Brexit: Forewarned is forarmed! | KPMG | BE
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Brexit: Forewarned is forarmed!

Brexit: Forewarned is forarmed!

The impact of the UK’s decision to leave the EU is hard to predict.


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The Challenge

The impact of the UK’s decision to leave the EU is hard to predict because it has a myriad of possible alternatives in defining a future EU relationship. However, it seems that the UK ruled out certain models before engaging in talks with the 27 EU Member States.

The UK aims to freely negotiate trade deals and to set tariff levels with non-EU countries, thereby precluding a Customs Union with the EU, as the one that now exists with Turkey. A free trade agreement (FTA) similar to the Norwegian or Swiss model, which allows access to the Common Market, seems out of reach as the UK wishes to control EU immigration.

Moreover, the fact that the UK should contribute and comply with certain parts of EU legislation seems to run counter to the UK’s point of view on sovereignty.

Therefore, a more likely scenario would seem to be a tailormade, deep free trade agreement, which allows for as much frictionless trade as possible. In this respect the Deep and Comprehensive Free Trade Area (DCFTA) concluded with Ukraine might be an interesting example as it, contrary to other DCFTAs like CETA, relies both on EU law and international law. As the Great Repeal Bill will simultaneously revoke the European Communities Act 1972 and (partially) incorporate existing EU law into UK national law on day one of withdrawal, the DCFTA might be a relevant reference tool.

If the UK and the EU do not reach an agreement within 2 years – provided that this period is not extended for another two years – from the moment Article 50 TFEU is triggered, trade between the two will fall back on WTO rules if no transitional measures are in place. If this worst-case scenario were to materialize, the UK would be considered a third country, such as the United States of America.

Whatever the future model will be like, one thing is for sure, by leaving the Customs territory of the Union, UK goods will be subject to long export- and import formalities. Moreover, the UK will define its own customs policy, sets its own import duty tariffs, introduce its own commercial policy measures and will no longer have to comply with EU case law ensuring uniform interpretation.

However, in order to avoid tradedisruption as much as possible, we expect that, at least in the beginning, UK customs and regulatory legislation will be very similar to EU customs legislation.

As a consequence of BREXIT, Belgian exporters will face more red tape and possible tariff and non-tariff barriers. It follows that it will become more challenging for Belgian exporters to place their products on the UK market. But how do we prepare ourselves for this uncertain future?

KPMG Approach

The outcome of the BREXIT negotiations remains unclear and ambiguous. However, it is a clear that multiple Belgian enterprises doing business with the UK will be faced with the effects of Brexit, rather sooner than later.

In order to take the right decisions during these unforeseeable times, it is of utmost importance to carry out a disruptive readiness assessment based on a worst-case scenario. What will be the financial impact of BREXIT on my current business model? Which goods and services do I supply to my UK customers? Which goods and services do I source in the UK? Do I need a complete overhaul of my current business model or will some fine-tuning be sufficient to mitigate any adverse effects? Will I be able to adapt my ERP-system in due time?

We, at KPMG, can assist you, in reshaping your current business model in view of gaining a competitive edge and alleviating any potential costs. In addition, it is essential to stay tuned over the coming months and years. It will be interesting to learn more about the position of the 27 EU Member States and to know whether transitional measures will be rolled out in order to avoid a cliff-edge as from the date the exit deal enters into force until the date the new trade relationship begins.

KPMG is keeping a close eye on all the BREXIT news. Therefore, we invite you to stay informed by checking our fully-dedicated weblink.

The Benefits

Economic operators who grasp the nettle and prepare themselves in due time will reap the benefits, as they will get a head start over their competitors. Adequate preparation will help economic operators to smoothly adapt to the post-BREXIT situation, to leverage disruption in their supply chain model and to keep the financial burden to a strict minimum. If you are rethinking your business strategy you might even be able to explore new markets and seize new opportunities?

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