal or no deal, in its Border Operating Model. It plans to implement a phased approach to trade rules, regardless of whether an agreement is reached or not—allowing businesses up to six months to make necessary payments and declarations. However, the same will not be true for UK businesses to export goods to the EU.

Several EU countries, such as France, have announced their intention to impose border controls immediately, running the risk of leaving 50% and 85% of freight truckers without the correct paperwork to enter the EU the day after no-deal. Worst case scenario, this could result in shipment delays of up to two and a half days, and trucks without the correct documents potentially being held until the relevant paperwork is provided.

The UK Government has already estimated that in the event of a no-deal Brexit; the flow of freight between Dover and Calais could drop overnight to between 40% and 60% of current levels, with the worst disruption to last for three months before it improves to between 50% and 70% of today’s levels.

What can my business do to prepare?

Whether a trade deal is reached at the eleventh hour, or not, the likelihood of disruption on your current business operations is guaranteed. Read our previous insight on how you should be preparing to trade with the EU from January 2021, to find out Animo’s top 5 things to consider, and for more information on how the government prepares to phase out trade regulations.

For other queries on how your business operations may be affected by Brexit, and advice on best practice moving forward, get in contact with one of our expert consultants, either by calling +44 (0)207 060 0835, emailing info@animoassocaites.com, or filling out a contact form below. Our consultants are well versed on the procedures and preparation necessary to ensure minimal disruption and welcome the opportunity to support the business during this tumultuous time.

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