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Brexit And Its Implications For UK Businesses

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By Stirling Murray


On 29 March 2017, the UK government invoked Article 50, which formally states its intention to withdraw from the European Union. Unless all 28 EU members (including the UK) agree to an extension of negotiations, the UK will be fully extricated within two years from an economic and political union that has taken 45 years to create.

Although many parliamentary bills will be required over the next 24 months, the main component of the UK government’s legislative program will be ‘The Great Repeal Bill,” which will transcribe every single EU law and regulation into UK domestic law.

By March 2019, the UK government will have introduced new laws relating to agriculture, customs, fisheries, immigration, and trade in preparation for a post-EU existence. In parallel, trade negotiations with the European Union and a whole host of other countries will ensure that British industry is optimally positioned to benefit from the new trading conditions.

The outcome of the trade negotiations will effectively determine the long-term success or failure of the UK’s exit from the European Union.

In anticipation of a post-Brexit world, British importers and exporters are facing two main uncertainties. These are:

How will business be affected by the formal trading relationship the UK has with the European Union and the rest of the world? And, what additional business costs will be incurred as a result of the UK leaving the European Union?

EU Trade Relationship Scenarios

The European Union is a single customs area, which means EU member firms incur no duties, quotas, tariffs, or trading barriers when doing business with another EU member firm. The EU has also established free or preferential trade agreements with most countries in the world and EU member firms incur no (or low) trading tariffs when importing or exporting goods from these countries.

As soon as the UK government invokes Article 50, there will be pressure to negotiate new trade deals with the EU and every other country in the world. There are a number of potential models the UK could implement with each country, ranging from the basic World Trade Organization model of standard tariffs, through to the free movement of goods and services.

Given its importance to UK trade, the most important agreement will be with the EU. At this point in time, there is little insight into what the final model will be. A full customs union with the EU will require free movement of peoples, and this is currently an unacceptable compromise for the UK government.

Therefore, a looser trade relationship is likely and this will necessarily involve higher costs through trade tariffs and/or non-tariff costs in some industries resulting from increased customs bureaucracy between the UK and EU. Depending on the final agreement between the UK and EU, British companies may face increased costs on EU-related business from three main areas: tariffs, non-tariff barriers, and quotas.

TARIFFS

Given that cross-border trade tariffs have steadily fallen since the Second World War, the most likely impact on business will come from the additional administrative red tape due to cross-border customs checks and regulatory standards. However, there is a possibility that should no agreement be achieved on trade, tariffs and quota charges will be significant for some industries. This is unlikely to affect the beauty industry, and the UK’s regulatory body (CTPA) are confident that EU regulatory and compliance will stay as the accepted norm.

The majority of trade relationship scenarios between the UK and European Union suggests there will be some form of free movement of goods and services between the two parties. In selected industries, there will be no duties paid on UK-EU business transactions. Again this is at the early stage but it is felt that this will apply to the import of beauty products.

There is a clear distinction between agricultural and non-agricultural products for the EU, and firms exporting agricultural products to the EU will be most severely affected by Brexit should no trading agreement be reached.

NON-TARIFF BARRIERS

Much has been made of the potential costs of Brexit arising from non-tariff barriers to entry. In the single market, all goods and services can be transferred from one EU country to another with no controls or checks. In any other trade relationship model, customs checks will take place at country borders for a large selection of goods. Companies that have intra-EU supply chains may find that the paperwork associated with cross-border transfers of materials will be much greater. Non-tariff barriers can be grouped into two broad categories: border controls
 and regulatory differences.

BORDER CONTROLS

A leaked HMRC document (reported in many news outlets at the end of March 2017) predicted that prices could increase by as much as 24% if no trade agreement is achieved within the two-year negotiation period initiated by Article 50. This would be due to heightened bureaucracy and “burdensome procedures” at country borders and ports.

This concern is overblown. Most goods entering the European Union do not require customs checks at borders. For the majority of goods including beauty, it is the responsibility of EU trading standards officials to ensure the existence of the CE (Conformité Européenne) kite mark before goods can be legally sold. Therefore, it is highly unlikely there will be major delays in processing goods at ports and border crossings.

Furthermore, the UK already meets CE standards requirements in all its products, and since the Great Repeal Bill will enshrine EU law and standards in domestic legislation, there is no reason to expect additional costs (at least in the short term) from border controls.

REGULATORY DIFFERENCES

A much bigger issue for UK business is the potential regulatory drift that may occur as the UK implements changes to its own regulations, possibly in response to new trade deals with the US, China, or India. Irrespective of any simplification in UK standards, British exporters to the EU would still be forced to adhere to EU standards, and this may result in duplicate production lines that separately satisfy both sets of standards. Firms with capital constraints may also need to choose which market to focus on if regulatory standards diverge. For example, a possible scenario could be a medical device manufacturer opting for EU production instead of the UK because of high development and regulatory approval costs.

Clearly, the UK could accept EU standards as sufficient for sale, but the issue becomes even more complex when other big trading partners are included. For example, if the UK accepts both US and EU regulatory standards as acceptable for sale in the domestic market, it does not necessarily follow that the US and EU will recognize UK standards for sale in their respective markets. Any divergence in regulation will result in costs to UK businesses and these may become more severe over time if regulatory systems diverge. It is not foreseen that the import of beauty products will suffer.

The Total Costs of Brexit to British Businesses

The total additional costs faced by British businesses in a post-Brexit environment will be entirely dependent on the trade deal the UK government reaches with the EU. Negotiations will take place along industry lines and the objective of both parties will be to come as close to a free trading agreement as is possible.

British and EU businesses make extensive use of supply chains that span all European countries. A failure to reach a trade deal will adversely affect companies in both the UK and EU and so there is no objective reason why any party would not wish to succeed in the forthcoming negotiations.

For the majority of industries, a unified market is optimal and we expect this to continue after Brexit. Even if an agreement is not reached for selected industries by March 2019, there is no reason a free trade agreement will not be in place for the majority of industries.

CONCLUSIONS

The UK is set to enter a two-year period of negotiations with the EU on a new trading relationship that will set the scene for UK businesses for at least the next ten years.

Amid the clamor to sell newspapers and increase circulation figures, the media has focused on ever more extreme predictions (both good and bad) of a post-Brexit UK and its effect on business.

The reality will fortunately be more prosaic and, for most businesses, unlikely to be too different to what they experience today when doing business with the EU. The Great Repeal Bill will bring all EU legislation into UK law and the British government will maintain regulatory coherency with the EU, at least in the short term.

Starting from the position of a fully integrated market with free movement of goods and services, great effort will be made to ensure this remains for as many product groups and services as possible. This is an optimal position for both the UK and EU, so we should not expect too much difference in trading conditions in the future.

Negotiations will be difficult in agriculture and fisheries, and together with the free movement of peoples, these are the areas most likely to be where agreement is not reached within the two-year negotiating period.

Most UK businesses do not fear a post-Brexit landscape. Unlike other trade deal negotiations, the UK and EU are starting from a position of a full customs union, which means that all of the necessary regulatory standards and laws are already in place. This is in contrast to other trade negotiations which flounder on regulatory and legal incompatibilities between countries.

In sum, there is absolutely no hurdle to both parties continuing a free trade agreement in most industries post-Brexit, even without the free movement of peoples. Most British businesses including beauty will continue to trade as normal with little real change in administrative expectations.

Although the early negotiating and political rhetoric indicates otherwise, there will be no economic ruin for the country and there will be no Empire 2.0. There will just be business as usual.

Stop Press: The election results only add to the air of uncertainty, but had Labour won a majority the levels of doubt and business confidence would have sunk far lower than we are seeing now. It all makes for interesting times!

This article first appeared in BeautyMatter.

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Politics

Do 2020 Presidential Candidates Still Have Rules to Play By?

Not too many years ago, my advice to political candidates would have been pretty simple: "Don't do or say anything stupid." But the last few elections have rendered that advice outdated.


When Barack Obama referred to his grandmother as a "typical white woman" during the 2008 campaign, for example, many people thought it would cost him the election -- and once upon a time, it probably would have. But his supporters were focused on the values and positions he professed, and they weren't going to let one unwise comment distract them. Candidate Obama didn't even get much pushback for saying, "We're five days away from fundamentally transforming the United States of America." That statement should have given even his most ardent supporters pause, but it didn't. It was in line with everything Obama had previously said, and it was what his supporters wanted to hear.

2016: What rules?

Fast forward to 2016, and Donald Trump didn't just ignore traditional norms, he almost seemed to relish violating them. Who would have ever dreamed we'd elect a man who talked openly about grabbing women by the **** and who was constantly blasting out crazy-sounding Tweets? But Trump did get elected. Why? Some people believe it was because Americans finally felt like they had permission to show their bigotry. Others think Obama had pushed things so far to the left that right-wing voters were more interested in dragging public policy back toward the middle than in what Trump was Tweeting.

Another theory is that Trump's lewd, crude, and socially unacceptable behavior was deliberately designed to make Democrats feel comfortable campaigning on policies that were far further to the left than they ever would have attempted before. Why? Because they were sure America would never elect someone who acted like Trump. If that theory is right, and Democrats took the bait, Trump's "digital policies" served him well.

And although Trump's brash style drew the most handlines, he wasn't the only one who seemed to have forgotten the, "Don't do or say anything stupid," rule. Hillary Clinton also made news when she made a "basket of deplorables" comment at a private fundraiser, but it leaked out, and it dogged her for the rest of the election cycle.

And that's where we need to start our discussion. Now that all the old rules about candidate behavior have been blown away, do presidential candidates even need digital policies?

Yes, they do. More than ever, in my opinion. Let me tell you why.

Digital policies for 2020 and beyond

While the 2016 election tossed traditional rules about political campaigns to the trash heap, that doesn't mean you can do anything you want. Even if it's just for the sake of consistency, candidates need digital policies for their own campaigns, regardless of what anybody else is doing. Here are some important things to consider.

Align your digital policies with your campaign strategy

Aside from all the accompanying bells and whistles, why do you want to be president? What ideological beliefs are driving you? If you were to become president, what would you want your legacy to be? Once you've answered those questions honestly, you can develop your campaign strategy. Only then can you develop digital policies that are in alignment with the overall purpose -- the "Why?" -- of your campaign:

  • If part of your campaign strategy, for example, is to position yourself as someone who's above the fray of the nastiness of modern politics, then one of your digital policies should be that your campaign will never post or share anything that attacks another candidate on a personal level. Attacks will be targeted only at the policy level.
  • While it's not something I would recommend, if your campaign strategy is to depict the other side as "deplorables," then one of your digital policies should be to post and share every post, meme, image, etc. that supports your claim.
  • If a central piece of your platform is that detaining would-be refugees at the border is inhumane, then your digital policies should state that you will never say, post, or share anything that contradicts that belief, even if Trump plans to relocate some of them to your own city. Complaining that such a move would put too big a strain on local resources -- even if true -- would be making an argument for the other side. Don't do it.
  • Don't be too quick to share posts or Tweets from supporters. If it's a text post, read all of it to make sure there's not something in there that would reflect negatively on you. And examine images closely to make sure there's not a small detail that someone may notice.
  • Decide what your campaign's voice and tone will be. When you send out emails asking for donations, will you address the recipient as "friend" and stress the urgency of donating so you can continue to fight for them? Or will you personalize each email and use a more low-key, collaborative approach?

Those are just a few examples. The takeaway is that your online behavior should always support your campaign strategy. While you could probably get away with posting or sharing something that seems mean or "unpresidential," posting something that contradicts who you say you are could be deadly to your campaign. Trust me on this -- if there are inconsistencies, Twitter will find them and broadcast them to the world. And you'll have to waste valuable time, resources, and public trust to explain those inconsistencies away.

Remember that the most common-sense digital policies still apply

The 2016 election didn't abolish all of the rules. Some still apply and should definitely be included in your digital policies:

  1. Claim every domain you can think of that a supporter might type into a search engine. Jeb Bush not claiming www.jebbush.com (the official campaign domain was www.jeb2016.com) was a rookie mistake, and he deserved to have his supporters redirected to Trump's site.
  2. Choose your campaign's Twitter handle wisely. It should be obvious, not clever or cutesy. In addition, consider creating accounts with possible variations of the Twitter handle you chose so that no one else can use them.
  3. Give the same care to selecting hashtags. When considering a hashtag, conduct a search to understand its current use -- it might not be what you think! When making up new hashtags, try to avoid anything that could be hijacked for a different purpose -- one that might end up embarrassing you.
  4. Make sure that anyone authorized to Tweet, post, etc., on your behalf has a copy of your digital policies and understands the reasons behind them. (People are more likely to follow a rule if they understand why it's important.)
  5. Decide what you'll do if you make an online faux pas that starts a firestorm. What's your emergency plan?
  6. Consider sending an email to supporters who sign up on your website, thanking them for their support and suggesting ways (based on digital policies) they can help your messaging efforts. If you let them know how they can best help you, most should be happy to comply. It's a small ask that could prevent you from having to publicly disavow an ardent supporter.
  7. Make sure you're compliant with all applicable regulations: campaign finance, accessibility, privacy, etc. Adopt a double opt-in policy, so that users who sign up for your newsletter or email list through your website have to confirm by clicking on a link in an email. (And make sure your email template provides an easy way for people to unsubscribe.)
  8. Few people thought 2016 would end the way it did. And there's no way to predict quite yet what forces will shape the 2020 election. Careful tracking of your messaging (likes, shares, comments, etc.) will tell you if you're on track or if public opinion has shifted yet again. If so, your messaging needs to shift with it. Ideally, one person should be responsible for monitoring reaction to the campaign's messaging and for raising a red flag if reactions aren't what was expected.

Thankfully, the world hasn't completely lost its marbles

Whatever the outcome of the election may be, candidates now face a situation where long-standing rules of behavior no longer apply. You now have to make your own rules -- your own digital policies. You can't make assumptions about what the voting public will or won't accept. You can't assume that "They'll never vote for someone who acts like that"; neither can you assume, "Oh, I can get away with that, too." So do it right from the beginning. Because in this election, I predict that sound digital policies combined with authenticity will be your best friend.