Showing posts from tagged with: Exporters

Measuring Brexit Costs

As of 2016, the value of traded goods and services each week between Ireland and the UK is €1.2 billion. Meanwhile over a year since the UK referendum we still don’t have any real clarity on what the final agreement between the EU and the UK might look like. Given such uncertainty, what can businesses do to identify some of the trade-related implications as a result of Brexit under different scenarios?

Many of these scenarios point to the probability of the UK leaving the customs union, and businesses involved in Ireland-UK trade are now assessing the detail of what the financial impact could be. Unless there is a tariff-free EU/UK trade agreement, Irish goods will be subject to tariffs and the EU’s external border will run through Ireland, with a customs regime between the two jurisdictions. For Irish exporters with imported inputs in their products there are significant implications.

Businesses should consider identifying their impacted supply chains now and quantify the financial consequences of potential additional customs duties, VAT and trade compliance costs. Software such as that developed by KPMG can help businesses deconstruct their supply chains and identify where the costs, bottlenecks and opportunities may lie.

Interrogating your data from different angles is critical. Using VAT and Customs filing data, the software can produce a bespoke report quantifying the key customs duty and VAT impacts arising from Brexit. The tool maps the flows of goods into and out of the UK, giving visibility over the elements of the supply chain that are most exposed to additional cost or supply chain risk as a result of Brexit.

Businesses can then work to identify specific solutions to the issues raised, which could involve alternative supplier sourcing, revision of trade terms or changes to the logistics process. Regardless of possible eventual Brexit outcomes for Ireland, businesses who understand their supply chains now and use innovative technology to quantify product, customer or supply chain exposures will be amongst those best placed for the post-Brexit world – whatever that brings.

Marie Armstrong is a Tax Partner with KPMG in Dublin.

For more details on planning for Brexit and KPMG's indirect tax impact assessment tool, download the pdf by clicking here.
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What now for Customs and Brexit?

Theresa May ran a Conservative campaign based on “Brexit means Brexit” which for May meant a Hard Brexit. In May’s vision of the future of the UK this meant leaving the Customs Union and leaving the Single Market.

For Irish Traders this meant the imposition of customs duties on trade with the UK, the imposition of border controls and potential complications for importing UK goods in terms of conformity with EU standards.

For the Agri-Food industry an additional nightmare would be the need for agricultural products to be imported from EU approved plants and the requirement for import licenses.

What Brexit means is still unclear

Brexit might still mean departure from the Single Market and Customs Union as planned by Theresa May and re-confirmed by the UK Chancellor of the Exchequer, Philip Hammond in an interview with the BBC on the 18th June.

However there may still be a Free Trade Agreement concluded which will minimise the impact of customs duties and tariffs.

Finally, with the DUP now entering a confidence and supply arrangement with May the views of Northern Ireland businesses will have to come front and centre in the negotiations. Arlene Foster has made it very clear that the DUP is against a hard border with the Republic of Ireland. For the border this can only mean good news and a focus on what will be good for business trading North to South (which equally impacts positively on South-North trade).

What steps should Exporters be taking at this point?

Essentially this has not changed from the advice provided in previous newsletters.

Firstly review the supply chain and determine the information and other requirements which will be necessary to enable you to complete Import/Export Declarations and minimise any delays at customs.

Secondly review your products and determine the best, likely and worst case scenario in terms of additional duty rates.

Thirdly upskill and train staff to understand and implement the new requirements.
 

What could a “practical” Brexit look like in trade terms and how should business now look to plan ahead for March 2019?

1. Trade Agreements and Tariffs

The first question often asked is whether or not customs duties will apply on imports into the UK from Ireland or on import into Ireland from the UK.  At this point there is no answer to this question as it will depend on the type of agreement the UK and EU conclude and the scope of that agreement (most agreements have limited applicability to agricultural products).

When people refer to a Hard Brexit or a Soft Brexit it generally refers to the UK being outside the EU/Customs Union/Single Market (Hard Brexit) or remaining part of the Single Market or Customs Union.

In the former case this would mean the UK being treated as a third country subject to standard MFN (WTO) rates. This can range up to 10% for industrial products and up to 50% for agricultural products.

In the case of a soft Brexit however any of the following scenarios could apply:

  • The UK and EU agree a Customs Union with the EU – similar to the current arrangement for Turkey. Under the Turkey Customs Union, Turkey agree to adopt the EU’s common external tariffs on third-country imports, as well as all EU preferential trade agreements concluded with third countries. However, Turkey does not have a say in the negotiations of EU Free Trade Agreements with third countries (despite being bound by them in relation to imports). This would mean therefore that the UK apply the EU’s Customs Tariff to all imports into the UK. Goods subsequently imported into the UK or EU would not be subject to an additional duty payment on movement to the other’s territory (subject to an ATR cert to confirm the status of the goods). The UK would be subject to EU Free Trade Agreements (FTA’s) and would have to allow FTA countries preferential access to the UK market (It is to be presumed that they would also easily agree UK access to the FTA countries market).
  • EEA (Norway, Iceland, and Lichtenstein)/EFTA (Switzerland) type arrangement.
    The EEA countries have full access to the Single Market in the same way as current EU Member states on the basis that all EU single market legislation is fully implemented in their countries. In addition they must apply the four freedoms. EEA countries do not however have a say in the EU decision-making process on relevant EU legislation and policies.Goods can move without customs duties where goods qualify as “originating products” (subject to a EUR1 document to prove originating status).
  • Preferential Trade Agreements – The EU has concluded a myriad of trade agreements such as the Canada Trade Agreement and South Korea Trade Agreement. Each agreement is specific to the party and what they agree to. In general however these agreements provide for preferential duty access to each other’s market subject to goods qualifying as “originating” – as per the EEA/EFTA agreements above.

 

2. Border Controls

Regardless of the type of agreement concluded, once the UK becomes a non-EU country a customs declaration will still be required on export from the EU and import into the EU. In addition some form of Border control will have to apply.

Even with imports from Turkey, which has a Customs Union with the EU, a SAD is required to be lodged along with an ATR document to prove that goods are in free circulation in the Union.

Similarly with the Norway- Sweden border there are customs controls and the requirement for customs declarations. On the Norway-Sweden border for example there are 10 customs checkpoints with HGVs required to travel via one of these road border crossing points.

However, with an EEA/EFTA type arrangement or a Customs Union then the possibility of an electronic border and customs facilitation stations, as envisaged by Revenue, becomes more likely. While this would simplify the position on the North-South border in terms of movement of goods it does not negate the need for customs compliance and declarations to be submitted to Customs to account for the movement of those goods.

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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.

For more information about our partnership with BDO Ireland click here.

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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.

 

For more information about our partnership with BDO Ireland click here.

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