With the deadline of the end of the transition period approaching, this seems to be the last chapter to be added to this unique Brexit book. Nevertheless, an agreement between the European Union and the United Kingdom is not at all certain. What is at stake?
By the 31st of October, there should be a Brexit deal, after which the European Parliament will have time to approve the agreement. The United Kingdom will then definitively have left the EU on 31 December. According to Leon Kanters, Brexit specialist at KPMG, there are two main files on the table in Brussels causing a major headache to the negotiating teams. The first issue is creating a level playing field; rules for companies in the UK must be the same as for companies from the EU and vice versa.
The second issue is fisheries. As it is, European fishermen have access to British fishing grounds, and vice versa. But now that the British have left the EU, the discussions on the access areas and fish quota still has to be resolved. According to Kanters in KPMG's second Brexit Update Call, these are currently based on the situation before 1973, when the UK was not a member of the EU – a situation the UK wants to change.
Rebecca Okuda, Partner and Head of Trade & Customs at KPMG UK, as a UK resident knows best what's going on in the UK itself. There is some fear among companies about the financial impact that a no-deal will bring. In the meantime, Okuda indicated that we are working with all our might and soul to leave the UK on its own two feet from January onwards. In this respect, Okuda also made reference to the second version of the Border Operating Model, a detailed guide to how the border with the European Union will work after the transition period.
The second version contains additional information and clarifications in a number of key areas, such as delayed customs declarations, liability of intermediaries, procedures for controlled goods and new details on border infrastructure and processes. For example, a new border infrastructure with target locations and the necessary additional capacity to carry out cargo controls are being discussed, among which, as one would expect, locations such as Dover and the Channel Tunnel.
Supply chain scenarios
Fear among the British. Yet the state of preparedness in the EU is low, according to Kanters. Many companies that think they are prepared, may be sadly disappointed. Johan Smits, Partner at KPMG Strategy & Operations Supply Chain Lead, has his doubts about this as well. From his point of view, he is worried about the apparent quietness. In order to anticipate on what lies ahead, the sense of urgency from a supply chain perspective might be higher.
The companies use demand forecasting models based on their historical data. A ‘congested disruption’ like Brexit is not included in this data. Which means even stock positions are no longer accurate. There is a high risk of not being able to deliver products to customers on time. Smits: “You now have to overrule these models with ‘what-if’ scenarios for the entire chain, including suppliers, and for the entire product flow between countries. Unfortunately, if a single part of a new car is not available, the car cannot be fully delivered to the consumer. You can't steer without a steering wheel, and this also applies to the supply chain and Brexit.”
All in all, in the last two months of this year some considerable barriers will have to be overcome in order to make the passage from the transition to the new reality of 1 January as seamless as possible?
This was KPMG's second Brexit Update Call, which takes place every two weeks. Topics discussed include import, labor, supply chain and financial services. The fortnightly call takes half an hour. The next one will take place on the 29th of October. Please register.