Impact of Brexit for Procurement: Tariffs and business
What does Brexit mean for Tariffs & Trade? And are there any positives for Procurement and business in general?
We explored the impact of Brexit for procurement on Supplier Contracts in our last blog. In our next blog series, we welcome back Jeremy Smith, Managing Partner, 4C Associates and Peter Smith, Managing Director, Procurement Excellence. As we await the decision on Brexit, we focus on how it may impact tariffs and trade and business opportunities it may bring.
Q1. What will be the impact of post-Brexit potential tariffs and delays?
Jeremy Smith: It really depends on what you are buying. Delays in just-in-time supply chains, like manufacturing and fresh produce, will cause havoc, although since EU subsidies will be ending much manufacturing runs the risk of being moved back into the EU to avoid these issues and continue to receive EU grants. This will require new supply chains and a change in customer preferences. Just to take one example, strawberries will become more expensive and/or less fresh when out of season locally.
Peter Smith: Yes, this is a huge question, too broad to give a simple answer! Potentially this does not simply concern immediate cost increases, but how tariffs may start changing the whole shape of markets. For instance, some suppliers in Europe may simply decide to stop working in the UK.
Q2. In what ways will imports from outside of the EU be affected?
Jeremy Smith: Imports will have to come into the UK directly and not via Europe. However, it is possible that they may be affected by a global trade war. As the negotiations continue with the EU, and the United Kingdom also approaches the USA for a trade deal, that may drag the UK into the trade war between the USA and China and all of a sudden that route becomes Political (with a capital P), or the US tariffs are a proviso of any deal with them. It’s getting complicated, isn’t it?
Peter Smith: We cannot be sure yet – it all depends on what trade deals the UK does with other countries, and what the interim position will be. If we revert to World Treaty Organisation conditions, there will be winners and losers depending on the WTO tariff schedule. So, we might see some imports hit by larger tariffs and others perhaps get cheaper. There’s been a lot of talk obviously about issues such as cheap chlorinated US chicken coming into the UK, for instance. But there are too many moving parts to give a definitive answer.
Q3. We talk a lot about the negatives, but are there any benefits that businesses, and in particular procurement, can leverage from Brexit?
Jeremy Smith: Yes. A focus on new regions and a move away from the comfort blanket of the “usual suspects” in terms of local suppliers can’t be entirely bad. It will drive innovation and bring some new ideas and ways of working into the UK supply chain. This will take some investment, and there will be risk, but if Brexit happens as expected, this will be a positive to the United Kingdom.
Peter Smith: Yes, this will create “new” work which arguably is good news from a procurement perspective! It is also an opportunity for procurement to demonstrate its importance to the business and raise its profile. Brexit may also lead to opportunities to look at category strategies, for instance, in a new way – where tariffs change the status quo – and who knows, maybe even find value-generating new approaches in some markets or categories! For businesses, that probably depends on the nature of non-EU trade deals.
Q4. What appetite will there be to radically review procurement regulations once the UK leaves the EU?
Jeremy Smith: My personal view, very little appetite. The OJEU (Official Journal of the European Union) rules were not too dissimilar to what existed before and I doubt if the UK government is going to make a statement that “we don’t want consistency and we don’t want transparency”. If they have a way of reducing administration, reducing bureaucracy or speeding things up, then great, but I’m sure the EU will just copy that if so.
Peter Smith: Despite a lot of nonsense from politicians already in this campaign, I personally think there will be limited change. We can already use social value, for instance, in evaluations, or look at non-cost factors that favour local suppliers. And even under WTO rules we are unlikely to be able to pursue a simplistic “buy British” policy across the board. It will also take years to go through the consultation that is necessary and put new laws in place. So, don’t hold your breath (although there will be immediate changes around the edges such as the new e-notification system for advertising contracts).
Q4. In your opinion, which business sectors will grow and which will be hardest hit as a result of Brexit?
Jeremy Smith: Hardest hit will be groceries, in particular fresh produce, and construction. In terms of growth, rather controversially I will say UK farming because even if they have to wave goodbye to EU subsidies, British farmers will be called upon to fill the import gap.
Peter Smith: If only I knew that, I would be a rich man! Economic systems are self-righting to some extent, so if for instance the pound sinks, that will be good news for incoming tourism (and bad news in the other direction) and even sectors such as film studios and production, and perhaps also for manufacturing in the medium term, you would think. But then the pound will recover if that sterling effect drives the economy.
Watch out for final article in the Brexit blog series to take a moment to see how technology can help realise some of these opportunities!