Companies trading between the EU and UK will face significant regulatory challenges in the event of a no deal Brexit.
October 9, 2019
By Anne Sexton, QAD Precision
October 31st is the Brexit deadline, and it is nearly upon us. Brexit — the withdrawal of the United Kingdom from the European Union — has not been a smooth process. The original Brexit date of March 29, 2019 came and went with members of the UK’s parliament unable to agree to the terms that former Prime Minister Theresa May had negotiated with Brussels. May put the deal to parliament three times but failed to win the necessary support. To prevent the UK leaving without a deal, May asked for and received an extension until October 2019.
In his first speech as Prime Minister this July, Boris Johnson promised to negotiate “a new deal, a better deal” for the UK. Nonetheless, with just weeks to go before the deadline, the UK and EU have not been able to come to terms.
The sticking point has been Northern Ireland — a part of the UK. Johnson has proposed that Northern Ireland remain aligned with the EU single market, but outside the bloc’s customs union. This would necessitate at least some customs checks. Johnson has suggested that checkpoints be located away from the border. Despite this, Irish and European leaders have argued that customs checks in effect reintroduce a border on the island of Ireland, posing a threat to peace and undermining the Good Friday Agreement — the landmark Northern Ireland peace deal signed in 1998.
To further complicate matters, any deal that Johnson agrees to with the EU will have to be approved by the UK parliament. There is no guarantee that the Prime Minister will be able to muster the necessary support.
Should the UK leave without a deal, trade between the UK and the EU will fall under World Trade Organization rules. As a result, companies may need to manage significantly more regulations, adding cost, time and complexity to supply chains.
After a hard Brexit, goods leaving the EU for the UK will require an export declaration. Therefore, shippers will need to make the export declaration to customs authorities in the originating country.
This is not necessarily just a matter of completing a form. Before an exporter can ship the goods, the relevant customs authorities must first accept the declaration. After this, customs will assign a unique identifier to the shipment. This is used to facilitate its movement. Furthermore, authorities may decide to physically examine the goods before clearing them for export.
Goods from the UK destined for the EU would face similar requirements. An import declaration to customs authorities in the country of arrival is necessary. Furthermore, the EU would impose duties on goods imported from the UK. The importer would have to pay these duties (unless the goods are to be re-exported and the importer is part of a duty suspension program) before authorities will release the goods. Importers — like exporters — would need to comply with these requirements by filing declarations for each shipment.
Without an agreement, all goods traded between the UK and the EU must be classified using commodity codes. Customs authorities use these to identify goods, determine admissibility, and assess tariffs. Companies trading between the UK and EU, may not have previously classified their goods, as there was no requirement to do so. Therefore, they would need to undertake this process and ensure all goods are correctly classified with the relevant codes.
Free Trade Agreements
Without a withdrawal agreement, goods made in the EU with raw materials or components from the UK may not qualify as EU origin products. Should an EU manufacturer be exporting goods to a third country that has a free trade agreement with the EU, such products would no longer qualify for preferential duty treatment.
Companies trading between the UK and EU can expect an uptick in paperwork after a hard Brexit. As well as customs declarations, importers and exporters would need to provide additional information to the carriers they use to transport their goods, such as a customs invoice and a packing list containing commodity level details. This is likely to require changes in the tools and processes companies use for order processing and fulfilment.
Only time will tell whether Boris Johnson is prepared to lead the UK out of the EU without a deal, or if the EU will give into demands to axe the backstop. However, businesses who have been banking on some sort of withdrawal deal and transition period may need to consider contingency plans should a hard Brexit occur.
Anne lives in the UK and writes on issues that are critical to trade, shipping, logistics and the supply chain.