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Supply Chains

8 ways Brexit may affect your European supply chain

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The departure of the United Kingdom from the European Union could have huge impacts for your business – but not immediately.

On the heels of the June 2016 referendum, in which U.K. voters opted to exit the European Union, little consensus has emerged about what "Brexit" will mean for U.S. companies that conduct commerce in Europe. The only thing that people can agree upon is that commerce will change, and uncertainty over how will persist for some time.

The only thing that people can agree upon is that commerce will change, and uncertainty over how will persist for some time.

Negotiations between the U.K. and the E.U. begin when the British government invokes Article 50 of the E.U.'s Lisbon Treaty. New U.K. Prime Minister Theresa May indicated this would begin "by the end of March 2017," but a U.K. High Court ruling on Nov. 3 says British Parliament also has to pass a bill on the terms. This threatens to delay the process further, although the May government says it will appeal the ruling. Regardless, the Article 50 action formally kicks off what could be a two-year exit process, so it will be at least that long before U.K. trade policies can begin to change.

A close examination of E.U. and U.K. trade policies and practices suggests that some outcomes are more likely than others. To understand the strategic implications of post-Brexit supply chains for American companies, the following assessment was made by Penny Naas, vice president of public affairs and sustainability at UPS, based in Brussels, and Richard Currie, director of public affairs at UPS in London.

  • Expect a more complex operating environment and the need to adjust E.U. and U.K. supply chains over the next five to eight years, but with little change in 2017.
  • The founding principles of the E.U. include free movement of goods, services, people and capital. If the U.K. blocks the free movement of people, it may, in turn, face restrictions on the other three principles.
  • Pending its departure from the E.U., the U.K. must negotiate new trade agreements, rewrite many of its laws and settle its E.U. accounts. Border clearance procedures and taxes on goods are among key trade issues yet to be resolved.
  • American companies may not be able to use the U.K. as a home base for European operations as efficiently as they do today. Many contracts based on E.U. law may need to be reissued to comply with new U.K. laws.
  • Brexit's impact on world trade policies may be one that is pro-global growth; the nearer-term effect may be a debate about sovereignty and immigration policies.
  • EU data policies may change, and companies could face issues transferring data from the U.K. into the E.U.
  • One possible benefit is that the U.K. may become a more business-friendly environment for small and midsized U.S. companies. The U.K. will be able to be more flexible regarding business.
  • Not much is going to change in the short run for U.S. small and midsized companies that do business with Europe. In the long run, however, they could be the most affected with regard to their shipments or supply chain operations in Europe.

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