Businesses scoping impact of hard Border on trade

Brexit has generated more business commentary than almost any other topic in the past year. Brian Daly, head of Brexit at KPMG in Ireland says: "Understandably much of the commentary is conjecture as we don't know what the final agreement between the EU and the UK will be. However, given the British government's recently stated position on leaving the single market and customs union, businesses on both sides of the Border are working to identify some of the trade-related implications a result of Brexit under different scenarios."

Daly, who also chairs the finance & professional services committee of the British-Irish Chamber of Commerce, adds: “Many of these scenarios point to the probability of the UK leaving the customs union, and businesses involved in Ireland-UK trade are now assessing the detail of what the financial impact could be.”

Unless there is a tariff-free EU/UK trade agreement, Irish goods will be subject to tariffs and the EU’s external border will run through Ireland, with a customs regime between the two jurisdictions.

"Businesses should consider identifying the impacted supply chains now and quantifying the financial consequences of potential additional customs duties, VAT and trade compliance costs," says Niall Campbell, KPMG's head of indirect tax.

Innovation

In this context interesting innovation has been the development of software that helps businesses deconstruct their supply chains and identify where the costs, bottlenecks and opportunities may lie. Campbell has been working with colleagues in London, Dublin and Belfast to develop a technology tool that models the potential Brexit impact.

“Interrogating your data from different angles is critical,” says Campbell, who is helping a range of businesses gain an understanding of the implications, based on various Brexit scenarios.

Using VAT and Customs filing data, the software can produce a bespoke report quantifying the key customs duty and VAT impacts arising from Brexit. The tool maps the flows of goods into and out of the UK, giving visibility over the elements of the supply chain that are most exposed to additional cost or supply chain risk as a result of Brexit.

“Armed with this insight, businesses can then work to identify specific solutions to the issues raised, which could involve alternative supplier sourcing, revision of trade terms or changes to the logistics process,” says Campbell.

One of the key issues in determining the potential duty liability and mitigation strategies is the origin of a product and all of its components. Campbell highlights Britain’s car industry as an obvious example of the tax and tariffs issues facing both the EU and UK. For example, the UK’s automotive trade body, the Society of Motor Manufacturers and Traders, suggests that of the 30,0000 components in the average UK-built car, almost six in ten (59 per cent) are imported and of that figure, two-thirds are imported from elsewhere in the EU.

The impact of Brexit is also exercising the minds of the business community in Northern Ireland. "Brexit could dramatically change the financial impact of the physical flow of goods in and out of Northern Ireland – including the hugely critical impact on trade with the Republic," says Johnny Hanna, KPMG's Belfast-based head of tax for Northern Ireland.

Solutions

Hanna stresses the value of being able to assess existing supply chains and to use technology where possible to better understand the issues and identify solutions, and says the scale of the Brexit challenge is well understood by cross-Border business. He cites the doubling of North/South trade since 1995 and the fact that 56 per cent of Northern Ireland’s goods and services exports go to the EU – with two-thirds of that heading across the Border – as evidence of why the northern business community is so engaged with the subject.

“It is about more than just tariffs and businesses; North and South are extremely concerned about the possibility of a ‘hard’ Border leading to delays and costs linked to traditional customs clearance processes,” Hanna adds

With economic growth subject to a myriad of external factors, friction in trade flows is clearly unwelcome. “There are attractive opportunities for NI-based business in the Republic. Northern Ireland’s costs are competitive, product quality is widely acknowledged and the exchange rate is favourable,” says Hanna.

“However, margins are tight and there is intense competition in every sector. The prospect for example of perishable goods supplied across Border by a next day or less fulfilment business getting held up by customs issues, especially in areas such as food and agribusiness, is a major concern.”

Regardless of possible eventual Brexit outcomes for Ireland, Niall Campbell believes that businesses who understand their supply chains now and use innovative technology to quantify product, customer or supply chain exposures “will be amongst those best placed for the post-Brexit world – whatever that brings.”