{"id":110,"date":"2019-03-26T11:02:11","date_gmt":"2019-03-26T11:02:11","guid":{"rendered":"http:\/\/blogs.cardiff.ac.uk\/logistics-manufacturing\/?p=110"},"modified":"2019-04-23T09:48:20","modified_gmt":"2019-04-23T09:48:20","slug":"brexit-and-trade-its-even-more-complicated-than-we-thought","status":"publish","type":"post","link":"https:\/\/blogs.cardiff.ac.uk\/logistics-manufacturing\/brexit-and-trade-its-even-more-complicated-than-we-thought\/","title":{"rendered":"Brexit and Trade: It\u2019s even more complicated than we thought"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><em>Feature Length PARC Interview with Dr Ludivine Petetin by Katy Huckle<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Introduction<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Deal or no deal?  Well, as it turns out, things are about to get even more complicated either way.  Supply chains have been changing ever since the UK\u2019s decision to leave the European Union in 2016; whatever happens next in the drama of Brexit negotiations, businesses are reassessing supply chains and desperately trying to minimise risk.  UK businesses that depend heavily on EU supply are seeking non-EU alternatives for their products, and vice versa.  When supply chains change, companies seek alternatives, and it becomes very difficult and complicated to change them back again.<br><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In this feature-length PARC interview, we talk to Dr Ludivine Petetin from Cardiff University about the impact of Brexit on supply chains and trade.  If you thought the impact of Brexit was complex enough already, it\u2019s about to even more complicated.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Interview<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Hello Ludivine and thank you for talking\nto us today.&nbsp; I\u2019m going to jump straight\nin with the killer question: what will happen to UK\/EU trade post-Brexit?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Hello!&nbsp; If ever or whenever it takes place, the\nsigning of the Withdrawal Agreement is only a small step towards planning the\nfuture of the UK after Brexit.&nbsp; The\nagreement (or deal) leads to a transition period, currently until the end of\n2020.&nbsp; <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But what\nhappens on the 1<sup>st<\/sup> of January 2021, or at the end of that period?&nbsp; The Withdrawal Agreement is not a trade deal;\nit is an agreement on the separation of the UK\/EU relationship.&nbsp; During the transition period we expect to\ncontinue trading as before (but that\u2019s not guaranteed and I will come back to\nthat).&nbsp; A UK\/EU trade deal needs to be\nnegotiated between the remaining 27 EU Members States and the UK.&nbsp; What will the terms be?&nbsp; What should be included?&nbsp; Do we need to consider services as well as\ngoods, due to the UK\u2019s service economy?&nbsp; <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>So there are many open questions\naffecting every aspect of the negotiations?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Absolutely, and\nthis creates a highly uncertain business environment.&nbsp; Even after Brexit day there will still be a\nlot of uncertainty &#8211; the trade deal between the UK and EU will be a process of\nnegotiation, not unlike the Withdrawal Agreement, but with higher\ncomplexity.&nbsp; The trade deal will need to\nbe in place by January 1<sup>st<\/sup> 2021, which does not leave long for the\nrelevant parties to figure things out \u2013 they have maximum 20 months to\nnegotiate.&nbsp; <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Will we need to make a lot of changes in\norder to sign a trade deal?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Theoretically,\nbecause the UK market conditions are very similar to those throughout the EU,\nthis should make signing a trade deal easier.&nbsp;\nUsually, trade deal discussions begin from very different starting\npoints, but similar market environments should make it easier to make a\ndeal.&nbsp; However, this is only in theory,\nand unfortunately in practice things are likely to become more complex and take\nlonger than expected.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>What will be the impact on businesses?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Predictably,\nthe larger the company, the more protected they are from the market\nuncertainties following Brexit.&nbsp; Large\nbusinesses will have been planning for Brexit since the referendum, and are\nlikely to have several different strategic options however the situation\ndevelops.&nbsp; Whatever happens, market\nuncertainty will continue up until the end of 2020.&nbsp; <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For companies\nactive in the EU, redesigning their supply chains is one method of mitigating\nrisk.&nbsp; Any companies that can source from\ninside the EU, or through other existing EU trade agreements, will have been\nadvised to do so.&nbsp; This limits their\nexposure to potential price or supply chain instability.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>And what about smaller companies?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Small and\nmedium sized enterprises (SMEs) are already the hardest hit by the market\nuncertainty surrounding Brexit.&nbsp; SMEs\nlack the resources, capacity and capital to change their suppliers and supply\nchains on short notice.&nbsp; UK companies and\nEU companies are both in a similar situation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>But if everything will stay as it is\nduring the transition period, isn\u2019t there still time for SMEs to figure things\nout?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Even after we\nsign the Withdrawal Agreement, which allows us to keep trading with EU, there are\nstill some significant issues remaining unaddressed.&nbsp; As part of the EU, the UK is included in each\nand every EU trade agreement with non-EU countries.&nbsp; After the 29<sup>th<\/sup> of March 2019 (or\nwhenever the UK leaves), this is no longer the case, and it will be at the\ndiscretion of each individual trading partner as to whether or not they\ncontinue to trade with the UK under existing trade agreement conditions.&nbsp; <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The UK\nDepartment of International Trade has rolled over existing free trade\nagreements (for example with Switzerland and Chile).&nbsp; But other trade partners are not so keen to\ndo this.&nbsp; This aspect of the transition\nperiod is not covered by the Withdrawal Agreement and exposes SMEs to yet more\nsupply chain risk.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>So other countries could choose to see the\nUK as non-EU immediately following Brexit day?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Yes.&nbsp; The Withdrawal Agreement is between the EU\nand UK only \u2013 the EU will ask the other countries with whom it holds\nfree trade agreements if they would like to keep trading with UK as per\ntoday.&nbsp; It is important to note that the EU\ncannot force another country into an agreement it hasn\u2019t signed; after Brexit\nDay the UK will no longer be part of the EU.&nbsp;\nContinuing trade at current market conditions very much depends on the\ngoodwill of other countries; if they agree, things continue as they are; if\nthey don\u2019t agree, the UK has (another) problem.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Japan is a good\nexample here.&nbsp; The EU\/Japanese Trade Agreement\nis a new trade deal between the EU and Japan.&nbsp;\nFollowing Brexit, the UK would aim to simply copy\/paste it into a new\nagreement between the UK and Japan, but Japan would have to agree to this, and\nmay not necessarily be inclined to do so.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>What else do we need to\nconsider when it comes to trade?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A major rise in\nglobalisation over the last half century or so has led to products being\nmanufactured in multiple different locations, with components coming from all\nover the world.&nbsp; To establish a\nmanufacturing location, countries have implemented a minimum level of\nproduction that needs to be completed in country.&nbsp; For example, car parts are manufactured all\nover the world and then shipped to somewhere in the EU for final assembly, but\nfor the car to be officially \u201cmade in the EU\u201d a certain percentage of\nmanufacturing must physically take place in the EU (the percentage depends on\nthe applicable trade agreement).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If it\u2019s not an\nEU car, according to the rules of origin, then tariffs can be applied by\nimporters.&nbsp; Although the UK doesn\u2019t\nmanufacture much in relation to other EU countries, one and a half million cars\nwere built in the UK last year.&nbsp; Will\nthey still be considered EU-made after Brexit?&nbsp;\nAnd will UK car components be considered as EU components after Brexit?&nbsp; Again, this decision is at the discretion of\nthe trade partner country; the EU can\u2019t force other countries to accept UK\ncomponents as EU components after Brexit.&nbsp;\n<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Do you predict that other countries will\nwant to roll over existing agreements?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The easiest\nscenario for everyone (with the least amount of paperwork) is if all countries\nagree to roll over existing conditions as part of the Withdrawal Agreement.&nbsp; If they do all agree, this only holds until\nthe end of 2020.&nbsp; But this is no means\nguaranteed.&nbsp; And again, what happens on\nJanuary 1<sup>st<\/sup> 2021?&nbsp; Each and\nevery individual agreement must be rolled over separately by the UK government,\nand that is going to be a lot of paperwork and resources.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>What will happen if the UK leaves the EU\nwithout a <\/em>Withdrawal Agreement\n<em>or without a trade deal?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Very simply,\ntrade deals make it easy for products to cross borders.&nbsp; Without a deal, it will become very difficult\nfor products to cross borders.&nbsp; In the\ncase of the UK leaving the European Union either without signing the Withdrawal\nAgreement, or without trade deals in place, then there would be chaos at the\nborder.&nbsp; Tariffs would immediately be put\nin place, adding major cost in the supply chain.&nbsp; Certain UK products imported to the EU could\ndouble in price (depending on the applied tariffs), making them far less\nattractive to buyers and destroyed demand.&nbsp;\nThe same would apply in reverse.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">We would also\nimmediately see border checks (e.g. increased paperwork) and inspections, which\nwould dramatically increase the time products spend at the border, and therefore\nincreases lead times.&nbsp; This will also\nhave a major impact on the cost of supply chains.&nbsp; If it takes longer for a product to move from\nA to B, then transportation costs increase (eg driver time), as do the costs of\ninsurance policies.&nbsp; Very small changes\ncan have a major domino effect on supply chains.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Who do you predict will have to pick up\nthese costs?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Inevitably most\nadditional costs will be passed on to the consumer.&nbsp; Someone has to pay for the increased\ncomplexity of supply chains and, particularly in industries with very low profit\nmargins, manufacturers and suppliers will refuse to pay these costs.&nbsp; The consumer will pay and we will start to\nsee changes in product availability in supermarkets very quickly.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Which UK-products will be affected most?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">One example is the Welsh lamb industry.\u00a096% of Welsh exports go to EU countries; the lamb is immediately exported and the supply chain is simply not in place to store it and sell it in Wales and the rest of the UK.\u00a0 The price of lamb could easily double for EU consumers following a no-deal Brexit (due to tariffs, for instance).\u00a0 If demand for lamb in the EU decreases, then Welsh farmers need to immediately find another solution to store and sell their lamb nationally instead of exporting it.\u00a0 <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Is there a silver lining at all?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I\u2019m not saying\nthat Brexit will <em>only<\/em> be damaging for\nthe UK \u2013 there will almost certainly be a major opportunity for us to\nrecreate\/rebuild farming and the food supply chain for raw food materials.&nbsp; <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Historically, some\nSMEs source food produce and raw materials from the EU; regulatory-speaking it\nmade little difference if something was EU or UK sourced.&nbsp; For example, SMEs import flour and other\ningredients from the EU to the UK; the supply chains work efficiently and\neffectively, and businesses like routine.&nbsp;\nThis makes them difficult to change.&nbsp;\nBut if sourcing flour and other food produce will become difficult and\nmore expensive post-Brexit, then there is definitely an opportunity to relocate\nthe source and to create products locally or nationally.&nbsp; <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Potentially, we\nwill see a higher percentage of food produce sourced in the UK, increasing the\nUK\u2019s self-sufficiency when it comes to sustenance.&nbsp; This scenario could equally apply to the UK\u2019s\nmanufacturing industry, as we need to produce more products internally.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>When do you think this might start to\nhappen?<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Well again\nthere is a downside.&nbsp; These are\nsignificant changes and ones that will require a lot of time; changing supply\nchains requires new networks and links, new producers, new systems and much\nmore.&nbsp; But the most significant\nrequirement is market certainty.&nbsp; In\norder to commit to making such drastic changes, businesses need to know that\nthey are operating in a stable market environment where there won\u2019t be any\nadditional unexpected surprises.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>And we don\u2019t have much certainty yet.<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Indeed.&nbsp; The UK\u2019s future relationship with the EU remains very much undecided and unclear, and this has a huge impact on SMEs.&nbsp; They are simply stuck \u2013 most don\u2019t have time, resources, capacity, or funding to rebuild their entire networks before the end of 2020<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Profile<\/strong><\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"alignright is-resized\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/blogs.cardiff.ac.uk\/logistics-manufacturing\/wp-content\/uploads\/sites\/566\/2019\/03\/Ludivine.jpg\" alt=\"\" class=\"wp-image-112\" width=\"180\" height=\"180\" srcset=\"https:\/\/blogs.cardiff.ac.uk\/logistics-manufacturing\/wp-content\/uploads\/sites\/566\/2019\/03\/Ludivine.jpg 240w, https:\/\/blogs.cardiff.ac.uk\/logistics-manufacturing\/wp-content\/uploads\/sites\/566\/2019\/03\/Ludivine-150x150.jpg 150w, https:\/\/blogs.cardiff.ac.uk\/logistics-manufacturing\/wp-content\/uploads\/sites\/566\/2019\/03\/Ludivine-100x100.jpg 100w, https:\/\/blogs.cardiff.ac.uk\/logistics-manufacturing\/wp-content\/uploads\/sites\/566\/2019\/03\/Ludivine-40x40.jpg 40w, https:\/\/blogs.cardiff.ac.uk\/logistics-manufacturing\/wp-content\/uploads\/sites\/566\/2019\/03\/Ludivine-200x200.jpg 200w\" sizes=\"auto, (max-width: 180px) 100vw, 180px\" \/><\/figure><\/div>\n\n\n\n<p class=\"wp-block-paragraph\">Dr Ludivine Petetin is a Lecturer in Law at the School of Law and Politics at Cardiff University. She has expertise in agri-environmental issues as well as international trade. She is currently writing a book on <a href=\"https:\/\/www.routledge.com\/Brexit-and-Agricultural-Law\/Petetin-Dobbs\/p\/book\/9781138587823\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Brexit and Agriculture (opens in a new tab)\">Brexit and Agriculture<\/a> (with Dr Mary Dobbs). She engages with governments, legislatures and stakeholders across the UK on the impact of Brexit on agriculture, food, environmental protection and trade.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In this\nfeature-length PARC interview, we talk to Dr Ludivine Petetin from Cardiff\nUniversity about the impact of Brexit on supply chains and trade.&nbsp; If you thought the impact of Brexit was\ncomplex enough already, it\u2019s about to even more complicated.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Ludivine has her own Cardiff University website: <a href=\"https:\/\/www.cardiff.ac.uk\/people\/view\/540936-petetin-ludivine\">https:\/\/www.cardiff.ac.uk\/people\/view\/540936-petetin-ludivine<\/a><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">You can follow her on Twitter: <a href=\"https:\/\/twitter.com\/aglawfoodie\">@aglawfoodie<\/a><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">23.04.2019 \u2013 this article has been updated to clearly state that 96% of Welsh exports go to EU countries<\/p>\n","protected":false},"excerpt":{"rendered":"PARC Interview: Deal or no deal?  Well, as it turns out, things are about to get even more complicated either way.  In this feature-length PARC interview, Katy Huckle talks to Dr Ludivine Petetin from Cardiff University about the impact of Brexit on supply chains and trade.  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