Trading outside the EU: no deal guidance

Find out how a no deal Brexit might impact your trading arrangements outside the EU.

It’s not just trade with the EU that will be affected by no deal, but trade with dozens of other countries too. With access to around 40 trade deals through EU membership, the UK will see different levels of access to markets around the world in the event of no deal. Tariffs and non-tariff barriers will arise when trading with countries such as Japan, Canada and Mexico – which may come as a surprise financial hit if firms are not prepared.

Key challenges for business

Where has the government been unable to ‘roll over’ the EU trade deals into new UK trade agreements?

Key markets of concern are Japan, Canada, Mexico, and Turkey. It is unclear whether rollover deals or new trade agreements with these countries will be in place by the end of 2020. Sectors that are vulnerable to high tariffs include automotive and food and drink, with – for example – a 20-25% tariff on vehicles to Mexico, as well as the loss of preferential trade terms such as labour mobility with Canada. The Department for International Trade continues to hold discussions with these countries. Some form of deal could be more likely with Canada if the UK’s permanent tariff schedules are more unfavourable for Canadian exports to the UK than the proposed no deal tariff schedules in 2019, while the Mexicans remain eager to negotiate a modernised deal with the UK. The CBI expects negotiations for a new Free Trade Agreement with Japan to start in March, but timelines are very tight to agree terms and achieve ratification in the Japanese Parliament before the end of the year. The CBI will continue to raise member concerns and update companies on the government’s progress through its seat on DIT’s related Expert Trade Advisory Group.

Does rolling over these trade deals mean that everything will be the same from Day 1?

Trade arrangements with most of the countries where rollover deals have been agreed will change, and few cover all that they do with the EU. Businesses should not assume that a deal being ‘rolled over’ means that there will not be changes. For example, the agreement with EEA countries of Norway, Lichtenstein and Iceland is a very basic goods-only agreement, so services firms would see new restrictions such as having to obtain licenses to operate in those markets or obtaining visas to travel there. With Switzerland, only three of 20 mutual recognition agreements would be transitioned, meaning double testing requirements in many cases. And with South Korea, a three-year review clause on rules of origin as well as changes in tariff rate quotas will be applied.

How can businesses prepare for these changes?

It would be sensible to analyse exposure to new tariffs on exports and different trade terms around the world. Some CBI members have re-routed supply chains to avoid new tariffs. Services firms should also look at where new licenses may be required in EU third countries, although in some cases existing licenses are sufficient. Finally, keeping up to date with the Department for International Trade’s progress on negotiations would be helpful and the CBI will continue to update members through our no deal guidance.

 

Key questions for business to consider

Continuity plans for no deal will be unique to every company. However, there are some key questions your plans should answer, to ensure the major issues are covered.

  • Do you trade with any third countries that have trade agreements with the EU? If so, have they been rolled over partially or fully, and how important are they to your business as a proportion of your exports?
  • How reliant is your supply chain on trade with third countries that have trade agreements with the EU?
  • Will you be exporting any goods to third countries with trade agreements with the EU that will be in transit over the no deal date?
  • Have you looked to see where new regulatory measures may be needed for trade with third countries?
  • Have you checked whether you are liable for any additional duties and accounted for the potential of these in your planning for cashflow?

Want the highlights? View our webcast

Preparing for no deal: the changes for non-EU trade

— PROGRESS UPDATE: since recording, a rollover deal between the UK and South Korea has been secured.

Want the detail?

Other resources to help you plan

Our products are part of a supply chain that runs across Europe, the UK, China and Turkey. This is incredibly complicated, because we are not expecting the EU’s agreement with Turkey to be rolled over in a no deal. Even if there is a deal, it seems likely our products will no longer be counted as European content – which ultimately means that our content could mean that the whole machine assembled in Turkey would face tariffs for sale in Europe. We identified this early on as one of our biggest risks, and have been working incredibly hard to hold on to our relationship with our customers in Turkey to try and hold on to the contract in the long-term.

— Advanced manufacturing company

We’ve undertaken a number of surveys of our supply chain to understand – among other things – their exposure to third countries where trade deals may not be rolled over. We’ve identified a number of small suppliers that export a lot of their products, not just to the EU, but to third countries like Canada which will face tariffs. That’s going to affect their cashflow, their finances, and ultimately their ability to supply us if they’re threatened existentially or they have to put up their prices. There’s not much we can do about that expect hope the Government gets the deals sorted quickly. One option would be to find alternative, less risky suppliers, to sell to us – but we feel responsible for these SMEs and don’t want to do that. But at least we have an idea of the risk to us and can send on any advice we receive.

— Large retailer
No deal preparations hub