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Preparing for a no-deal Brexit amid the Covid-19 crisis

The United Kingdom Government formally confirmed in June that it will not ask the EU for an extension to the Brexit transition period. This raises the spectre once more of a ‘no-deal’ Brexit. In the context of a pandemic that has left companies across the UK and EU reeling, Lucy Trevelyan examines what in-house lawyers can do now to prepare.

The 31 December deadline for the UK to reach a deal with the EU is looming and with it the prospect of the UK and EU having to trade on World Trade Organization terms. This will mean tariffs and border costs on a range of products and goods. Negotiations are still ongoing, but the EU and UK are still to reach agreement over areas such as fisheries, state aid and financial services.

Planning for a no-deal Brexit was always going to be a daunting task, but as a result of Covid-19, preparations have become even more of a struggle. Indeed, according to a new Confederation of British Industry survey, three in four businesses are concerned about further economic shock arising from a non-negotiated exit from the EU.

Had the world not been hit by Covid-19, at this point ‘businesses in the EU would be getting ready to move their UK manufacturing facilities to the EU to mitigate the risk of custom duties,’ explains Karl Waheed, Senior Vice-Chair of the IBA Immigration and Nationality Law Committee and founder of Karl Waheed Avocats, Paris.

Covid-19 – and its severe impact on economies globally – has changed companies’ view of the economic world.

Waheed says that concerns about a no-deal Brexit, prior to Covid-19, ‘were being raised in a stable and more or less expanding economy. Now the economy is shrinking and we do not know how far it will shrink.’

The dual crises – health and economic – may result in a return of borders and relatively national interest-oriented economies, he adds.

Barry Stanton, a partner at Boyes Turner, says that while an extension may not have resulted in any change to the outcome, its absence gives businesses less time to prepare when they are already struggling to deal with the pandemic. 

The pandemic has inevitably slowed the negotiating process, says David Glass, a consultant solicitor at Excello Law.

‘The inability for the negotiators to have face-to-face meetings has impacted on their ability to give their personal signature to discussions and to sort out troublesome points in a bar or restaurant – which have often helped in the past,’ says Glass.

‘In addition, both sides have had to divert precious staff resources away from their Brexit teams to deal with even more pressing Covid-19-related issues,’ he adds.

The pandemic, he says, has disrupted the supply chains of both EU and UK companies. ‘The weakened state of these companies may make it more difficult to cope with the additional administrative and logistical complications caused by Brexit.’

When trading in Europe, businesses need to factor in more bureaucracy, delays in the supply chains in both directions and increased tariffs, all of which will impact price competitiveness and service delivery, says Peter Taylor, Managing LLP Partner at Paris Smith.

‘There’s also the likely impact on the foreign exchange markets,’ he explains. ‘The value of sterling would be expected to fall against foreign currencies in the event of a no deal. Travel requirements will harden as border controls are enforced.’

David Miller, a director at VAT and customs duty consultancy The Customs People, says companies should be planning their EU trade by speaking to customers or suppliers. This will allow them to identify with what international customs terms they wish to trade; who will be responsible for undertaking the customs declarations on entry to the UK for UK-inbound traffic and entry to the EU for EU customers; who will pay the additional clearance costs; and who will meet the additional duty costs if there is no trade deal.

Miller identifies what he sees as the key pitfalls for companies. Firstly, ‘doing nothing and thinking things won’t change – they will, and it's about understanding what the changes mean to your individual business.’

Secondly, not understanding your supply chain, as ‘currently, many businesses buy or sell “delivered duty paid” (DDP) with the EU, but that isn’t a recognised trade term for EU trade, as there are no customs formalities or duty payable at the moment. In real terms, trading on a “DDP” basis places obligations on exporters which a business may not want.’

Finally, he warns of ‘not being proactive and planning post-Brexit trade’.

For companies employing EU citizens, there’s a need to ensure that those planning to stay have applied under the EU Settlement Scheme, says Stanton. ‘Businesses will also need to assess their need for future employees – will they look to recruit from the EU or to homegrown talent? Most likely many will combine both approaches and will therefore need to consider ensuring their HR systems are adequate to satisfy the Home Office that they can comply with the obligations imposed upon sponsors whilst also developing and nurturing homegrown talent.’

Given the importance of data for business, this is another area companies will need to focus on. Currently data can pass freely between the UK and the EU. However, without a deal there will be no EU adequacy decision in place to allow data to be transferred more freely to the UK from EU countries.

‘Businesses need to prepare to operate by transferring data in accordance with Standard Contract Clauses, or, alternatively, Binding Corporate Rules’

Barry Stanton, Partner at Boyes Turner

‘Businesses need to prepare to operate by transferring data in accordance with Standard Contract Clauses (SCCs), or, alternatively, Binding Corporate Rules,’ says Stanton. ‘That will require group companies to sign up to and agree the SCC terms but ensure that data is handled in accordance with the terms of the SCC.’

Michael Hatchwell, a partner at Child & Child, says the benefit of a no-deal Brexit could be that the UK will be free to negotiate trade deals that will attract more inward investment.

‘We will also be able to set taxes and impose rules and regulations that are not a European compromise, but which are fit for the UK alone,’ he adds. ‘However, the UK will no longer be seen as an access point to the EU market and where the EU requires a presence within it, the UK will no longer be a country of choice.’