How Could Brexit Affect Australian Supply Chains?
Aaand we are officially in the Brexit month! With Australia being a highly trade-exposed economy, the 29th of March 2019 when the UK will be exiting the European Union, is looking like an uncertain time for supply chain operators. Over the last 5 years, the UK has consistently been one of Australia’s top five trading partners. Therefore, Australia is extremely volatile to any downturns in international trade involving the UK.
Once the UK exits the EU, they have a twenty-one month “adjustment period” or “grace period”. During the adjustment period, which will end in January 2021, every day life in the UK will not change. However, during that period, the UK will have no say in the drawing up of rules by EU members. Essentially, the transition period is for the UK to rebuild its own agreements with the rest of the world. However, if the withdrawal agreement does not get passed in time by the MP’s, there will be a no-deal Brexit. No-deal Brexit could throw the UK and its trading partners into deep waters by skipping the adjustment period and defaulting under the World Trade Organisations rules.
New Trade Rules
After Brexit, any EU trading arrangement Australia has had, will be nullified for trading with the UK. The renegotiations of trade rules and tariffs with the UK, may or may not result in additional tariffs. The implementation of new tariffs would affect both importers and exporters. Both sides will need to reinform themselves on the latest trade rules. The extent of informed compliance with the new rules is imperative in order to prevent the rise of unexpected costs or penalties. Unpredicted trade costs could be catastrophic for a business. Supply Chain managers should expect and budget for additional costs, delays and some complexity during the alignment of the processes. Additionally, the implementation of a new FTA’s is crucial! Alternatively, that would leave room for other countries to obtain a competitive advantage in trading with the UK, over Australia trading with the UK. Noticeably, “Australia’s trade relationship with the EU outweighs trade with the UK by a ratio of approximately 3 to 1 so focus must be on the EU as well as separate opportunities with the UK”, (Trade and Investment Queensland).
Demand for Australian Exports
In the case of increased tariffs with the end of the “adjustment period”, Australia’s trade balance could experience a shock. Additional tariffs would result in less demand for Australian exports. Consequently, that would cause an oversupply of goods in our domestic market, bringing prices down, alongside businesses profits.
Demand for the AUD
In the instance of lower demand for Australian exports, there is also lower demand for the Australian dollar. Less demand for our currency will bring down the overall value of the AUD.
Are you starting to feel a knot in your stomach? Okay, time to give you the good news. In the reverse scenario, this is what would happen;
Aussie Industries to experience the most Uncertainty
Major Australian exports (to the UK);
- Alcoholic Beverages (mainly wine)
- Pearls and Gems
Major Australian Imports (from the UK);
- Passenger motor vehicles
- Pharmaceutical Products
- Alcoholic Beverages
Major Australian Service exports (to the UK);
- Personal Travel (excluding education)
- Professional, technical & other resources
Major Australian Service Imports (from the UK);
- Personal travel excluding education
- Professional, technical & other business
The above-mentioned imports and exports are expected to experience the highest risk during Brexit.
How can businesses preper themselves?
A few ways for businesses to prepare themselves for the consequences of Brexit would be;
- Stock Pilling. Urgently import a larger quantity of UK goods than required, to last during the adjustment period
- Businesses involved in the medical, pharmaceutical or car sector should review and comprehend the new “Australia – Britain Mutual Recognition Agreement”
- Take into consideration any released government advise material
- Map out any UK goods or raw material, which rely on EU standards/approvals. Those goods would require an entirely new approval regime. This issue has a significant effect on Australian Wine regarding labelling.
- Prepare for the worst, hope for the best and remain calm.
Although the above scenarios are serious issues the Australian supply chains could experience, it is important to remember that the impact of Brexit on supply chains only accounts for a portion of the issues related to Brexit. Further sectors to be impacted include;
- The movement of people such as UK citizens living outside the UK, UK tourists and truck freight drivers
- The “hard” border between Northern Ireland and the Irish Republic
- Financial Markets. Brexit could be jeopardising London’s status as the financial centre of Europe. Not to mention the agreed £39 billion “divorce bill” UK is to give to the EU as part of their exit plan