By Philip Sutter, Director, Strategic Analysis
The European Commission has published “Position Paper transmitted to EU27 on Customs related matters needed for an orderly withdrawal of the UK from the Union”i. In other words, “Brexit Day” – March 29, 2019 – will arrive soon and international shippers in the United Kingdom (UK), the 27 remaining countries of the European Union (EU), and their trading partner countries must prepare their business for the changes tied to that event.
Depending on the status of the goods on or before the UK withdrawal from the EU, the paper explains what treatment to expect in the UK or EU27. After that point, the two sides will either have come to agreement on an implementation period to bridge the gap or have already made their full separation.
Since the UK will no longer be part of the EU Customs Union, duty, VAT, and excise tax will be applied to go-forward transactions. The UK will be treated as any other third-country is today. This is the case whether or not the UK and EU can agree on an amicable future relationship featuring preferential duty treatment.
Post-Brexit, everything touching the UK directly, or indirectly, involving the EU from entry procedures to long-term supplier declarations will be impacted. Even something as routine as a UK tariff schedule will need to be put into place. Overall, about 20,000 UK laws will need to be rescinded or reenacted. According to an Institute for Government reportii, the UK will need to process an estimated 200 million additional customs transactions (on a system designed to handle 150 million) at a cost to business between 4-9 billion pounds.
For now, and at least the next eighteen-months running up to the withdrawal, the current rules will continue to apply. However, as Brexit Day approaches, the declarant will be responsible for demonstrating the status of the goods (Union or non-Union). A transaction begun prior to the break may receive Union treatment through to the completion of that transaction.
Other administrative cooperation customs procedures initiated prior to Brexit Day will continue according to Union law. The exit agreement between the UK and EU will determine the cooperation level to apply to transactions retroactive to the withdrawal date. The amount of funds owed will be based on the date the liability is incurred.
The following is a matrix, based on the position paper, showing the general rules to be applied given the status of the goods in accordance with Union Law, as interpreted by the Court of Justice of the European Union:
|Status of goods
|Treatment in UK or EU27
|Loaded before the withdrawal date in a third country.
|The declaration should remain valid and be recognized by the competent customs authorities of first office of entry (UK or EU 27).
|Goods under temporary storage or under a special customs procedure
|In the UK or the EU27 or in a third country on the withdrawal date.
|Union Customs Code should continue to be applied.
|Shipped between the UK and the EU27 immediately prior to the withdrawal date.
|A movement of goods which has started before and ends on or after the withdrawal date should continue to be treated as an intra-EU movement.
|To be exported immediately prior to the withdrawal date.
|The goods should be treated as domestic or Union goods respectively.
Brexit Day will approach fast, but there’s always time for political deals and even electoral surprises. So, stay aware of what events may unfold and follow the exit negotiations closely. Though the UK negotiators seek a “frictionless” trade solution, know that change is coming. Dealing with the UK will be different than it is today, it will involve increased administrative burden, it will likely involve greater costs, and there will be supply-chain risks in the short-term.