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Brexit Preparation Guide - Supply Chain Mapping

Supply chain between the UK and Europe is an area that will be greatly affected over the coming years by the UK's withdrawal from the EU.

Though the exact nature of the changes will not become apparent for some time, mapping supply chains can help companies understand both the risks and the opportunities these changes might bring.

Whatever the outcome of Brexit negotiations, it is wise to start that planning now, to ensure you remain competitive in the changing market. Early and effective scenario planning combined with analysis of the potential consequences of a post-Brexit economy might even improve your position.

Guide to Supply chain mapping

1. Map your supply chain

  • Ensure you are clear on the origin of all products in your supply chain.

    • “Rules of origin” are the criteria used to define where a product, such as the bicycle in this example, was made. They are an essential part of trade rules as they allow countries to effectively implement discriminatory trade policies, such as quotas and preferential tariffs, against exporting countries. If any FTA is struck with EU (or any other country) classifying the 'origin' of goods in your supply chain and holding evidence such as 'manufacturer’s letters' will be essential.

      Generally, rules of origin state that if a product is wholly obtained or produced completely within one country, that is its place of origin. For a product which has been produced in more than one country the product is determined to have its origin in the country where materials or components are sufficiently transformed into a different product.

      To determine sufficient transformation, any of three general rules are typically used:

Change of tariff classification In the country where the code of the product differs from the code of its components under the Harmonized System (an internationally standardised system of names and numbers to classify traded products).
Percentage value added Where it increases in value so that it meets a certain level, this being either a maximum allowance of non-originating materials or a minimum requirement for domestic content.
Processing When a specific manufacturing or processing operation is carried out (as described in the product-specific list rules).

  • Identify the countries you trade with (EU and non-EU) and the value they represent.

  • Identify the EU and international standards your business is currently required to comply with.

    • While this may not be the biggest concern for Brexit Day itself, if UK standards start to diverge from EU standards as a result of future changes either in EU law which are not followed by the UK or vice versa, any business supplying to both the UK and the EU will have an additional set of standards to follow.

  • Identify cross-border services required, new data requirements and administration costs.

    • Leaving the single market and the customs union will likely mean extensive work in ERP & import/export systems to:

      • Reconfigure product master data with information such as revised routings or sourcing information, BOM and cost data, supplier data, customs duty and VAT and shipping costs. It is likely that Brexit will call for systems to handle more complexity in terms of information held, and frequency of data submission for customs declarations. It is important to consider how much system change each Brexit scenario will need.

      • Manage extra VAT reporting and possible reduced cash flow, as UK businesses could find it takes longer to recover VAT which will need to be paid as the border for goods to progress.

      • Manage extra customs declarations, invoicing, dispatch note & shipping requirements.

      It is likely that Brexit will call for systems to handle more complexity in terms of information held, and frequency of data submission for customs declarations. It is important to consider how much system change each Brexit scenario will need. UK businesses with pan-European supply chains may also miss out on VAT simplification measures that avoid the need for local VAT registrations.

2. Assess potential post-Brexit costs and risks

  • What tariffs would apply to your goods?

    • Use the 'Self-Audit Tool' on this website to calculate the duty you will pay under MFN rates when importing goods from EU countries. Use this tool to calculate the duty your customers' in the EU will pay under MFN rates on your exports.

  • What tariffs would apply to goods in your supply chain (upstream or downstream) that depend on imported goods which are subject to UK/EU barriers?

    • Use the 'Self-Audit Tool' on this website to calculate the duty you will pay under MFN rates.

  • If tariffs are imposed/increased, do you have agreements to import or export goods which:

    • (a) will result in you being liable for these extra costs
    • (b) could be jeopardised by increased costs borne by your counterparty?

      • If so, what are the nature and duration of these contracts? Is renegotiation an option?

  • Can your supply chain be easily adapted to avoid unnecessary back and forth between the EU and UK?

    • Back and forth may lead to payment of tariffs multiple times post-Brexit. Businesses however, are likely to be able to rely on inward processing relief (relief from customs duties and import VAT on goods imported into the EU for processing before being exported back outside the EU) and outward processing relief (relief from import duty on goods re-imported to the EU after being sent to a third country for processing or repair).

  • Lead times - What logistical issues and financial costs would delays in your supply chain create?

    • Delays may be unavoidable as and when new customs processing requirements are implemented for the new border between the EU and the UK.

  • Can any aspects of your supply chain into the UK be onshored? Would this cost more than the tariffs that will be imposed on imports from the existing supply country?

    • Use the 'Self-Audit Tool' on this website to calculate the duty you will pay under MFN rates.

  • Conformity - To what extent does your business need to meet product standards and gain licences? How adaptable would your business be to the need to meet multiple standards?

    • It is likely the UK will apply identical standards and licensing processes to those of the EU as part of the Repeal Bill, there is a risk that the UK standards and processes may diverge from their EU origins in the future for policy reasons.   Under this scenario, a 'certificate of conformity' may be required when shipping goods to the EU.        

  • Which of your products/suppliers are subject to long-term supply contracts? When will these be reviewed? Can you use break clauses if you wish to purchase elsewhere?

    • Inevitably, Brexit will have an impact on both existing and future supply chain contracts. This means a potentially huge exercise to review existing agreements to understand how Brexit might affect their viability and whether it is possible to change or break them early.

  • Can these extra costs be passed on to consumers or suppliers? What issues would passing on these costs lead to?

  • When entering long term contracts, plan ahead factoring in additional data & resource requirements and increased Tariff rates, building in enough flexibility to accommodate uncertainty.

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