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British Business Beyond the Customs Union

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Earlier this month we wrote about a statement from the Public Accounts Committee which noted its ‘grave concern’ about the lack of Brexit-readiness The Department for Business, Energy and Industry Strategy (BEIS) appears to showcase in the run-up to leaving the EU.

Their statement went as far as to suggest that the BEIS was apparently ‘operating in a parallel universe where urgency is an abstract concept with no bearing on the Brexit process’.

On top of that, the CBI and IoD have made public their desire for the UK to stay in the customs union and maintain close trade-links with the EU respectively.

Director of the CBI, General Carolyn Fairbairn said in a speech that: “There may come a day when the opportunity to fully set independent trade policies outweighs the value of a customs union with the EU … But that day hasn’t yet arrived.”

So why is it taking so long to agree on some sort of customs arrangement with the EU or at least a set of basic principles for a future deal?

‘Playing the long game’

As John Ashcroft writes in his Saturday Economist piece, Prime Minister Theresa May has to play the long game, partly due to the divisions within her own cabinet.

“The Prime Minister has set up two working groups to develop the options for the Customs Union deal. One team will work on the “Customs Partnership” deal, the other team will work on the “Max-Fac” proposal. The brief to “work towards a joint solution”. Some chance. Robot wars would have a better chance of resolving the conflict peacefully.

“Germany’s EU commissioner Günther Oettinger played down the chances of progress. “Madame May is weak. Boris Johnson has the same hairdo as Trump” he explained. Details of his own interpretation of the gravity trade model were omitted. “We can only hope that sensible citizens will put Madame May on the path to a clever Brexit”.”

The government are after something of a ‘clever Brexit’, but as Ashcroft points out, this is in itself a contradiction.

Read more: Business Department unprepared for Brexit?

Sure, there’s unlikely to be a cliff-edge Brexit in which Britain takes a step into the complete unknown. But there will be some losers, and it could just be that the majority (51.9% in fact) underestimated the impact leaving the likes of the single market will have on the UK economy and its businesses.

As Fairbairn concluded whilst noting alternative trade arrangements around the world, things are likely to get more difficult for those firms that are trading overseas, whatever sort of Brexit is achieved.

“Currently, to trade with the EU, many U.K. businesses need only complete a simple form. But with a Canada-style agreement U.K. firms would face customs declarations, which means filling out a 12-page form for each batch of goods sent to customers,” Fairbairn will say, adding that the Canada deal is “patchy” on services trade.

“Put simply, a Canada deal is an ocean away from what we need.”

What all this means for British businesses

It could mean everything, or it could mean nothing at all. We just don’t know yet. We almost have to wait and see, but that doesn’t mean companies shouldn’t start planning regardless.

As just one example, many EU based SMEs actually prefer to make large purchases from EU members outside of their country as there is no VAT on the invoice, as compared to a local company that must charge the tax.

This has a real benefit for their cash flow. Ok, you can claim it back, but in these post-financial crisis times some governments are taking up to 12 months to make the refund! This benefit will most likely disappear and with it some of your export business.

That is unless, as noted above, you start planning now. Read more on business after Brexit here.

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