Brexit & Trade: UK Government Releases Practical Guidance for Businesses
3rd September 2018
On 23 August 2018 the UK Government released the first instalment of a series of reports on the impact of a ‘no deal’ Brexit (i.e. leaving the EU without a trade agreement in place) and the necessary preparations that UK businesses will need to make, particularly to prepare for new rules regarding the import and export of goods.
Preparatory steps for UK businesses to consider in relation to trading with the EU
The UK Government issued a technical notice on trading with the EU in a ‘no deal’ Brexit scenario, with practical guidance for UK businesses – please see here.
The notice explains that, in a ‘no deal’ Brexit scenario, the impacts on trading with the EU would include:
- businesses having to apply the same customs and excise rules (including VAT and import duties) to goods moving between the UK and the EU as currently apply in cases where goods move between the UK and a country outside of the EU. This means customs declarations would be needed when goods enter the UK (an import declaration), or when they leave the UK (an export declaration). Separate safety and security declarations would also need to be made by carriers of goods;
- the EU applying customs and excise rules (including VAT and import duties) to goods it receives from the UK, in the same way it does to goods it receives from outside of the EU. This means that the EU would require customs declarations on goods coming from, or going to, the UK, as well as safety and security declarations from carriers of goods;
- the need to register for a UK Economic Operator Registration and Identification (EORI) number; and
- the need to ensure that contracts and INCOTERMS reflect that UK businesses would become importers/exporters of goods from/to the EU.
The Government’s notice recommends that companies thoroughly analyse their business models to ensure they understand the impact of a ‘no deal’ scenario on their operations, including reviewing:
- the volume of trade currently done with the EU;
- exposure to supply chains with EU partners;
- how their goods would be classified for import and what level of duties are likely to apply if non-preferential WTO rules apply to trade with the EU;
- how the introduction of customs and excise procedures would impact their business;
- the terms of their current contractual arrangements with EU partners, and whether they may need to be renegotiated to reflect any changes in customs and excise procedures and any new tariffs that may apply to UK-EU trade post Brexit; and
- their understanding of customs formalities – companies should consider how they would submit customs declarations for EU trade, including whether they should engage the services of a customs broker, freight forwarder or logistics provider to help, or alternatively secure the appropriate software and authorisation (NB. some companies may already import/export goods from/to non-EU countries and therefore be familiar with customs formalities).
Companies are also encouraged to register for HMRC’s ‘EU Exit’ update service on www.gov.uk.
The Government’s notice states that businesses may want to consider whether using certain customs facilitation procedures would be beneficial to their operations, such as:
- customs warehousing – this allows businesses to store goods with duty and import VAT payments suspended until they leave the warehouse (NB. special authorisations are required to operate such a warehouse);
- inward processing – this allows businesses to import goods for work or modification and to subsequently re-export them, benefiting from a waiver of duty and import VAT payments under certain circumstances;
- temporary admission – this allows businesses to temporarily import and/or export goods such as samples, professional equipment or items for auction, exhibition or demonstration. As long as the goods are not modified or altered while in the territory, no duty or import VAT is due;
- authorised use – this allows a reduced or zero rate of customs duty on some goods when used for specific purposes and within a set time period.
As part of the ‘no deal’ Brexit planning, the UK has applied to re-join the Common Transit Convention (CTC). The CTC facilitates cross border movement of goods between contracting parties to the Convention, by enabling any charges due on those goods to be paid only in their country of destination. Negotiation on the UK’s membership of the CTC is ongoing.
The customs classification process post-Brexit requires knowledge of the item and its constituent parts and materials, its intended use, and origin.
Exporting controlled goods
In a ‘no deal’ Brexit scenario, a licence would be required for the export of controlled dual-use items from the UK not only to non-EU but also to EU countries.
As such, for businesses currently involved in the export of controlled dual-use goods, there would be changes to the licensing requirements. You can read the full notice from the Government here.
The rules on the export of military items from the UK would remain the same.
Classifying goods in the UK trade tariff
The UK Government also issued a technical notice on the way in which businesses would be required to identify goods for the purpose of establishing applicable rules and duties as part of the new customs declaration process (please see here).
Every importer must declare on the import declaration the correct customs classification of the item in question. The customs classification process post-Brexit requires knowledge of the item and its constituent parts and materials, its intended use, and origin. Once the general rules of interpretation of the Harmonised System are followed, the item is assigned a commodity code which is used to help calculate the appropriate import duty (following the application of specific methods of valuation of the goods). Commodity codes also inform the authorities and the importer of any applicable import restrictions.
UK businesses should familiarise themselves with these procedures in preparation for Brexit.
The final technical notice issued by the UK Government in the area of trade concerns the UK’s approach to trade remedies post-Brexit (please see here). Trade remedies act as a safety net, allowing WTO members to protect their domestic industries from injury caused by unfair trading practices such as dumping, subsidised imports, or unforeseen surges in imports. A notable example is the implementation by the EU of provisional safeguard measures in relation to imports of certain steel products from China.
Although both the UK and the EU are WTO members in their own right, the UK’s trade remedies are implemented through the European Commission. Under the current system, the Commission investigates unfair trade practices only if a complaint is made on behalf of producers representing at least 25% of the total EU production of the goods in question, and only if sufficient evidence is presented that the unfair trade practices have caused injury to domestic industries. If the Commission decides to implement trade remedies, these are applied across the EU.
The technical notice reiterates the UK Government’s intention to establish a new arm’s length regulatory body, the Trade Remedies Authority (“TRA”), in order to maintain protective measures for UK businesses. The TRA will have the power to operate using the “full suite of tools permitted under the WTO”, although the technical note also states that not all protective measures currently employed by the EU would be maintained post-Brexit. The Government is currently using evidence gathered from UK industry to determine which measures would be appropriate for continued use in the UK market.
For more information or to discuss how this could impact your business please contact James Lindop or Monika Zejden-Erdmann.