Are your export arrangements Brexit proof?
There are many issues that businesses must tackle for export success. Brexit adds to them
It is very difficult these days to talk about international trade without becoming embroiled in a discussion around Brexit. There are however many practical issues faced by exporters (both before and after Brexit) and it is important they are addressed promptly and reviewed regularly.
Surprisingly enough, one of the things many exporters get wrong is the fundamental of making sure they are paid. There are numerous systems and products available to exporters to assist in ensuring that they get paid, such as export finance and insurance via UKEF, bank letters of credit and credit insurance. There is specific financial support available in the North East, via the Catalyst Fund on Teesside, to help provide bonds to support contracts. With the uncertainty of Brexit those structures will become even more important.
Who has responsibility for the goods in transit?
Another issue often not given sufficient thought are the questions of delivery, customs duty and insurance obligations. These are often addressed through the use of International Commercial Terms (Incoterms) – 11 rules that reflect industry standards for when delivery is effective, and who bears responsibility for customs clearance and insurance at what point in the process.
Knowledge of Incoterms is a vital tool to exporters and should provide clarity on what the obligations are. We often see the use of the Incoterms, such as free on board (FOB) and delivered duty paid (DDP), which are inconsistent with the process set out in the contract.
Using an Incoterm now in a contract intended to apply post Brexit may have also unintended consequences. For instance, it may not be advisable to assume that no duty is payable.
A review of contracts to identify potential problems will be time well spent.
Meeting local requirements
When exporting products to another country those products need to meet the requirements of local laws. If there is not an identified standard set by the contract there is a risk that a product which meets UK standards does will meet the standards applicable in the destination country.
One of the advantages of being a member state of the EU has been that it set Europe wide standards, but these standards may fall away despite the adoption of much of the EU legislation by the UK.
Be aware of sanctions
Another area of concern is the growing scope and reach of UN, EU and USA sanctions lists. This can have a significant impact on the ability to trade with certain countries or corporations. A breach of these sanctions can result in significant financial penalties – the US government in particular has been very active in taking action against companies who breach them.
Understanding tax implications
There are many structures for trading internationally, corporate or contractual joint ventures, licensing, using agents and distributors. In some countries it is either necessary or best to work with a local partner. Each of these structures has tax consequences which need to be but are not always factored into the cost of exporting.
Brexit creates new uncertainties with regard to trading within the EU and exporters need to understand all those things which may change post Brexit which may render the exporting or trade unprofitable or indeed the selling of goods or services unlawful.
To date, not much of substance has come out of the negotiations with the EU with regard to post Brexit trade with Europe. It is almost certain that any attempt to analyse the most likely outcome will be out of date by the time that you come to read this article.
The government is publishing weekly documents setting its position and while these are interesting, they do not provide the certainty which exporters need. It is therefore vital for businesses involved in exporting to review their arrangements to make them "Brexit proof" – and ensure that they will be as effective and valid after Brexit (whatever terms that may be upon) as they were before and that they reflect a commercially valid structure for ongoing relationships with trading partners.
Ward Hadaway is corporate partner for the CBI's Global Growth Conference, to be held in Newcastle on 13 November.