02 December 2020
The pandemic and the uncertainty created by the various shades of lock-down have distracted us from the impending no-deal exit from the EU. However, the 1st of January 2021 is now very close and a trade deal continues to look uncertain. In a non-negotiated exit, the combination of tariffs, customs procedures, and regulatory change creates both additional burdens and costs on both the import and export of goods between the UK and EU. Below is a summary of the practical implications of a non-negotiated exit and some suggestions on how to prepare.
Importing Goods from the EU to the UK
Tariffs have attracted much attention, but there will only be tariffs on a small amount of goods for the first 12 months. The UK will apply tariffs to goods where the UK would like to specifically protect those goods versus specific EU competition, e.g. butter. However, most goods will have no tariff for the first 12 months. The UK (while a member of the EU) applied the tariffs that the EU had agreed as part of its membership of the World Trade Organisation (“WTO”). Following the transition period, the UK will be a WTO member in its own right and will set its own tariffs. The UK has decided to start with 0% tariffs for the majority of goods and will review after 12 months.
In addition, duty may be payable on the import of goods. Its estimated that about 40% of goods imported from the EU will attract duty. VAT may also be payable on goods. To understand whether tariffs, duty and VAT are payable, the nature and origin of the goods should be assessed and compared against the relevant Government guidelines.
The non-financial barriers may be more prohibitive. The UK Government has tried to ease the burden by introducing new custom procedures in three phases. The first phase from, 1 January 2021 – 1 April 2021 will have the lightest amount of regulation with only a small amount of goods requiring physical checks and the majority of goods being checked remotely. Further regulations are introduced in the additional phases until 1 July 2021 when full customs declaration to HMRC for all goods being imported shall be required from the point of importation. Consequently, there will be a substantial increase to the required administration, including bespoke requirements like import licences for specific categories of goods.
On a practical level, the increase in time taken to cross the border will likely increase freight prices. Eighty-five per cent of the volume of trade between the EU and UK is carried by EU hauliers, who are often paid not by the hour, but by the kilometre. If they think there will be too many delays, many in the industry wonder whether they will simply not come or will demand substantial increases to their rate to reflect the additional burdens.
The regulatory position regarding the standard of goods will be the same at least in the short term. One of the disputed points in the EU/UK negotiation is the continued application of the same standard of regulation. The EU would like to ensure that the UK cannot remove comparable regulations to create a competitive advantage.
Exporting goods from the UK to EU
Tariffs will apply from the end of the transition period, as they would to any other non-EU country where no preferential trade agreement is in place. The EU have set existing rates that vary depending on the nature of the goods. Tariffs are higher than the 0% rate set by the UK in relation to imports. Duty and VAT will also be required to be considered depending on the nature of the goods. The nature and origin of the goods being exported require to be understood as this will determine whether preferential rates apply.
Full export entry will be required from 1 January so there will be no phasing of border requirements like the UK has introduced. An export license or certificate may be required for certain types of goods. UK goods will still require to comply with EU regulations to enter the EU market. This requirement will continue to apply irrespective of the UK/EU trade negotiation.
How to prepare
Preparation had been difficult due to the ongoing trade negotiation and therefore a lack of certainty. We suggest re-examining supply chain contracts to understand which party is responsible for imports or exports. Review the nature and origin of goods so that the applicable tariffs or duty can be understood. Consider whether to use an agent to deal with the added administration at the border. Agents will be up-to-date with the current requirements and any ongoing changes. Lastly, it will be important to continue to monitor the political negotiations to see whether a deal will be agreed. Any agreement will likely influence the import / export requirements.
Michael Cox, Senior Associate: email@example.com / 0131 222 2939