By David Merritt, Director, Global Trade Consulting
To the great relief of many businesses across Europe, the United Kingdom and European Union entered 2021 with a trade agreement in place that would eliminate the imposition of tariffs on the vast majority of goods moving across their shared border. That’s the good news.
The not-so-good news is that the new trade deal, dubbed the EU-UK Trade and Compliance Agreement (EU-UK TCA), still leaves in place a tremendous burden of administration and documentation with which businesses must reckon moving forward.
While reams of copy have been written about the economic and industrial implications of Brexit on businesses throughout Europe, far less attention has been reserved for the practical steps businesses can take to lighten the burden of Brexit. And the burden is heavy.
Countless businesses in the UK and EU will now be forced to engage in unfamiliar customs processes to which they had rarely been privy prior to New Year’s Day 2021. The number of customs entries is anticipated to skyrocket to 400 million per year, generating a cost burden of £13 billion ($17.4 billion) to businesses. What’s more, the IT systems and border personnel available to facilitate the transition to independent tariff and regulatory regimes is projected to be woefully inadequate, resulting in long delays at ports and the potential loss of time-sensitive products and corresponding sales. Lastly, the EU-UK TCA has created a new element of risk in the form of customs compliance as preferential duty will be contingent on meeting Rules of Origin set out in the agreement. Businesses will need to prove a set portion of their imports originate within the free trade area or otherwise pay duties. That portion will vary by industry and product type and failure to provide adequate proof of origin could result in retroactive duties and penalties.
For those businesses across the English Channel, across the Atlantic and across the Pacific that sell into the UK market, the circumstances seem dire. Indeed, many buyers in the EU have already established either new suppliers or redundancies in mainland Europe in anticipation of port delays or customs and regulatory barriers. The good news is there are ways for their trade partners within the UK to mitigate the administrative challenges imposed by Brexit.
Making Sense of alphabet soup
There isn’t much of a learning curve involved in understanding the UK’s new customs administration process. The easiest thing for a business to do is to make use of the CFSP, EIDR, which replaces the TSP and is even more advantageous for AEO businesses, but doesn’t apply to the NIP, which requires a separate EORI beginning with XI that can’t be acquired without first having a GB EORI. Fortunately, the TSS is there for support. If that’s not completely baffling, there’s likely no need to read any further. Otherwise, it’s worthwhile making sense of the alphabet soup.
Let’s start by defining the acronyms. The CFSP or Customs Freight Simplified Procedure is a means of fast-tracking the import process. CFSP isn’t new at all. It’s been in effect for 20 years. However, the advent of Brexit has prompted the UK government to make modifications that offer importers greater flexibility in accessing CFSP and submitting documentation.
Ultimately, the CFSP allows importers to submit customs declarations through a two-step process. The first step occurs at the time of import when a partial declaration is submitted electronically. The second step – which can occur up to six months later under the first phase of Brexit – is the submission of a supplementary customs declaration. The benefit is reduced administrative burden at the time of shipping, as well as the deferral of value-added taxes (VATs), which are not removed under the EU-UK TCA.
The key difference under Brexit comes with the Entry in Declarants’ Records or EIDR. This allows the customs declaration to be made within the importers’ own documentation and does not require the goods to be physically present for customs officials to examine.
However, to make use of CFSP and EIDR, a business must first attain authorization from the government or make use of a customs broker’s authorization. For larger firms, the former scenario is likely more appropriate. Also, CFSP declarations must be made electronically using a prescribed data entry system.
It’s important to note that CFSP and EIDR are not applicable to controlled goods (e.g. food products, chemicals, pharmaceuticals, etc.). It’s also critical to understand that CFSP and EIDR can only be used for non-controlled goods entering Great Britain (not the UK) from the EU. And this is where things get complicated.
Understanding the NIP
For many, the terms United Kingdom and Great Britain are often used interchangeably. They are in fact not the same. The United Kingdom is made up of four provinces – England, Wales, Scotland and Northern Ireland. The first three are located on the mainland, which is referred to as Great Britain. Northern Ireland is located on a separate island on the west side of the Irish Sea, which it shares with the Republic of Ireland, a separate country and a member state of the EU.
The Brexit Withdrawal agreement signed between London and Brussels in January 2020 set out that no customs border would exist between Ireland and Northern Ireland. To achieve this, goods imported into Northern Ireland would be screened at the Irish Sea and would have to adhere to EU customs rules so that they could pass freely into Ireland. Similarly, they would have no Value-Added Tax applied in Northern Ireland so that there would be a levelled playing field between Ireland and Northern Ireland. This is known as the Northern Ireland Protocol (NIP).
What this means, essentially, is that while Northern Ireland is part of the UK, its trade rules and customs processes are entirely different from the rest of the UK as it remains under the control of the Union Customs Code of the European Union, which adds yet another layer of complexity to importing goods into Northern Ireland from Great Britain. To make things even more complicated, the EU’s regulations in the post-Brexit period will prohibit the import of certain products from the UK (e.g. meats and uncooked sausages). However, Northern Ireland relies on these products to come from Great Britain, but it will no longer be able to receive these products as they do not adhere to EU rules.
TSS – really, what’s one more acronym at this point?
To help businesses move goods across the Irish Sea, the British government has introduced the Trade Support Service (TSS), a digital service designed to aid traders in the completion and submission of electronic customs declarations for goods entering Northern Ireland from Great Britain. Traders must sign up for the service in advance, but once they do, they’ll be able to access broad-ranging info to educate themselves on what their specific business must do to comply with the NIP and will also get support in customs declarations, as well as safety and security declarations.
Even with the TSS in place, the expectation is there will be tremendous disruption and delays at customs borders. In fact, significant concerns have been raised by haulers and government officials in Wales that the Port of Holyhead is likely to experience six months of chaos.
What’s a business to do?
The idea that a business can navigate the new environment without any disruption is likely pure fantasy. Some level of disruption, even if only in the form of border delays, should be expected. However, the programs initiated by the UK government will serve to mitigate some of the Brexit burden. Yet many businesses had never even seen a customs declaration form prior to the beginning of this year. For them, even the use of CFSP, EIDR and TSS may be insufficient. For them, there is likely to be a heavier reliance on their trade partners – brokers, freight forwarders and barristers – to help facilitate transactions. The alternative is the high risk of incomplete or inaccurate documentation and non-compliance with tax and regulatory policy, all of which will result in delays and could materialize into financial penalties.
In short, Brexit’s administrative burden for traders will be a heavy load to bear, but with the right mechanisms and support in place, it will be bearable.
David Merritt has extensive experience in the development, preparation, and communication of compliance policies, and in reviewing and re-engineering supply chains and compliance processes. An EU expert, David has thorough knowledge and understanding of U.S. extra territorial controls and regulations affecting international trade.