Showing posts from tagged with: Trade Agreement

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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Brexit: FAQs

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. Will there be a border with the UK?

As a non-EU country the UK will have a border with the EU.

 

  1. 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):

  1. Operate a common external tariff on all imports so that no matter which country you import into the duty rate applied is identical
  2. Negotiate Free Trade Agreements as a bloc.

 

  1. 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.

 

  1. 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.

 

  1. 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"

 

  1. 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.

 

  1. 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.

 

  1. 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:

  1. Review your supply chain to determine where goods may be caught by customs controls and documentary requirements
  2. Determine the options for alternative routes
  3. Assess your company’s ability to handle these additional requirements
  4. 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.

 

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

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Canada – Opening opportunities for Irish business

On the 15th February 2017, The European Parliament voted in Strasbourg for the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, concluding the ratification process of this deal at the EU level. The deal was approved by 408 votes to 254, with 33 abstentions.

Key features of CETA include:

  • Eliminates most tariffs:On the day that CETA enters into force, it would eliminate 98 percent of all tariffs on goods and services between the EU and Canada.
  • Cuts red tape
  • Reduces barriers to trade
  • Provides access to public contracts at all levels
  • Improves access for trade in services
  • Improves labour mobility
  • Promotes and protects investment

The intention is for the agreement to be “provisionally applied” almost in its entirety after Canada has amended some of its own legislation concerning among others intellectual property, copyright and patent laws. This could take place as early as April of this year, at which time most customs duties between the EU and Canada will be removed.

If a Member State would not ratify the agreement, the European Council would then have to decide if the refusal is “permanent and definitive”. Until this happens the agreement will continue to be applied.

CETA and Brexit

As the UK will still be a member of the EU when the CETA agreement is provisionally implemented, they will be able to enjoy the benefits of tariff free trade while it remains a Member State. However, it is much less certain whether the UK will still be in the EU by the time CETA has been ratified by all Member States, as this may take a number of years. While the position is not entirely clear, it is highly doubtful whether CETA would continue to apply to the UK once it had left the EU.

This uncertainty would make Ireland an attractive alternative for Canadian companies wishing to establish an entry point into the EU market. For Canadian companies who have a UK base, it would make sense to consider establishing a presence in Ireland to ensure continued access to the EU market post-Brexit.

There are a number of advantages that Ireland offers that would be of interest to Canadian investors; English-speaking, young and educated workforce, common law system, competitive corporate tax regime and a strategic geographical location between Canada and mainland Europe.

 

Interaction with other Trade Agreements

The CETA deal now means that Ireland as part of the EU, has trade agreements in place with two out of the three participating countries of the North American Free Trade Agreement (NAFTA), as a preferential trade agreement has been in place with Mexico since 2000 (2001 for services).

Whilst the Transatlantic Trade and Investment Partnership (TTIP) won’t happen under President Trump’s tenure, forward thinking EU companies may now be able to export EU products to Canada tariff free under CETA and if they undergo sufficient working in Canada they could access the US market tariff free under NAFTA.

Currently, EU exports of some frozen beef products to the Canadian market are dutiable at 26.5%. Some food preparations that contain 50% or more by weight of dairy content are dutiable at 274.5%. Therefore, the barriers to trade can be clearly quantified for prospective exporters to the Canadian market. By removing these tariffs, Canada is opening up its market to suppliers who would have been previously deterred by the high tariffs imposed on their goods.

There is clear proof of the benefits enjoyed by the EU from free trade agreements. As an example, EU exports to South Korea have increased by more than 55% since the EU-Korea trade deal entered into force in 2011. Exports of certain agricultural products increased by 70%, and EU car sales in South Korea tripled over this five-year period. It is estimated that EU companies have saved €2.8 billion in reduced or eliminated customs duties since this agreement was applied. The Korea agreement was also provisionally applied during its ratification process which is still ongoing.

How to take advantage of tariff free trade

For the free trade agreement to apply to your imported or exported goods, they must be deemed to have “preferential origin” status.

In effect, this means that goods must be either;

  • manufactured from raw materials or components which have been grown or produced in the beneficiary country or, should that not be the case,
  • at least undergo a certain amount of working or processing in the beneficiary country. What constitutes sufficient working or processing depends on the rules applicable to the tariff heading of the product.

Therefore, it is important to be clear on the correct classification of your products. If either the classification or the origin status of your goods are unclear, it is possible to seek confirmation from Revenue by way of a binding origin or binding tariff decision.

 

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

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