Why businesses need to keep a closer eye on imports in light of Brexit
Two-and-a-half years ago, the British public was told that the EU Withdrawal Agreement was an “oven-ready deal”. Barriers to trade, which had been a bogeyman for those who opposed Brexit, would not be an issue. Industry could continue as normal without any supply chain disruption.
Today, that oven-ready deal looks underdone. For all intents and purposes – and despite all the furore over checks on goods passing into the single market – the EU seems to have largely stopped carrying out inspections on goods going in the opposite direction, into Great Britain. The latest negotiations about Northern Irish trade, culminating in the Windsor Framework, have dominated Whitehall’s thinking, leaving supply chain standards more generally to wither on the vine.
“Northern Ireland at the moment is a constantly changing environment, with little beyond agreements in principle on data sharing,” says Andrew Thurston, customs duty consultant at accountancy firm MHA. The constant changes mean that nothing is nailed down or absolute. “At the moment, there is the risk that labelling might be wrong and [importers] might not be meeting the right standards,” he explains.
It all adds up to a problem for businesses which are reliant on global supply chains. Just take the food industry, for example. “What Brexit has meant is that we have become divorced from the European food safety and food fraud monitoring systems,” says Chris Elliott, professor at the Institute for Global Food Security at Queen’s University Belfast.
The irony for Brexiteers is that, despite their grousing about the EU’s failings, it was mainland Europe to whom we had outsourced many of the vital safety checks on goods coming into the UK.
Why customs checks are a cross-industry problem
And it’s not just food safety that’s at risk as a result of the changes brought about by Brexit. Customs checks don’t just establish whether health and safety standards have been followed by manufacturers, but they also help with various aspects of compliance, tax management and supply chain visibility. Losing all of those – or replacing what was a widespread, well-working standard with something that has less transparency and oversight – may increase the liability for those who are selling goods imported into the UK.
“In this period of uncertainty, there is a definite risk to importers, distributors and retailers that poor-quality products could potentially reach the UK market, with the attendant impact on brand reputation and potential legal action,” says Simon Ellis, financial regulatory defence director at law firm Freeths.
The liability doesn’t disappear just because the people doing the checks have. “As a business, if you import a product, it may not have been tested as it came into the country,” says Emile Naus, former head of logistics strategy at Marks & Spencer and now a partner at tech consultancy BearingPoint. “You have to put checks in place.”
For businesses, the threat is a significant one, reputationally, legally and in terms of the bottom line. And the problem isn’t limited to Europe. It’s increasingly difficult to vouch for the safety of any items coming into the UK from abroad, particularly given that the interconnected nature of the global supply chain system means that goods which don’t emanate from Europe may well pass through it on their way to the UK.
How independent supply chain checks could help
Doing something about it is therefore necessary. Setting up parallel, independent checks of the supply chain, including accounting for and tracking the movement of goods that come into your business, is increasingly important. Ellis advises that importers should “pay particular attention to the integrity of their supply chains to ensure that supplies originate from trusted sources which have a reliable history of compliance”. That requires due diligence checks throughout the entire supply chain – “as commercial sensitivities permit”.
According to Elliott, that’s already happening on an informal basis in the food industry, through a casual intelligence network. Food items are among the items most likely to see some element of mislabelling – either deliberately or accidentally – so the sector as a whole is already highly attuned to the risks involved. Businesses look out for one another. “The big retailers, like food manufacturers and some of the food service companies, already cooperate and collaborate to an unbelievable degree,” says Elliott. A similar level of collaboration would be useful to try and instigate into other areas to ensure the integrity of items entering the UK.
Ellis adds: “It would be sensible to carry out a review of existing due diligence, with a particular emphasis on the credibility of recent market entrants, the viability of pricing by suppliers and their warehousing and logistic operations.”
Thurston recognises that adding extra steps – and cost – to your supply chain processes is something no company wants to be doing amid high inflation and dropping consumer confidence, but it’s necessary. “Look at the companies that are supplying those goods. Make sure that they have due diligence in place and are doing their own checks to make sure that those goods are going to meet the requirements,” he advises. “Make sure that there isn’t a drop in standards.”
How to spot the warning signs
It can, of course, be difficult to try to track back goods that you sell or handle through the entirety of the supply chain. Subcontracting and outsourcing mean that the companies you’ve entered into a contract with may not be the ones carrying out the service of shipping or supplying you with the items. But a root-and-branch investigation is vital to ensure you’re fully aware of all the risks involved – and can head them off as and when issues arise. “If something goes wrong and has your name on it, you’re still going to get blamed for it, whether that’s fair or not,” says Naus.
The past few years haven’t helped matters, either. With workforces going remote, what might have been on-the-spot, in-person checks are now either not being carried out or are being moved online, where there’s less visibility over the entire set of processes involved. “You need to make sure that this is an important part of your auditing process,” Thurston says. “It’s not something you just say, ‘Well, we’ll deal with that.’”
And it’s not solely about the companies moving your goods into the country: it’s the people making them, too. “It’s not just about importing, it’s the manufacturing process as well,” he says. “If you’ve got those controls in place, they will get that finished product to meet the required standard.”
Doing something, rather than nothing, is now essential because the issue isn’t going anywhere – and there’s seemingly little appetite within government to make a substantive change, warns Elliott. “It is a bit of a time bomb because somebody will do something that is horrendous and will jeopardise the health – if not the lives – of some people,” he says.