Accessing New Markets – Using EU Trade Agreements

With the increasing concern on the additional costs companies will face on accessing the UK market in the future this is now a good time to look at leveraging off current EU Trade Agreements. The EU is extremely active in negotiating trade agreements and there are significant opportunities for companies looking to diversify their markets outside of the UK and Continental Europe.

It is also worth remembering that once the UK leaves the EU they will have to negotiate independent trade agreements outside these EU agreements.

In our first newsletter we outlined the benefits of Canada as an opening market for Irish Companies with the new CETA agreement. Over the last month there has, in addition, been an extremely strong focus on this market with visits by An Taoiseach and the EU Commission for Agriculture, Phil Hogan. For the Irish Food and Drink Industry the Canadian FTA is of particular benefit as it opens up the Canadian Market to exporters of cheese, wine and spirits, fruit and vegetables, and processed food products, which is not typical of Trade Agreements. In fact Commissioner Hogan recently tweeted that “once CETA” is fully in place, Europe will be able to export nearly 92% of its agricultural and food products to Canada duty-free”

However along with the Canadian Agreement there are many other agreements as can be seen by the EU infogram below.

Exporters looking to develop new markets could therefore look at countries such as

To name but a few.

In our next newsletter we will expand on how to qualify, under rules or origin, to take advantage of these Trade Agreements. We will also update on ongoing trade and market access discussions taking place with countries such as Japan, Indonesia and China.

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Brexit and Borders

As we move into the negotiation and “divorce” phase of Brexit the main questions being asked by Irish Exporters are

Will there be additional tariffs to consider

Will there be border controls on trade with the UK

While nothing is known with certainty, particularly in relation to tariffs, there are at this point some extremely likely outcomes which businesses need to start preparing for.

Tariff and Duty Costs

The question on the introduction or not of tariffs is probably the most “known unknown”. The answer will depend on whether, or not, there is some form of (Free) Trade Agreement concluded between the EU and the UK. This it-self will only be known after the conclusion of, or at least positive developments in the “Divorce Negotiations”.

At a high level there are two possible outcomes:

A Free Trade Agreement is concluded which allows for a 0% duty rate on trade between the EU and UK.
If this is concluded Exporters still need to be aware of two potential complications
i) Most FTAs require companies to prove their goods are “originating” in order to benefit from the preferential duty rate. This in itself can be a complex process.
ii) Most FTAs do not cover agricultural products or restrict the benefits for agricultural products. While this may be unlikely for an EU-UK Trade agreement it still needs to be considered.

No FTA type agreement is reached and Tariffs are imposed.
In this case the tariff on import into Ireland/ the EU will be the duty rate currently applied by the EU. The tariff on import into the UK will be set independently by the UK Government. This could range from 0% to EU tariff rates to WTO bound rates.

A prudent approach therefore is to assess the impact of EU/WTO rates in looking at the potential additional duty cost that might arise on imports into the UK; and assess the impact of the current EU rates on imports into Ireland from the UK.

 

Borders

The key question at present, possibly more than tariffs, is whether there will be border controls introduced. This tends to break down into two aspects

Will there be border controls, and the requirement for Export and Import Declarations, at the Sea Ports and Airports?

Will there be border controls, and the requirement for Export and Import Declarations, at the North-South Border?

The unfortunate answer is that it is extremely difficult to see a situation where, under current EU legislation, there are no border controls.

We do have to look however at what this means.

Firstly will there be a requirement to lodge Export and Import declarations (SADs in Ireland/C88 in the UK)? It is almost impossible to see a situation where this will not be a requirement once the UK is a non-EU Country.

What does this mean?

Customs Declarations require 54 boxes of information to be supplied to Revenue, from details of the consignor/consignee to customs value to tariff classification to weights. Probably the most complex part of this is the requirement to provide the tariff classification.

These Export and Import Declarations need to be lodged with Customs, electronically, prior to export/import. Most goods will obtain instant clearance (95%) but some goods will require further checks before being allowed to clear. In all cases however these Declarations can be subject to post-clearance audit any time within the next three years.

It is important to remember that the lodging of Export and Import Declarations is no different to lodging any Tax Declaration and therefore the information supplied to Customs needs to be 100% accurate and correct or you may be subject to additional duty costs, fines and penalties (As with any Tax Audit).

The next concern is the type of border controls which might be introduced by Customs. At this point this is not 100% clear but ideally, will involve the use of electronic systems to minimise delays. As we know from many of the recent news reports this is a critical aspect for Revenue at present.

What next?

At this point most companies impacted by trading in the UK are looking at reviewing their supply chains and assessing the impact of additional tariff and non-tariff barriers on their businesses.

This modelling can be done using many resources. Enterprise Ireland, for example recently launched the ‘Brexit SME Scorecard’, a new interactive online platform which can be used by all Irish companies to self-assess their exposure to Brexit under six business pillars. Based on answers supplied by the user, the Scorecard generates an immediate report which contains suggested actions and resources, and information on events for companies to attend, to prepare for Brexit. The platform can be accessed at www.prepareforbrexit.ie

We would therefore recommend that companies pro-actively engage in completing this type of analysis and increase their knowledge of Customs.  This is particularly important for those companies who sell only within Europe, and have a significant portion of sales in the UK,  as this may be their first interaction with the Customs Authorities.

 

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Customs Classification – the What? Why? & How?

Traders who import or export goods into or out of the EU and following Brexit, the UK are required to provide a classification code for the customs clearance of each of their goods being shipped. When asked to supply a classification code by a clearance agent a number of questions arise, namely;

  • What are customs classification codes?
  • Why do traders need to be aware of them?
  • How do you classify goods for customs declarations?
  • What to do if there is uncertainty regarding the correct classification?

So what are customs classification codes?

Customs classification codes are often referred to as HS / HTS Codes, commodity codes or tariff codes. They consist of a 10 digit code for imports or an 8 digit code for exports. There is a worldwide Harmonised System which around 180 countries apply, which aims to harmonise the first 6 digits of the code across these countries. However, the interpretation of the legislation can differ between countries, so if a US supplier has a HS code on the commercial invoice it may be dangerous to assume that this code will also apply when importing into the EU.

Why do traders need to be aware of them?

Traders need to be aware of the correct classification of their products for a number of reasons;

  • Determines Rates of duty and other taxes at import – the classification of an imported good drives the customs duty rate for the imported goods. The duty rates can vary between 0% up to 25% for certain food items.

The classification of the good also determines if anti-dumping duty or agricultural levies will apply.

  • Origin requirements/benefits for preferential trade – this is particularly important when considering the post BREXIT era. Many traders believe that if a Free Trade Agreement (FTA) is in place then customs duties and declarations will no longer apply. However, the reduction of customs duties in a FTA are conditional, with the condition rules differing between classification headings. Therefore, it is required that the imported goods are correctly classified and a customs declaration is lodged even when a FTA exists.
  • Whether goods are subject to restrictions at import or export
  • Avoid delays or seizures
  • To avoid penalties and post-entry audit issues

The Importer is responsible for correctly classifying their goods on import and export.

Many traders rely on their clearance agent or HTS codes on the supplier invoice to classify their products. However, as an international trader you should be aware of the significance of the data on the customs clearance declaration or the Single Administrative Document (SAD). In the event of a post clearance check some of the more obvious information that a customs official may look out for is consistency of the information provided in the SAD. Take for instance a manufacturing company which imports plastic pipes as part of its operations. In box 31 of the SAD the product description is “Pvc plastic piping 50mm” then the Revenue officer would expect to see a tariff heading 3917 …., In box 33 of the SAD indicting that the product is “tubes, pipes and hoses of plastic”. However, if it is found that the tariff code provided is 4006 …., which covers “tubes … of rubber” this would be a red flag and could result in a post clearance customs audit.

Taking the above example, tariff heading 4006 which the importer has been using, attracts a 0% duty rate upon import into the EU. The correct tariff heading 3917 attracts 6.5%, so if Revenue go back 3 years (further in cases of suspected fraud) then 6.5% of the total shipments of plastic piping could mount up to a significant unbudgeted expense.

Regardless of how the error occurred, it is the importer who will be assessed for this duty which is generally not recoverable, so is a dead cost to the business. Furthermore, if the importer had been aware that the import of this product would have a duty impact prior to commencing importation, they may have been about to avail of customs economic (or special) procedures to suspend or eliminate the duty on import.

How do you classify goods for customs declarations?

The legal document which is used for classification in the EU is called the Combined Nomenclature (CN);

It is made up of:

-21 Sections

-99 Chapters

-960 pages

-Approximately 5,000 headings and subheadings

Classification is determined according to the terms of the headings and is subject to the Section and Chapter notes which are legally binding.

When classifying the product it is important to understand; the make-up of the product, its function, how it is presented at import, if it is an unassembled or unfinished product and the essential character of the product.

There are also guides to assist with the classification process such as the WCO Explanatory Notes and databases such as the eBTI database and TARIC in the EU and CROSS rulings in the US.

What to do if there is uncertainty regarding the correct classification?

There may be times when the classification of a good could fall between two or more headings. In other cases the risk of getting the classification incorrect could be too great in terms of extra customs duty or if one heading applied anti-dumping duty whilst another did not. Additionally, diverging codes could lead to falling foul of import/export restrictions if the classification of a product was deemed incorrect post clearance.

As the penalties for non-compliance can be severe in both financial and reputational terms, certainty is required by traders. The solution in these instances is to obtain a decision from revenue which is known as a Binding Tariff Information (BTI).

A BTI is legally binding on the holder and on all customs administrations within the European Union. Therefore, it provides legal certainty for its validity period of 3 years. The processing time for a BTI can be up to 120 days, so it is important to plan ahead before shipping materials.

Following the introduction of the Union Customs Code, the right to be heard has been removed for BTI applications. Therefore, if a trader submits a complete application to Revenue, Revenue can issue the BTI to an alternative heading without engaging in a further consultation process with the applicant. Whilst the option to appeal the decision remains, whilst the appeal is ongoing the BTI issued will be legally binding on the applicant. We would therefore advise that professional advice is sought prior to submitting an application, to allow the best chance of a satisfactory outcome.

 

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Ulster Bank on Managing Currency Risk


Managing Currency Risk

Currency risk is a natural by product of trading overseas. In most cases, a company trading overseas will have to make purchases in foreign currency to pay suppliers or convert the receivable currency into Euros to pay overheads.  Given the volatility in foreign exchange rates and the credit timeline companies should decide on whether to hedge the currency risk in advance or just convert to Euros on the day they receive the foreign currency.  The payment timeline can vary from a couple of weeks to a couple of months. Looking at Euro/Sterling (GBP) graph below, which shows where the currency has traded over the last 5 years, it is clear that if a company is trading overseas they are likely to be exposed to currency market volatility.

 

Source: Bloomberg 27/04/2017

Warning: Past performance is not a reliable guide to future performance.

In 2016 alone, the trading range for the Euro against Sterling was between .7329 and .9365.   In Euro terms, £100k could either have bought you €136k or €106k - that’s a difference of almost €30k.

When Banks talk about currency hedging they usually mean using foreign exchange forward contracts to lock in today’s exchange rate for delivery on a date in the future.  The date in the future can vary from 3 days forward to years in the future depending on the size and type of company but typically it’s not longer than 12 months.

One of the advantages of using foreign exchange forward contracts is that it buys certainty on the currency front.  The exporter will know exactly how much they will receive in their home currency when entering into a transaction.   The company will be able to protect their profit margin and this will assist their budgeting process.  What it doesn’t allow is taking advantage of any further up side in the currencies once the contract is booked.  Also, should the underlying business transaction be cancelled or delayed, there may be a cost involved in exiting or delaying the settlement of the forward contract.

Some firms may be willing to risk part of their FX exposure in the pursuit of a better exchange rate while others accept that the principle of protecting the bottom line is their priority.  In reality, a company might not hedge 100% of their exposure but this is very much down to the risk appetite of the company in question and what their treasury policy guides.

It is important that exporters who trade internationally know what their choices are when dealing with exchange rate volatility.  Unexpected and extreme movements in currency markets can impact the profitability of the company.  Having a proactive approach to setting and implementing a treasury policy should help the company manage the risks that arise from trading internationally.

 

Author : Dervilla Kenny, Markets, Ulster Bank

Clodagh Sheridan | | 0 comments

Top 5 Reasons for Good Distribution Practice (GDP) Training under the IEA GDP Passport Programme

Are you Manufacturing, Storing or Distributing Life Sciences Products?  Here are some reasons to engage with IEA GDP training:

1.    Enhance Patient Safety along the supply chain when delivering your products to international markets.
2.    Ensure Compliance with the EU GDP Guidelines 2013.
3.    Improved GDP Awareness, Traceability and Quality Systems in your organisation.
4.    Leading industry approved GDP Training programme across the Irish Life Sciences sector.
5.    Industry reviewed and approved GDP Passport audits.

 

Further information on this and all other GDP training including driver training, please email Fiona.

Clodagh Sheridan | | 0 comments

Borchard Lines – Focus on Egyptian Market

 

 

Following the opening up of the Egyptian Market to Irish Beef, we received the following message from Damian Guirke of IEA Member company, Jenkinson Agencies about their Borchard Lines service:

“Good news on Beef Exports to Egypt - A nice fit for the Borchard service ex Dublin.

We will be following this business with the Meat Exporters however if any members need any detail regarding transport to Egypt we would be happy to assist as required.

For your guidance Borchard Lines are now offering 40’ Refrigerated Containers ex Dublin Port weekly (Sundays) to:

Leixoes, Portugal – 2 Days

Castellon, Spain – 6 Days

Salerno, Italy – 8 Days

Piraeus, Greece – 10 Days

Limassol, Cyprus – 11 Days

Ashdod, Israel - 13 Days

Haifa, Israel – 14 Days

Clodagh Sheridan | | 0 comments

Norwegian Air Launches Transatlantic Routes

After a three-year battle with US airline interests, Norwegian Air has received the go-ahead to launch its transatlantic operation. The carrier will fly to airports close to New York and Boston from Cork, Shannon, Dublin and Belfast commencing in June 2017. This will be first regular transatlantic service from Cork.

At present the chosen US airports have limited onward destination flights. The bulk of the carrier’s fleet consists of B-737 aircraft, similar to those flown by Ryanair and with limited opportunity to carry cargo.

Clodagh Sheridan | | 0 comments

Qatar Airways will open Dublin Service.

The third major Middle Eastern based carrier, Qatar Airways will open a daily Dublin – Doha service starting on 12th June 2017. Qatar Airways is a major shareholder in the IAG Group which also includes Aer Lingus, British Airways and Iberia. The Doha based carrier offers flights to a wide range of destinations in Asia and Australasia and its cargo division focusses heavily on the transport of pharma products.

 

Qatar Airways recently launched what is claimed to be the world’s longest non-stop air route flying between Doha and Auckland, New Zealand, a distance of 14,536 Km.

Clodagh Sheridan | | 0 comments

Public Consultation on Dublin Port Master Plan

 

 

Dublin Port’s Masterplan 2012-2040, a framework to guide the future development and operation of Dublin Port, makes provision for periodic reviews. This ensures that the Masterplan reflects changing circumstances such as developments in policies governing planning, national transport, the environment and the economy.
Among the areas to be examined during the consultation are:
• The proposed development of a Unified Ferry Terminal for the Port’s main ferry operators incorporating all facilities required for the State including immigration, customs, security and other border inspection functions.
• The proposed removal of non-core activities from the Port and the redevelopment of up to 22 hectares of lands.
• The proposed reduction over time of the 30 hectares of Port lands occupied by petroleum importation facilities.
• The proposed development and redevelopment of up to 43 hectares of Port lands on the Poolbeg Peninsula including 17 hectares within the Poolbeg West SDZ.
• The proposed development of the 44 hectare Dublin Inland Port adjacent to Dublin Airport to provide facilities for non-core but port-related activities.
Since it was first published in 2012, there have been a number of significant developments which have prompted a review of the Masterplan now. These include:
• Sustained high levels of growth
• Commencement of the Alexandra Basin Redevelopment (ABR) Project and other major port infrastructure projects
• Policy developments at a national, regional and local level
• International developments including Brexit and the possible introduction of customs and other security controls in Dublin Port.

In commenting on the Review Dublin Port CEO, Eamonn O’Reilly said:

“Dublin Port’s volumes are now 13% or 4.0m gross tonnes higher than they were at the peak of the boom in 2007. When we originally launched our Masterplan five years ago, we assumed an average annual growth rate of 2.5% over the 30 years to 2040. We now believe we need to increase this growth assumption to 3.3%. Under this revised assumption, the Port’s volumes would increase by 265% to 77m gross tonnes over the 30 years to 2040.
“It is prudent that we respond to changing circumstances as they impact on the Port’s operations and capacity to grow. That is why we are reviewing our Masterplan and, as part of this review, I would encourage people to take the opportunity to participate in the consultation over the coming weeks.”.

Clodagh Sheridan | | 0 comments

The Cost of Shipping Using Sea Freight

                                       

The key elements that moves sea freight costs are the availability of shipping capacity and the cost of fuel.

 

Capacity

On the Irish Sea and near Continent volumes of goods shipped continue to increase strongly.  The IMDO all-island figures for Ro-Ro (Trailer) traffic show a 6% increase over the 2015 figure totalling 1.9 million units. Laden Lo-Lo (Container) traffic increased 4% to 892,000 TEU (twenty foot equivalent units). On the Ireland/UK Ro-Ro services with the exception of Seatruck and to a lesser extent, Stena on its Liverpool service ex Belfast no new freight capacity was added during the year so increasing the space pressure on all services. This situation is likely to remain tight throughout 2017 and until mid-2018 when Irish Ferries will take delivery of a new vessel.

 

For Ro-Ro services direct to the continent no immediate changes are expected on services to French ports, but CLdN continues to add frequencies and increase vessel sizes on their Dublin/ Zeebrugge and Dublin/Rotterdam routes.

On the Lo-Lo services to and from Continental Europe that marketplace is such that lines are able to add or reduce capacity at short notice. They can also switch ports so as to minimise costs.

Services delivering containers and trailers to Benelux Ports are now able to link in with other shipping services covering ports along the Continent’s west coast as well as a widening range of rail services running deep into Europe and beyond.

Throughout the recession, the deep-sea market has been very difficult for all of the lines with massive over-capacity on almost all routes. The main problem has been that the lines have continued to order new larger vessels because they are relatively cheap and can offer considerably lesser costs per unit shipped. The introduction of these Very Large Container Carriers (VLCC) on the Asia/Europe routes has meant that the already large units being used on that traffic are cascaded down to other markets with the owners seeking to fill them. During 2016 South Korean Line, Hanjin collapsed and most lines turned in very poor financial results.

During 2017 the pressure is going to be on to reduce capacity on all routes. This will be achieved by a combination of reduced orders for new tonnage, increased levels of vessel scrapping and the establishment of three new carrier alliances, “2M” consisting of Maersk Line and MSC, “Ocean Alliance” which includes CMA-CGM and Cosco, and “THE Alliance” with Hapag-Lloyd and a number of, mainly, Far East based carriers.  The new Alliances are planned to come into operation on 1st. April 2017 and could lead to a number of changes in service rotations, port calls, feedering etc. exporters should check these out with their Carriers or Forwarder.

These developments do, of course, mean that it is likely that freight rates on these services will increase during 2017.

Fuel Costs

Since early 2016 oil prices have steadily increased and these increases have gone straight through to the price of the Bunker Fuel and to that of Low Sulphur Marine Fuel.

Within the last year, the Bunker Fuel Surcharges (BAF) charged by carriers have increased from relatively low levels to become a significant element in the freight cost. As an example, Irish Sea Carrier, Seatruck’s BAF for the month of February 2017 stands at 14% while Stena Line currently adds almost €20 per standard trailer on its Dublin-Holyhead routes. Where cargo is shipped in trailers shipped aboard vessels transiting the Sulphur Emission Control Area (SECA), which is basically the English Channel and the North Sea, then additional surcharges will be applied.

Clodagh Sheridan | | 0 comments

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