The impact of Brexit on Supply Chains and Commercial Contracts

Ensuring a smooth running supply chain after the end of the Transition Period will be key for a number of businesses.  Exactly what rules will come into force on 1 January 2021 depends on the outcome of negotiations between the EU and the UK, in particular whether the two sides manage to agree a free-trade deal.

 

However, whatever shape Brexit eventually takes, businesses importing or exporting goods to and from the UK and the remaining EU member states will need to prepare for changes to borders, tariffs, customs and VAT and check their commercial contracts are still fit for purpose.

From a legal point of view, the UK ceased to be a member of the EU from 1 February 2020.  Entry into the Transition Period means that little has changed in practice since that date, but the end of the Transition Period on 1 January 2021 will see real changes in cross border trade that will affect commercial contracts that have an EU dimension.

Territory: if you have not already done so, you should review your key commercial contracts to check any references to the EU as a geographic territory (common in distribution agreements for example) or references to EU laws and standards which will no longer apply after 1 January 2021 and assess what effect this may have and where any changes will need to be agreed with your counterparty.

Regulatory: consider in particular the effect of a divergence (although likely gradual) by the UK from EU regulatory standards, particularly in relation to heavily regulated goods such as foods and medicines but also in areas of product safety, rules around consumer rights.

Staffing: changes to rules allowing free-movement of people between the UK and the EU may have a substantial effect in different areas of a contract.  Consider any provisions relating to key staff for example, or resourcing issues more generally.

Financials: the knock-on effect of changes to trade rules for goods and services mean a potential for the economics of a contract to change.  Increased costs will be likely in some degree as a result of predicted longer border-crossings, changes to customs and VAT regimes.

Data and Intellectual Property: both these areas will see changes from the end of the Transition Period.  See our links for more details on Data Protection and Intellectual Property.

The end of the Transition Period on 1 January 2021 will bring changes in a number of areas affecting the supply chain, regardless of what form the eventual trading UK – EU relationship looks like.   There will be changes to customs declarations, duties and VAT.  The new rules will be brought in in three stages up until 1 July 2021.

Find the Government’s guidance here: Gov.UK – new rules from 1 January 2021, including its updated Border Operating Model which details the practical steps all those moving goods between the UK and the EU (hauliers and traders) need to take such as getting a GB EORI number if they don’t already have one, potentially getting an EU EORI number, considering using a customs intermediary or fiscal representative and applying for a duty deferment account.

If you wish to understand more about the impact of Brexit on commercial contracts, please get in touch with Kathryn Rogers.

Trade organisations and other industry bodies should be able to provide more industry specific guidance on the impact of Brexit and the UK government Brexit website  includes signposts to various sources of additional information.