- When will the UK finally leave the EU?
At present it looks like this will be April 2019. Theresa May intends to trigger article 50 in March and, from this point, there are two years allowed to complete the exit negotiations. This can be extended if all Member States agree.
At the same time the UK need to negotiate a new form of Trade Agreement with the EU. It is generally believed however that this will be difficult to achieve in two years.
- What happens if there is no Trade Agreement in place in April 2019?
This is not fully clear. There is a view that a transitional agreement will be put in place however this will depend on whether the trade negotiations are proceeding well.
If not, the UK will revert to being a 3rd Country for the purposes of trading with the EU – essentially it will be treated similarly to the US in terms of imports and exports.
- What does this mean?
If there is no Trade Agreement then all imports from the UK will be subject to EU import duties.
These duties range from 0% to 14% for industrial goods, 8% to 50% for Agri-food products and 12% for clothing.
- Will there be a border with the UK?
As a non-EU country the UK will have a border with the EU.
- How does this differ from the current situation?
This differs from the present situation whereby all 28 EU Member States (which includes the UK) have a common border with all countries outside the EU. This is called a Customs Union and means that all members of the Union (the EU 28 + Turkey and Andorra):
- Operate a common external tariff on all imports so that no matter which country you import into the duty rate applied is identical
- Negotiate Free Trade Agreements as a bloc.
- Why would the UK leave the Customs Union?
Theresa May has stated she wants the UK to have the ability to set its own tariffs and to negotiate its own trade agreements. This is fundamentally incompatible with the rules of a Customs Union.
- Will the EU and UK negotiate a preferential trade agreement instead then?
It is assumed that some form of trade agreement would be in everyone’s interest however this will depend on the negotiations which take place over the next two years.
The most recent comprehensive trade agreement was concluded between the EU and Canada and would provide a good model. However this agreement took eight years to agree.
- How will this affect the movement of goods?
Regardless of whether, or if, a Trade Agreement is concluded all companies moving goods between the EU and the UK (and vice-versa) will be required to lodge import and export declarations with the relevant authorities. All goods moving across or through the borders therefore will be subject to customs controls and intervention in the same manner as applies to any non-EU import or Export. If we look at the EU Canada FTA all imports and exports will continue to require import and export declarations to be lodged with Customs regardless of the applicable duty rate. In addition goods will only qualify for the reduced (or preferential) rate if you can prove your goods qualify as “originating products”
- How do you qualify goods as “originating”?
This is a complex process. All goods have an applicable tariff code and each tariff code has a listed rule of origin. Therefore you first need to determine the tariff classification and secondly to check the applicable rule of origin for that heading.
A good rule of thumb is that goods are generally required to obtain 60% added value in the EU (to qualify as EU originating) or undergo a change of tariff heading between imported raw materials and finished products. Minimal processing operations or simple assembly operations do not qualify.
- What if I move my goods through the UK to get to Europe?
The recent IEA survey found that 2/3 of exporters transit their goods through the UK to mainland Europe and further afield. Goods currently move freely as part of this process and do not encounter any customs requirements. Going forward this will now be equivalent to goods moving out of the EU to get back into the EU.
It is hoped there will be transit agreements put in place to simplify the movement, however goods will still be subject to customs controls, transit requirements, and guarantees.
- What should I be doing now to plan for this?
There are several steps to take at this point. Primarily we would advise the following:
- Review your supply chain to determine where goods may be caught by customs controls and documentary requirements
- Determine the options for alternative routes
- Assess your company’s ability to handle these additional requirements
- Identify the additional information which will be required by Customs e.g. Tariff Classifications, Customs Origin, EU status of goods.
The additional time and cost involved in moving goods through a non-EU border are extensive and, unfortunately, there is no current scenario whereby this will not be a requirement for the UK if they leave the Customs Union.
It is also advisable to:
- Assess the impact of additional EU Import duty costs if introduced
- Assess the impact of WTO rates on any UK imports
While this would be worst case scenario planning it is important to be prepared for these costs. Customs duties are “sticking taxes” and, once paid, are generally not recoverable. They will therefore be a direct hit to your bottom line.
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