The UK has 6 extra months as an EU member

Since 2016, the world has been watching closely as the United Kingdom negotiates its drawn-out departure from the European Union. While continental Europeans try to avoid a surge in import tariffs and trade barriers after Brexit is enforced, Brazilian companies have spotted an opportunity that could lead to gains of up to EUR 1.7 billion per year.

The conclusion comes from a study by consultancy Bertelsmann Stiftung, for the Brazilian Trade and Investment Promotion Agency (Apex-Brasil), the Brazilian Embassy in London and the Brazilian Chamber of Commerce for Great Britain. The Brazil Brexit Watch report aims to monitor the expectations of Brazilian business owners about Brexit and guide them through the yet-to-be-defined British trade rules.

The UK will remain as an EU member state until October 31—with an option to leave early if the country’s House of Commons can agree on an exit deal. “This extension is as flexible as I expected and a little bit shorter than I expected but it is still enough to find the best possible solution,” said the president of the European Council, Donald Tusk. He pleaded that the UK “do not waste” this six-month period.

While Brexit is sending shivers down the spine of many UK business owners, Brazilian companies may gain EUR 1.7 billion per year if the UK leaves the bloc with no deal—and EUR 940 million if the British remain closer to the EU. Only last year, Brazilian exports to the country amounted to almost USD 3 billion; the main exported products were semi-finished gold goods, soy, iron ore, and silicon.

As the fifth largest economy in the world, the UK imports are worth 32 percent of its GDP, but Brazilians are still shy to explore it. The country is currently Brazil’s 13th biggest exports market, up from 17th last year, but still far from China. Brazil’s biggest trade partner bought USD 64.2 billion in Brazilian goods last year, up 35.2 percent from 2017.


brexit uk trade


Who in Brazil is set to gain from Brexit

In case of a no-deal Brexit, the British government has established an emergency tariff scheme, valid for 12 months, under which 87 percent of total imports to the UK by value would be eligible for tariff-free access.

That would include Brazilian exports such as the pulp and juice of lemons, melons, watermelons, and oranges, instant coffee, tobacco, and some dairy products. Among manufactured items, motor components and specific kinds of timber could also be exempt. In mining, silicon—Brazil’s fourth-most exported good to the UK—would be tariff-free.

However, products that benefit from the Generalised Scheme of Preferences (GSP), which already allows lower tariffs, would remain as such; these include bananas, raw sugar and some varieties of fish.

Bearing in mind the exemptions and the fact that the UK imports 50 percent of the food and drinks the country needs, Apex-Brasil and the Embassy believe that “with Brexit, Brazilian companies could compete for a new share in this market.”

Apex: "with Brexit, Brazilian food companies could compete for a new share in the UK market"

Apex: “with Brexit, Brazilian food companies could compete for a new share in the UK market”

Recently, Mr. Anderson Miolo, exports manager at Brazilian winemaker Miolo, told The Brazilian Report that the UK is currently the brand’s biggest market, but it is set to be overtaken by China. He believes that once the Brexit situation is solved, exports to the UK will pick up again.   

A cloudy landscape

Three-quarters of Brazilian companies consulted in a survey by Brazil Brexit Watch believe their business may be affected by Brexit, and 70 percent are pessimistic about the outcome of the process. Only 10 percent believe Brexit could be positive for them, with 20 percent saying they don’t know what to think.

According to Apex-Brasil, companies fear “the possibility of higher logistics and customs costs, roadblocks to exports that come through Europe, higher import costs, demands of certificates different than the ones asked by EU, and tariff and non-tariff barriers.”

The UK government has been establishing guidelines to address some of these concerns. “If you import fresh fruit and vegetables that originate within the EU, or goods from another country which have cleared customs in the EU, you will not need to apply for a UK-issued certificate of conformity ahead of arriving into the UK,” one of the guidelines says.

However, issues such as delays in port inspections are still a source of concern. In a Brino scenario (Brexit in name only), time spent on border checks is set to increase, as the authorities may need to perform new procedures and systems, and demand extra documents. Research from the Imperial College London shows that “two extra minutes spent on each vehicle at the [UK] border could more than triple the existing queues on the M20/A20 (motorways), to 29 miles. At peak times, Kent could see nearly five hours of traffic delays.”

“Delays may impact perishable products and create additional storage costs,” explains Apex-Brasil.

The lack of definition about Brexit is a cause of anxiety for companies. So far, British Prime Minister Theresa May’s draft deal has been rejected three times by Parliament, generating uncertainty on global trade. Projections from the International Monetary Fund show that the UK economy could get 3.5 percent smaller than expected by 2021 if trade barriers are swiftly erected.

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MoneyApr 11, 2019

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BY Natália Tomé Scalzaretto

Natália Tomé Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, worked as an Editor for Trading News, the information division from TradersClub investor community.