First Brexit withdrawal draft

On 14 November 2018, the British government backed the draft withdrawal agreement negotiated with the European Union, prompting resignations from the cabinet. European leaders approved it on 25 November. Ratification by the British Parliament was still pending, a step whose result was uncertain and on which it depended whether the text would ever apply. Until it was resolved, companies had to live with real uncertainty.

For companies with trading relationships with the United Kingdom, the draft was the first concrete reference on what the exit might look like. Even so, it did not dispel every doubt: it set the conditions of the separation and opened a later period to negotiate the future relationship. Understanding what it regulated and what remained pending is key to assessing the risks and opportunities of each business. Not every company is exposed in the same way, and the first step is to know which case one’s own falls into.

One text, two reactions

The withdrawal draft regulated the terms of the separation between the United Kingdom and the EU, and it was received very differently on each side of the Channel. Anyone doing business with the United Kingdom did well to follow both readings, and not only that of their own side.

The disparity of reactions reflects the political difficulties of an unprecedented process. For the Union’s leaders, the text closed a phase of negotiation and gave predictability. For part of British politics, by contrast, it was either too much or too little, depending on the point of view. That division explains why final approval was not guaranteed and why companies had to keep planning without taking anything for granted. Planning prudently does not mean paralysing activity, but keeping options open.

What a withdrawal agreement regulates

An agreement of this kind sets the conditions of the separation and, in this case, opened the way to a later period of negotiation on the future relationship. For companies, the central question was what would happen to trade, customs, the movement of people and the rules that apply.

Each of those areas has practical consequences. Customs controls affect lead times and transport costs; product rules affect the ability to sell in one market or the other; rules on the movement of people affect travel and the posting of workers; and provisions on services affect access for professionals and companies. A change in any of them may require redoing processes that until now worked without friction. That is why it pays to get ahead and talk to trading partners about how to tackle them together.

Planning without certainties

Those who trade with the United Kingdom, have customers or subsidiaries there or employ posted staff could prepare scenarios: review contracts and jurisdiction clauses, assess the possible customs procedures and check which changes might affect their products and services. A foreign-trade adviser helps to organise those hypotheses. Having that map of scenarios avoids deciding blind.

A useful method is to define at least three situations: an orderly exit with an agreement, an exit without an agreement and an extension or change of timetable. For each, the effect on costs, lead times and sales is estimated, and the decisions that would be worth taking are identified. Actions that work in every scenario, such as reviewing contracts or diversifying markets, can be brought forward without waiting for the outcome. Writing down the assumptions and the planned decisions makes it possible to react quickly when the picture clears.

When the outcome is uncertain, preparing for several scenarios costs less than improvising one.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.