Sep 27 2019

The most important actions to take before Brexit

The ongoing uncertainty about Brexit is causing problems for many companies. Businesses are having a hard time making investment decisions. Jakob Steffen, certified economist and managing director of J.S. Research KG, advises companies and helps them to better calculate the consequences of “no-deal” scenarios. In the interview, he talks about what companies urgently need to do if they have not done so already. The most important points will also be summarised at the end.

1.) Brexit has been dragging on for years. Different reports come out every day and the economy seems uncertain. What advice would you give companies that have economic ties with Great Britain?

Answer: If they haven’t done so already, all companies that engage in the cross-border trade of goods with the United Kingdom should apply for an EORI (customs) number. It requires only minimal effort and provides protection against all eventualities regardless of the Brexit outcome.

If major transactions are denominated in pound sterling, it is also a good idea to enter into currency hedging transactions for the months after 31 October in order to avoid a possible collapse of the pound; even if these options should expire worthless in extreme cases, they are still a useful insurance. 

2.) What do companies have to be prepared for in the event of a hard Brexit? What are the consequences for companies in EU countries? 

Answer: From an EU perspective, the United Kingdom would become a third country overnight – just like Canada or Australia. That means that all the usual “comfort” in terms of foreign trade, personnel deployment, customs-related matters, etc., will disappear from one day to the next. In any case, the consequences will be considerable, reaching all the way to a temporary collapse of trade relations until fundamental issues between the UK and EU have been worked out.

At the same time, the consequences are also highly individual because they depend on the nature of the economic relations that the UK has with the specific industry.

3.) What will companies have to bear in mind in the future in terms of exports to and imports from Great Britain? What are the biggest hurdles for companies, especially if a “no-deal Brexit” happens? Particularly in terms of customs clearance and currency fluctuations.

Answer: As pointed out earlier – even with an orderly Brexit! – the movement of goods with the United Kingdom will eventually become like that with a third country should the UK actually leave the single market and customs union, which remains the basic scenario.

It is therefore essential that companies register with the customs authority. The biggest short-term hurdle will be the documentation required (certificate of origin, etc.) for the passage of goods into and out of the United Kingdom as of 1 November if a “no-deal Brexit” actually comes to pass on 31 October.

In this case, the British pound is also expected to fall to parity with the euro or even below in the short term because the markets have clearly still not priced in the “no deal” scenario. 

4.) Are there any special precautions regarding online retail that companies should take right away before it’s too late?

Answer: Especially B2C companies that have online shops need to be aware that in the event of a “no-deal Brexit”, the General EU Data Protection Regulation (GDPR) would no longer apply with respect to data exchange with the United Kingdom.

Specifically, this means that if there is a chaotic, hard Brexit on 1 November, personal customer data may no longer be exchanged with British business partners unless a separate, reciprocal written obligation to comply with the provisions of the GDPR has been contractually agreed. Larger companies have already entered into these contracts with their suppliers for quite some time now; with regard to medium-sized companies, however, there are hardly any contracts because they were not necessary. 

It is therefore strongly recommended that companies immediately contact their legal counsel and have a sample contract drawn up for all existing business partners in the UK. In any case, this provides legal certainty even with an orderly Brexit.

5.) What does the furniture industry need to be aware of and how can you stay up to date?

Answer: The main impact for the furniture industry will be shipping its products across the borders and running into possible delays. The infamous queues of lorries around Calais and Dover are not a horror scenario, but very realistic at least for the first weeks following a “no-deal Brexit” on 31 October.

Smaller manufacturers will also be affected by an enormous cash flow risk because huge values of goods may be stuck on the road and sales are not realised according to their liquidity planning.  Therefore, liquidity planning for the fourth quarter should already be adjusted accordingly and additional buffers built in.

The best way to keep up to date is with the Association of German Chambers of Commerce and Industry (DIHK), which has set up a special Brexit website, as well as – in all modesty – through my company’s website.

6.) How will Brexit impact current contracts?

Answer: This is quite a tricky area, even for lawyers. However, one thing is for sure: If a “no deal” actually happens, all contracts based on EU internal market regulations would at least need to be adapted, and often even be null and void because their contractual basis would no longer apply (see answer to GDPR above); this also applies especially to trademark protection rights unless they have been registered separately in the UK.

However, that is precisely why a “no-deal” case would also mean a special right of termination in many contracts, which should be checked for that possibility now. For new contracts, such a clause is absolutely necessary!  In the case of an orderly Brexit, on the other hand, the transition will most likely be smooth, not least because a generous transitional period of up to two years from the de facto departure date of the United Kingdom is initially provided for.

During this time, absolutely nothing would change for companies (also in terms of movement of goods), which means there would be plenty of time to react to any necessary contract adjustments. 

Summery

  1. An EORI number should be requested
  2. A hard Brexit would immediately transform the UK into a third country and result in changes to trading conditions
  3. Challenge in gathering the necessary documents in such a short time for registration with the customs authority
  4. Separate, reciprocal written obligation to comply with the provisions of the GDPR should be contractually agreed
  5. Liquidity planning for the fourth quarter should be adjusted accordingly due to barriers to cross-border movement of goods
  6. Contracts based on EU internal market regulations must at least be adapted and special termination conditions must be examine
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