Trading with Europe post-Brexit
Trade with Europe Ltd is a one-stop solutions partner for barrier-free trading with Europe and the rest of the world, based in Bristol, UK. In this guest blog we hear from Marcus Broix, Director at Trade with Europe Ltd. Marcus explains what businesses should be doing to successfully continue trading goods and services in the EU, post Brexit.
Overshadowed by the Covid-19 pandemic, another – almost forgotten – disruption to our economy and lives is Brexit.
On 31 January 2020, the UK left the European Union but so far, very little has changed. We are still in the transition period, which will end on 31 December 2020. This phase was to give businesses time to prepare for the unknown and for the UK and the EU to negotiate the details of the partially agreed Withdrawal Agreement and, hopefully, a future trade deal. At the time of writing this article, it remains unclear whether there will be a deal. However, a change worth noting if you are trading across borders, which will definitely come into effect on 1 January 2021, is the new requirements of product markings.
On 1 January 2021, the UK will formally leave the EU market and customs union, and the European CE marks for products traded in Great Britain will be replaced by the new UK Conformity Assessment (UKCA) mark. This means that any British suppliers exporting products to the EU, which requires a CE mark, will need to establish some form of presence in the EU to retain the CE marks for existing products or to apply for new CE certificates. Failure to comply with the new requirements means they cannot sell these goods in the 27 EU countries, Turkey, and the four countries (Switzerland, Norway, Iceland and Liechtenstein) of the European Free Trade Association (EFTA) any more.
Needless to say, this poses real risks for British businesses. However, the good news is that there are three potential solutions to mitigate these changes. The first two are:
- Find an importer. If you do not already have a European importer for your goods, you can find one (or more) to retain access to these markets. The responsibility for the CE marking lies with whoever puts the product on the market. In turn, as the manufacturer/exporter, you have to affirm the compliance of your products with the relevant EU legislation.
- Find an agent. You might be able to find an EU agent who will cover all the legal requirements, allowing you to continue using your European distribution network. This can be useful, particularly for medical device suppliers that require a so-called ‘passport’. There are a number of agents offering compliance services, albeit at a cost.
Be aware that while these options seem relatively easy to implement, there are some downsides. The first is the dependency on a third party in a foreign country and jurisdiction. The second is giving away control. In addition to handing over all or parts of your European business to a middleman, you need to disclose a plethora of information. This might include sensitive business data as well as confidential information regarding the make-up and manufacturing processes of your products.
Considering these risks, it is essential you carefully select your partners and ensure all contracts are checked thoroughly. Also make sure you have a bulletproof Intellectual Property (IP) protection to reduce the risk of your products being copied. (The Withdrawal Agreement between the UK and the EU includes provisions to protect existing IP rights. However, the extent to which this might be affected, in the case of a no-deal Brexit, is currently unclear.)
The third solution is to set up a presence in the EU. This is the only alternative that will keep you in control. But, where is the catch? And, having asked this, is there one at all? Judging by the majority of requests Trade with Europe Ltd receive from British businesses, there seems to be a common misconception of what an EU presence actually comprises of, and what you need to do to legally establish and manage one.
A legal EU presence consists of two elements; firstly, the formation of a legal entity (or legal person), and the most common (and also simplest) form would be a limited company. The process of setting up an EU limited company varies from country to country, but the crucial piece of information here is that many EU countries allow UK residents to become registered as managing directors (and shareholders) of their EU company.
Secondly, you need a place of business, a so-called ‘permanent establishment’. In most cases, a virtual office address at a business centre providing front desk/reception services would be sufficient.
Once everything is set up, you will need to ‘run’ your EU company with the least possible disruption and cost to your everyday business (eg, by remote control from the UK). Depending on your business model and if your EU presence purely serves the purpose of meeting export requirements, all you might need are the services of a law firm, at least for the incorporation and the initial phase of your EU business, and those of an accountancy firm. Of course, the more complex your business activities are, the more services you might need, for instance: HR recruiters, marketers and so on.
While all this sounds like a wonderfully straightforward path – the reality is, in most cases, it is not. Unless you have connections to professional individuals and businesses abroad, you will need to build up a network of associates and partners in a foreign country where English – with the exception of Ireland – is not the native language.
This is where professional service providers come in. Brexit has created a demand for these corresponding services and, with it, a new niche industry. So, if you are seeking simple, efficient and affordable solutions, take great care to choose the right partners to build a bridge to Europe. For the selection process, you should be able to answer the following questions with a ‘yes’:
- Does your potential partner understand and suit your company in terms of professionalism, business model, ethics and values?
- Are they native or have they been a resident in the country they are offering services in?
- Do they have inside knowledge of the economic and cultural aspects of doing business in the country and regions they are offering their services in?
- Do they have a network of local service partners, such as lawyers, accountants, marketers etc, in these countries?
- Can they provide a complete one-stop solution, where you can obtain everything through them with the assurance that there will not be blame-shifting if things go wrong?
Of course, these criteria are only of a general nature, so it would be best to complete this list with questions that are tailored to your business.
Time for action
The influential think tank, Institute for Government (IfG), has reported that as recently as late October, one-third of small businesses were still labouring under the illusion that the transition period would be extended beyond 31 December 2020. What we are seeing, it appears, is that the challenges of Brexit, coupled with the issues posed by Covid-19, are triggering escapism. Unfortunately, we are talking about a very real scenario that will catch up with us soon.
The clock is ticking and the best advice remains to actively seek solutions to keep your business/organisation afloat, by preserving as much as possible of your existing exports and/or tap into new markets to compensate for possible losses elsewhere. But please bear in mind to act cautiously; pick your advisers and partners carefully, try to verify the information you obtain and, where possible, check your alternatives. With this roadmap in front of you, you will have every chance to steer your business towards new and promising destinations in 2021.