Brexit: what's at stake for businesses

Practicalities

Being Able to Do Business with Certainty and Minimum Fuss

Companies, especially Small and Medium Enterprises ( SMEs), long for simplicity and clarity. Nothing undermines business confidence more than unnecessary bureaucracy and rampant uncertainty.

Right now for the vast majority of goods, services and companies, one set of rules, clearly articulated and understood, apply both in the UK and throughout the EU (and in many cases beyond). For the most part these have been stable for many years. On that basis, goods and services sold here can go anywhere in the EU, with no need for separate packaging, production lines etc. The rules may not always be universally welcome (although they very often underpin the very qualities companies pride themselves in), but are a known and unifying factor. And they are increasingly driven by the reassurance provided by agreed and uniform rules on issues such as compensation, consumer rights and payment terms, with agreed processes for enforcement and final legal redress. Moreover, there are minimal, if any, checks at borders.

Brexit may mean:

• clear decisions before 29 March 2019 on the trajectory for all products and rules; or
• many years of indecision and uncertainty as negotiations in a variety of forums drag on;
• as now, the same rules and regulations apply in the UK as throughout the EU, updated together over time; or
• a gap between rules applying for the EU and for the UK, widening over time and requiring separate production lines;
• every product exported or imported will need country of origin paperwork and time-consuming checks as they leave or enter the UK; or
• no border checks or country of origin requirements.

The real life examples in this section bring these theoretical points to life. Many companies say these issues matter more than tariffs and market access. If the talks don't get this area right, there will be complications and uncertainty for every company, bringing not only headaches but a severe dent to the bottom line.

Practicalities: What Businesses Say

The examples below capture what companies are saying to us about what's at stake for them, in their own words, demonstrating the real issues they face.

Glasgow Airport – AGS Airports Ltd Airlines plan their routes and flights six to twelve months in advance and so September 2018 is the key date for a Brexit date of March 2019. The UK aviation industry and the rest of the world are covered by deals involving 155 countries: 44 of these are through EU wide agreements, covering the majority of passengers.

Aviation is legally unique, it is separate from trade agreements and does not form part of the World Trade Organisation ( WTO) system. The UK has access to the EU's external aviation agreements, most importantly the 2008 EU- US Open Skies Agreement that enables any EU or US airline to fly any transatlantic route. Without new agreements on aviation being agreed pre-Brexit and in the absence of a transitional deal, airlines would lose the legal framework to fly their current EU routes and some long-haul ones, including to the US and Canada.

The uncertainty regarding the UK's future trading relationship with EU is already having an impact on the aviation industry. A number of airlines have stated they will scale back their UK growth plans, focusing instead on adding capacity at airports in the EU. Airlines have also reported a marked increase in their cost base due to the fluctuation in the exchange rate. Taken together, this has the very real potential to undermine Scotland's connectivity.

A Scottish Fish Processor, supplying products internationally. It is a significant employer and one of its biggest concerns is labour supply following Brexit. With a significant number of employees coming from European member states, it is concerned about the impact of Brexit on free movement.

There may be additional burden caused by export barriers and bureaucracy, such as increased documentation. The increased burden of further documentation could impact the sales of chilled products which have a short lead-time (often despatching within a few hours of receiving an order). Extensive time generated through documentation and handling could lead to a decrease in product quality and ultimately limit its ability to make international sales.

Trade tariffs could also impact the value of sales and competitiveness of its products. As a fish processor it is concerned about the impact of Brexit on fisheries science and regulation. Departing from the EU may lead to less investment in stock science which has long-term impacts for the health of stocks that this business is dependent upon.

eCom is an SME based in Dunfermline. They have a diverse workforce, including Chinese and Polish nationals. Many of their staff start as summer placements during university. eCom therefore relies on a steady stream of highly educated individuals with specific skills, mostly in coding at Honours or Masters level. Customers know that changes are coming and are setting aside their tech/innovation training budgets for when those changes take place. If customers' profits are hit by Brexit, training could be one of the first budgets hit. eCom are specialists in innovative learning solutions and have noticed the impact in 2016 due to the delay of innovation projects now starting in 2017. The possibility of needing different legal contracts for different markets is also causing uncertainty. Currently eCom have UK/ US contracts and there are worries they will they need to separate out UK and EU contracts. Changes in laws can and will increase overheads especially changes in VAT which is currently the same all over EU. Overall, the current slowing in the market does not encourage investment.

SnapDragon an Edinburgh-based company fights fakes online, helping brands to defend their intellectual property, reputation, income and customers. SnapDragon's proprietary algorithms monitor over 250 of the world's busiest ecommerce, social media and auction sites, identifying infringing links and sellers which are then removed, or closed down.

SnapDragon employs highly skilled digital analysts who represent 13 nationalities including, but not exclusively, EU territories. Due to the scope of the business, employees' language skills are critical and SnapDragon recruits from a wide talent base. Increasingly strict – and costly - immigration measures make the long term recruitment of an international team difficult, and the business is keen to see this made easier, rather than more difficult, particularly when trying to build a global business from Edinburgh.

Some of SnapDragon's clients are particularly concerned about the changes in intellectual property which may result with Brexit – particularly the loss of unregistered design rights which are stronger in Europe than in the UK. Added to this, many businesses have EU trademarks, but not UK trademarks and the costs of refiling are not insignificant.

Scuba Diving Scotland is Scotland's largest dive centre and the only one that sells courses online. They have customers coming from the EU to Scotland to participate in their courses, and sell their materials into the EU. They are concerned about cost increases and extra bureaucracy for themselves and their customers, so have put on hold plans to expand the range of services they offer. Additionally, they are concerned about extra "friction" for potential customers overseas visiting Scotland, who may opt to go to another EU country as there is less 'hassle' about healthcare concerns, roaming and even visas.

Bullet Express is a Glasgow-based company that has provided pallet distribution services for over 25 years, offering a comprehensive range of transportation and logistical services across the UK and internationally by land, sea and air.

Bullet Express is concerned about discussion of custom controls being set-up between the UK and the EU, which would cause additional delays in moving goods across the border. This would be highly impractical, not least due to the cost and time required to put these controls in place. The focus of Brexit negotiations should be avoiding the need for any additional border controls rather than discussing what type of new border controls to put in place. Common sense must prevail.

More generally Bullet Express is concerned that investment from outside the UK (such as infrastructure investment from the European Investment Bank) may decrease in the immediate future so long as there remains uncertainty over the UK's circumstances once it leaves the EU.

Shin-Etsu Handotai Europe is a high tech manufacturer of semiconductor grade silicon wafers integrated into the supply chain for computing equipment such as smart phones and cars. They employ 450 staff in Scotland as part of a wider conglomerate of 18,000 globally. They operate in the market they supply, and Scotland is their base for serving the wider European market. 80% of their business is in the EU with 5% of that in the UK.

In terms of future planning, the company needs to consider both their customers' plans and their own future plans. While the Brexit negotiations process is going on it is difficult to plan ahead. An example is in the vehicle supply chain. Customers have been forced to consider risks such as the stopping of supply or price increases, but the company just can't provide answers.