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Is it too late to prepare for ‘cost-crunch’ Brexit?

A leading contracts solicitor has suggested that waiting for the key October summit to find out more detail about Britain’s future trading arrangement with the EU may be “too late” to make adequate preparations in the case of a “hard Brexit”.

Stephen Sidkin, a founding partner of London law firm Fox Williams and head of its commerce and technology department told kbbreview that many businesses will face an unexpected cost crunch with the March departure deadline just six months after the October meeting.

“Six months is not a very long time to put in place plans that may have to handle the potential for major logistics disruption and price rises as a result of added customs duty,” Sidkin said.

He suggested that big problems could also arise if product delays led to goods being delivered before invoices, resulting in potential friction over interest payments.

“If a retailer or UK subsidiary or distributor received their goods 14 days after an invoice specifying 30-day payment terms, what happens there? Will the supplier enforce interest terms? Will the buyer agree to pay? And who is going to pick up the tab for exchange rate fluctuations?

Sidkin also argued that the trade terms of a UK-EU divorce could be much more nuanced than “free trade” or “no deal”.

“The facts are…if we can’t agree the terms of a free trade deal, a hard Brexit will follow in March 2019. This means that our country’s trade with Europe could grind to a halt, pending some sort of intervention by the World Trade Organisation.”

Derek Miller, co-owner of Scope Bathrooms in Glasgow

This had been suggested by kbbreview columnist and Scottish bathroom retailer Derek Miller in an opinion piece for the September issue of kbbreview who said, “if we can’t agree the terms of a free trade deal, a hard Brexit will follow in March 2019”.

But Sidkin responded: “While a free trade deal is to be hoped for, we could see customs duties on various ranges of goods. Boris Johnson, Jacob Rees-Mogg and other leading Brexiteers in the Conservative Party have argued that the end result will most likely be something between one extreme and the other.”

He also pointed out that if all goes ahead as planned – and that’s a big if – the final post-Brexit deal will only be introduced on December 31 2020.

“What is being negotiated at present are the terms of a withdrawal treaty (that is, the terms on which the UK will withdraw from the EU).”

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Sidkin rejected Miller’s argument that “if there is no deal, goods will simply not get into the UK” until the World Trade Organisation (WTO) eventually intervened­ – and then “goods may trickle through with tariffs applied”.

He said: “While it is very likely that there will be disruption at ports in the event of a failure to agree a withdrawal treaty, goods will enter the UK.

“A different, and more concerning, point is whether stockists will find them easy to sell when customs duties are added.”

He added: “Overall Mr Miller is right to draw attention to the issues that will accompany a failure to agree a withdrawal treaty.

“And further it is good to read that KBB retailers are making plans. However, in my experience they represent a minority of British businesses.”

Sidkin said that there was not a “one size fits all approach” to planning for Brexit and that it was “critical” for businesses to work out how they could be affected then prepare accordingly.

“From a UK retail perspective, I imagine that’s managing customer expectations in the case of supply chain issues and for the supplier, the most important thing probably is, who will be picking up the tab in the case of the introduction of duties.”

To help businesses prepare for the potentially rocky road ahead, Fox Williams has produced a number of guides exploring the potential impact on existing and future business arrangements and operations.

Miller, the co-owner of Glasgow-based Scope Bathrooms, said he fully accepted the detailed comments from Fox Williams about the technicalities of EU withdrawal, but added: “I have sourced products from the UK subsidiaries of European Bathroom manufacturers for almost 20 years so can speak with reasonable authority on how things are set up.”

He added: “My primary concern remains the potential disruption to KBB supply chains in the aftermath of an untidy withdrawal on March 29 2019.

“Indeed, Fox Williams acknowledge that disruption is likely in the event of a no-deal Brexit.

“The issue is what the UK subsidiaries are doing with their European parent companies to be prepared for such an eventuality?  After all, in most cases the importing relationship is between those parties rather than the UK retailer/ distributor/ merchant and the European company.”

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