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Brexit Crash Course: 4 Things Businesses Need to Know

From tariffs and duties to talent and hiring, BoF unpacks the key points UK-based companies need to know as Britain’s withdrawal from the EU takes effect.
Models backstage ahead of the Phoebe English Presentation during London Fashion Week September 2019 | Source: Getty
By
  • Rachel Deeley,
  • Sarah Kent,
  • Tamison O'Connor

This article was updated on January 30, 2020.

LONDON, United Kingdom — Three and a half years on from the 2016 referendum, the UK is officially withdrawing from the European Union at 11pm on January 31, 2020.

The occasion marks the end of a period of tumult and uncertainty for the UK market, but businesses in all industries — from fishing to fashion — are by no means out of the woods yet.

While Britain will no longer be a member state of the European Union as of January 31, there is a transition period (also known as an implementation period) lasting 11 months until the end of 2020.

As there is still no trade deal for the end of the transition period, businesses must mitigate for many possible outcomes when planning for January 2021 onwards. From luxury brands to high-street retail chains, the UK's fashion market is preparing as best it can, but it is small businesses and emerging designers that are likely to struggle the most as the prospects for post-Brexit industry remain unclear.

A spokesperson for BEIS, the UK Government’s Department for Business, Energy and Industrial Strategy, advised that business owners keep checking the official gov.uk website for updates on how trade negotiations play out in the next 11 months. “From the government’s perspective,” he continued, “the emphasis is going to be on continuity.”

It is small businesses and emerging designers that are likely to struggle the most.

But concerns remain over the tight turnaround required for the UK to reach a free trade agreement with the EU before the implementation period ends, given that trade talks typically last years and the European Commission will, according to UK Fashion & Textile Association (UKFT) Chief Executive Adam Mansell, realistically need draft documents ready by October 2020.

“Having to work with a degree of uncertainty has been the biggest challenge to businesses, and particularly fashion businesses, which have a mostly European supply chain,” said Helen Brocklebank, chief executive of Walpole, a trade group representing the UK’s luxury industry.

“The worst possible scenario is that there’s going to be a lot of businesses that go out of business, because they don’t have enough cushion of finance to see them through this period if prices are suddenly going up or if they’re having to pay extra costs just for a new season,” said Emma Davidson, managing director of Denza, a UK-based international fashion and luxury recruitment company.

Below, BoF breaks down the steps small businesses can take to best prepare for Brexit if the transition period ends without a UK-EU trade deal secured.

Tariffs and Supply Chain

The 11-month transition period will be “business as usual,” as if the UK were still an EU member state, but “it is possible that [brands] may experience some difficulties when trading with the EU during [this time],” said Mansell. UKFT therefore advises allowing extra time for shipping goods — and to be prepared for potential custom delays. Any difficulties can be raised with UK and EU authorities via UKFT.

However, trade within the EU is not the only issue to affect businesses in the short-term. The UK government’s Department for International Trade was unable to confirm whether the UK would continue to benefit from trade deals the EU has with other countries during this transition period. These countries include Japan and South Korea, which are both important markets for British fashion labels, explained Stephen Sidkin, a fashion and commercial law partner at London-based firm Fox Williams.

Post-implementation period, businesses should be prepared for challenges and obstacles that reach far beyond slower logistics. The UK and EU have not yet arrived at a free trade agreement, but Mansell expects that any deal put forward by Boris Johnson’s administration “is unlikely to be based on close regulatory alignment” with the EU. UKFT, he continued, plans to lobby for a deal that is premised on “tariff- and duty-free trade, supports our SMEs [small- and medium-sized enterprises] and our manufacturers, and keeps customs procedures to a minimum.”

Brexit, any Brexit… means more red tape, not less.

Regardless of how the UK-EU trade deal nets out, fashion businesses will likely face an increase in regulations. As Tamara Cincik, founder and chief executive of Fashion Roundtable, a consultancy and lobby group that works with members of parliament to represent the interests of the industry, noted, “Brexit, any Brexit… means more red tape, not less.” Fashion Roundtable suggests preparing to trade with the EU outside of the Customs Union and, if doing business with Northern Ireland, familiarising oneself with the customs checks proposed in Johnson's Withdrawal Agreement Bill.

Businesses will need to get an EORI (Economic Operator Registration and Identification) number — an absolute must, as without one it will be impossible to move anything in or out of the EU. You only need to declare yourself as an exporter under a UK EORI, unless you are exporting to an EU branch of your own business.

UKFT, which has rolled out several resources and seminars on how fashion businesses can prepare for Brexit, has said that in the case of no deal, exporting to the EU will be like exporting to countries such as Japan or the US.

And what if there’s no deal at all? According to Mansell, “it’s highly unlikely” that the UK will withdraw without a deal: “It really is the worst-case scenario, but it is a possibility so [businesses] will need to be factoring that in.”

In the case of no trade deal, everything will be subjected to tariffs, whether it's a product shipment to an EU-based retailer or a single parcel to a customer. On average, EU tariffs are 4 percent on yarn, 8 percent on fabric and 12 percent on clothing, however businesses will need to check this against specific tariff codes of each product being shipped out.

Businesses will need to pay close attention to their paperwork: correct tariff codes, EU import tariff rates and export declarations are just some of the hurdles businesses will face, along with additional documentation for products containing furs and exotic skins.

In the event of a no-deal Brexit, 140 fashion and textile products... will be hit with an import duty.

In the event of a no-deal Brexit, 140 fashion and textile products, including women's trousers and women's blouses, will be hit with an import duty.

Stripping the UK of its EU status will likely complicate the supply chains of many companies, which often rely on the ability to freely move product throughout Europe.

For UK-based brands that manufacture in the EU and ship internationally, “businesses are working with suppliers and factories to fulfil orders directly from the factories in Italy and Portugal, say, rather than bringing them back into the UK to fulfil,” said Walpole’s Brocklebank.

Labelling

In addition to additional trademark and intellectual property costs, there will also be new labelling requirements for all goods imported into the UK from the EU or European Economic Area (EEA).

According to advice from UKFT, all products need to be labelled with the company’s name and address, as well as the country of origin if this differs from its address.

CE (Conformité Européene) certification marking, which identifies whether a product conforms to health, safety and environmental protection standards within the EEA, will continue for a limited period until the UK government rolls out its own UKCA — or UK Conformity Assessed — marking. This will not be recognised in the EU, which will still require CE marking on any of its imports from the UK.

Talent, Hiring and Employee Rights
When it comes to hiring, it is likely that sourcing European talent will become more difficult and more costly. Sponsoring overseas talent is an expensive, bureaucratic process.

During the transition period ending January 2021, freedom of movement will continue, meaning that UK nationals will be able to work in the EU, and vice versa, but Denza’s Emma Davidson has already seen companies axing British talent from job candidate rosters in preparation for Brexit. The recruitment company is now expanding the pool of European schools it considers when scouting for top-tier talent in order to supply European clients with candidates.

This means that while many small businesses may not be able to hire international talent very easily, the domestic pool of talent is likely to be much bigger, especially among junior positions — although Fashion Roundtable’s Cincik notes that there may be a shortage of homegrown workers with the training or interest in certain aspects of the fashion industry, particularly in garment production, which she says generates £9 billion for the UK economy and employs about 105,000 people.

It's going to be the youngest people who are the hardest hit.

“For very senior people, like heads of design, design directors, creative directors, I think there’s going to be the same swap of talent,” said Davidson. “It’s going to be the youngest people who are the hardest hit.”

As far as employee rights go, there will be no legislative changes immediately after January 31, 2020, by virtue of the implementation period. This means that laws around working time regulations, holiday rights, parental leave rights and health and safety regulations will apply as they do now.

For businesses that have EU, EEA or Swiss citizens currently working for them in the UK, these employees will have to apply for settled status if they have lived in the UK for at least five years, which needs to be approved before June 2021. Anyone from the EU who wishes to live and work in the UK and arrives before the start of 2021 will be eligible for pre-settled status, which lasts for up to five years.

Workers arriving in the UK from the EU in 2021 and onwards will likely require visas and work permits in the same way non-EU citizens currently do in the UK, however Cincik advises “keep[ing] an eye on what the Home Office [is] putting out on immigration” in the next few months.

Under the current system, non-EEA citizens counted as experienced workers need a minimum annual salary of £30,000 for a skilled work visa or the “appropriate rate for the job you’re offered,” whichever is higher, according to the UK Government website. In a statement to BoF, the Home Office said that a new entrant — generally, a recent graduate or those under 26 years old — must be paid a minimum of £20,800 per year.

Detachment from the European market also puts the UK's position as a multi-cultural creative hub at risk.

Post-transition period, British nationals already residing in the EU will have the right to remain, subject to the specific administrative requirements of the country they reside in. The nature of the paperwork and visa rights for UK nationals is at the discretion of individual EU-27 countries, and freedom of movement between member states is not guaranteed by Johnson’s withdrawal agreement.

Samples and Shows

For many small businesses, presenting a collection at a major international fashion week is a vital way to gain traction in the industry; a moment where young and up-and-coming designers can pick up wholesale accounts and financial backers. Many UK-based designers will show in London, before taking their collection on the road to Paris, where final buying decisions are often made.

Transporting sample collections in and out of the country could become increasingly costly and complicated. In order for samples to be exempted from customs duties, they need to be in a state that means they can’t be resold: either cut up or stamped with the word ‘sample’ in indelible ink. Goods in pristine condition, like most fashion samples, would be considered an ‘example’ and subject to full duty, unless companies apply for an ATA Carnet, which provides tax and duty relief for temporary imports and exports.

Detachment from the European market also puts the UK's position as a multi-cultural creative hub at risk. In a September 2019 interview, BFC Chief Executive Caroline Rush said Brexit concerns were not affecting attendance at London Fashion Week. "It is, as much as it can be, business as usual," she said.

But, longer-term, London’s reputation as a global cultural capital is on the line. “We were particularly concerned in the context of Brexit that the idea of openness and global creative industries was not in any way diminished,” Rush said.

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