We published our first Brexit blog, back on the 29th June 2016, a few days after the EU Referendum had taken place and the UK had voted to leave the European Union. So, what’s happened since then?
Article 50 has been Activated
Article 50 is the formal legal process by which the UK will leave the EU. Part of the Lisbon Treaty, formed in 2009, Article 50 details a five-step process which is put in place if any country wishes to leave the European Union. Prime Minister Theresa May triggered Article 50 on the 29th March 2017. It allows for two years of negotiations to take place between the UK and the EU to agree on exit terms which the remaining 27 members states vote to approve.
If an agreement is not reached, negotiating times could be extended, but for the moment, the UK is scheduled to leave the EU on Friday, 29th March 2019, with an exit deal agreed and all existing trade agreements ceasing to apply.
Brexit options and possible outcomes
Four months since negotiations started, mixed messages continue to circulate about what Brexit means for us, our customers and the entire UK logistics and supply chain industry. Even if the UK and the EU agree to replicate a trade agreement similar to those it has with Switzerland, Norway or Turkey, (none of which satisfy the UK’s trade requirements), 18 months is not long enough to implement a Free Trade Agreement (FTA). This leaves the UK with two options:
Option 1 – ‘Hard Brexit’:
- Here, the UK is free to broker its own worldwide trade agreements. However, as of 30th March 2019, all UK imports and exports will be subject to the World Trade Organisation’s (WTO) most favoured nation tariffs. In other words, imports and exports will become more expensive.
- Free Trade Agreements will also need to be negotiated with each country individually, but even the most simple FTAs take a minimum of five years to agree and adopt. With the UK being a much smaller country than some of our EU counterparts, it will not have the same negotiating power with larger countries such as China and the USA.
Option 2 – ‘Soft Brexit’:
- Here, the UK would need to agree on a Transitional Arrangement with other EU countries. i.e. a ‘copy and paste’ of current EU legislation into UK law. This would allow the UK to continue to trade freely with the EU and its partners while allowing more time to broker a full trade deal with the EU and the rest of the world.
- The issue with soft Brexit is that it prolongs everything. Not only is it feared that this would damage UK businesses, but it could cause more multinationals to relocate their businesses The UK will no longer have a voice in the EU so it will be forced to abide by legislation without having any voting rights.
Impacts of Brexit upon Imports and Exports
So, what happens when the UK leaves the EU? We’re hoping that the UK government will negotiate a good deal for both the importing and exporting of goods into the EU. However, there are some real impacts worth considering when our ‘new’ UK border is in place.
- Lots of European businesses move goods in free circulation throughout the EU, e. they have been subjected to the payment of VAT and duty in the country into which they entered Europe.
- The subsequent sale and movement of these goods requires no checks and with minimal paperwork, only small delays and negligible border issues result.
- The EU allows for periodic reporting of these movements via Intrastat. These VAT & EU sales reports allow for the combination of all individual shipment reports, which is far more efficient than having to submit a report for each.
Once the UK leaves the EU…
- All movement of goods will immediately become genuine imports and exports and will be subject to border checks and will require full import/export declarations. This drain on business administrative resources could have severe implications on their performance and profitability by adding time and cost to the supply chain.
- Increased border inspections and import clearance requirements will slow up the transition time of goods as they pass through ports and borders, creating delays and disruption.
- The administration costs for the importer will increase as additional documentation containing full fiscal details of the shipment will need to be submitted at the time of import.
- Submitting a complete declaration into HMRC’s customs system, CHIEF will increase the cost of submissions as forwarders and agents will also have to charge for their time.
- Manufacturing industries such as the motor trade could be severely affected by the imposition of taxes. They currently move parts and finished goods freely throughout the EU, but without an FTA, could attract a duty of up to 10%.
Top 3 Actions To Get Brexit Ready
The EU will not agree to the UK remaining in the Customs Union without being a full member of the EU, so having triggered Article 50 this is not an option open to the UK. It looks likely that post-Brexit the UK will adopt the EU customs legislation, the Union Customs Code (UCC), which came into force in May 2016.
Whatever Brexit option is agreed, the following three key actions will help you get Brexit-ready. They are guaranteed to help you save costs, give you a competitive edge and allow your goods to fast-track through the new UK border.
Action 1 – Review your supply chain now
- Start talking to your customers, suppliers, forwarders and agents. Map out and fully understand how your goods are currently moved from supplier to end user.
- Study your supply chain. Businesses that currently import or export outside the EU will probably have processes and procedures in place to manage VAT and duty payments on import. However, the terms of Brexit may affect your ability to import or export duty-free.
- Ask suppliers about the origin of your goods, i.e. the “economic” nationality of goods. Having proof of origin is imperative to claim any reduction in duty. If you buy or sell from any of the countries that the EU has agreements with then your sale or purchase could be affected by the terms of Brexit. Companies that currently only trade with the EU27 group of countries, i.e. have ‘Intra EU movements’ will need to start talking to their suppliers, forwarders and agents to ensure that they can perform the necessary export/import requirements. You must also have a system in place to cope with the payment of any taxes that may be due.
- Check out the list of EU countries.
Action 2 – Review your existing and new contracts
- Review both your current and new contracts with your customers and suppliers and agree on sensible Incoterms®2010 rules which will ensure that you mitigate risks and minimise transit costs.
- Check out the map EU trade agreements.
- Check you have the correct terms in place. Having the incorrect terms in place could result in your business losing margin from unexpected transit costs or if goods are lost or damaged, resulting in insurance disputes and unforeseen expenses to put things right.
Action 3 – Review and update your internal processes and procedures
- Apply for customs authorisations and simplifications like AEO, Customs Warehousing and Inward & Outward Processing Reliefs now. They are all dependant on your activities but could help you mitigate import and export costs and reduce risk.
How We Can Help
- Don’t leave the above actions on your to-do list!
- Anglia Freight works closely with Import Export Support, a local company that helps and advises us on Brexit issues. They are also able to step in and provide some Brexit advice for you. They have extensive experience in dealing with international trade and HMRC, working with companies on their authorisations and procedures to help smooth out the ripples in the supply chain and to reduce the cost of moving stock around the globe. They have submitted several successful duty reclaims, set up a customs warehouse, gained customs simplifications and work closely with HMRC on improving import compliance for their clients.
- Call us on 01379 872872 or check out angliafreight.co.uk.
- Call Tracey Renshaw at Import Export Support on 07710 238113
Finally, a huge thank you to Tracey Renshaw at IES, who provided us with the very latest information to help us make this blog as informative and useful as possible.