Hardware Association Ireland Brexit Update
Contents Where are we now The reality of a Customs Overview in the Brexit Hard Brexit Process? 1 2 3 Next Steps 4 PwC 2
Where are we now in the Brexit Process? 3
PwC 4
The reality of a Hard Brexit 5
While there are a range of possible outcomes… PwC Ireland’s view based on the information currently available is that it’s unlikely that an FTA will be achieved in the two year timeframe. It’s likely therefore that the UK will receive “ Third Country Status”
Four key assumptions which led us to our conclusion… “The Divorce “Goods Move settlement” “Divorce “The clock is Freely so do “Pay to Play” Settlement” ticking” people ”
Conservative Party election manifesto quotes suggest that a hard Brexit is on the cards “It is our objective to reduce immigration “We continue to “We will no longer be to sustainable levels, believe that no deal is members of the single by which we mean better than a bad deal market or customs annual net migration for the UK.” union.” in the tens of thousands.” Relationship with EU Immigration “Leaving the “The days of Britain European Union “We will continue to making vast annual means . . . that we will bear down on contributions to the be able to control immigration from European Union will immigration from outside the European end.” the European Union, Union.” too.”
What does a move to World UK to EU (Current EU rates) Trade Organization (WTO) Product Type EU Duty Rate standards mean… Baths, shower-baths, sinks and 6.50% washbasins Screws, bolts and nuts 3.70% • Goods moving between the UK and the EU or Ireland would be subject to tariffs at the normal EU rates, and non-tariff barriers Radiators and parts thereof 3.20% such as customs administration charges would apply. Central heating boilers 2.70% • Goods moving from the EU or Ireland to the UK would be Doors, windows and their frames and thresholds for 6.50% subject to tariffs, but the rates would be dependent on the UK’s doors* policy and whatever agreement the UK secures at the WTO. * The duty rate for windows varies depending on the material used. For instance, this rate is included in the chapter for plastics. This rate may differ if it relates to wood, steel, aluminium, etc. • The free movement of people will be determined by whatever EU to UK (Current WTO rates) agreement is made - with a strong belief that a deal on the Product Type Min Duty Max Duty Common Travel Area is possible. Current WTO rules due to apply.
Price Inflation – A breakdown of Brexit related issues Price Inflation – A breakdown of Brexit related issues 3 COGS 1. RM • Tariffs on raw 2 materials will Increase Tariffs apply and drive cost increases Logistics • Increased Margin logistics costs 2. Logistics driven by longer lead times and Landed Value need for additional Cost Adding stock holding Into Cost 1 • Custom duties & Customer Pre-Brexit working capital implications 3. Additional • Custom Post-Brexit Prime Costs administration charges Cost • Tariffs on finished goods Product Cost Model PwC 10
Customs Overview 11
So what do we know now? UK agree tariff schedule with UK will be treated as WTO a 3 rd country for imports into EU UK will enter into negotiations with EU on comprehensive FTA Probability that UK will no existing EU longer be part FTA’s will no of the longer apply Customs past April 2019 Union UK plans to UK plans to negotiate FTA negotiate deal with other “associate” 3 rd party membership of EU countries Customs Union No certainty on transition arrangements PwC 12
Business Impacts 13
Key impact areas & assumptions 4 5 1 2 3 6 People Regulatory Supply Chain Tariffs Customs Route to Divergence Market Compliance Supply chain lead times This will drive UK market access will People splits into Mobility Problems of Tariffs will apply to both will become longer and incremental cost for become more difficult as and skills. Impacts on regulatory divergence EU imports and exports more expensive as organisations as they seek EU imports become more mobility restrictions need could further with the UK. These tariffs suppliers and retailers need to comply with the expensive versus UK complicate EU-UK to be reviewed. will vary by product and to allow foe increased additional customs competitors. Requirements for new trade lead to cost increases. inventory within their requirements both on the skillsets in the business. supply networks. EU and UK sides. PwC 14
Key impact areas & assumptions 1 Tariffs • Tariffs will apply to both EU imports and exports with the UK • Tariff rates will vary by product and will result in additional cost • Tariffs may apply at a Raw Material and Finished Goods level PwC 15
Key impact areas & assumptions 2 Customs Compliance • Customs Compliance adds an incremental cost into the business • Time Consuming • May Result in delays at customs borders PwC 16
Key impact areas & assumptions 3 Route to Market • UK market access will become more difficult as EU imports become more expensive versus UK competitors • Consider diversification opportunities across products and markets PwC 17
Key impact areas & assumptions 4 Supply Chain • Increased cost and increased lead time as a result of potential border checks and customs compliance • Risk that some Irish suppliers may go out of business, relocate to the UK or pass-on increased costs • Brexit is a good reason to rethink overall supply chain footprint and make your supply chain lean PwC 18
Key impact areas & assumptions 5 People • Internal resources will be required to deal with the administrative burden that will arise from the UK leaving the EU • There is a market shortage of people with customs expertise • Post Brexit immigration permission may be required PwC 19
Key impact areas & assumptions 6 Regulatory Divergence • Brexit will cause divergent regulations between the EU and the UK • Regulatory Divergence will add further complications to EU–UK trade PwC 20
Next Steps 21
Actions you can take take immediately… Create a baseline set of assumptions Step 1 Create a baseline set of concise assumptions. It is • important that everyone is working off the same set of assumptions. Analyse your business What do you Utilising the assumptions built out in step one, step Step 2 • need to do through the core element of your P/L and assess the now? financial impact on your business. Develop mitigating actions On completion of the detailed Risk analysis, assess the Step 3 • results. This should allow you to identify the risk areas and develop suitable mitigating actions for your business.
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