Summary
Suggestions that in the face of a ‘no-deal’ Brexit the UK may take unilateral action to ensure goods continue to flow freely into the UK appear to be taking the Brexit Secretary’s remarks at the launch of the governments ‘no-deal’ guidance notes too far. Information contained in the UK government guidance notes on a ‘no-deal’ Brexit suggests unilateral UK action to waive tariffs and 3rd country import controls is not envisaged. ACP exporters serving UK markets along triangular supply chains (e.g. via the Netherlands) may need to urgently rethink their routes to UK markets under a ‘no deal’ Brexit scenario. In addition at the policy level the issue of how the extra costs arising from a ‘no-deal’ Brexit are to be distributed along the supply chain arises, with a clear need to strengthen both UK and EU frameworks for avoiding unfair trading practices along ACP-EU28 supply chains.
According to press reports the UK government has suggested it is willing to take ‘unilateral action…to keep trade and transport flowing freely’, in the case of a ‘no deal’ outcome to the current withdrawal negotiations (1). Speaking at the launch of the first batch of UK technical notes laying out the government’s contingency plans for a ‘no-deal’ scenario, Brexit Secretary Dominic Raab said the government‘s ‘overarching aim’ was to ‘facilitate the smooth, continued functioning of business, transport, infrastructure, research, aid programmes and funding streams that have previously come from the EU’. He maintained that in some cases this would mean ‘taking unilateral action to maintain as much continuity as possible at least in the short term, in the event of no deal, and irrespective of whether the EU reciprocates in practice’ (2).
However it is noteworthy the examples cited by Secretary State Raab, related to technical areas where the EU lacks the institutional capacity to diverge from EU policies and institutional arrangements at the present time. Against this background Secretary of State Raab highlighted how while the UK may choose to remain aligned with EU regulations in the interest of continuity and stability in the short term, the UK would retain the right to diverge when the UK government was ready and it was in the UK national interest to do so.
In light of the examples cited by Secretary of State Raab whether the UK’s commitment to taking unilateral action will apply to the non-levying of standard import duties and application of standard 3rd country import controls is unclear.
The UK governments’ technical guidance notes issued on 23rd August 2018 suggest standard 3rd country duties and import controls would be applied to EU27 goods from 30th March 2018 in the event of a ‘no deal outcome and there being no transitional arrangements for EU27/UK trade relations in place.
The guidance note entitled ‘Trading with the EU if there’s no Brexit deal’, highlights how while currently goods move freely between the UK and the EU27, if there is no deal from 30th March 2019 free circulation of goods would cease and duties and standard 3rd country import controls would be applied (3).
It is highlighted how under a ‘no-deal’ scenario:
- customs duties would need to be paid where applicable to 3rd country imports on good sourced from the EU beyond 30th March 2019 (with the UK being free to set its own MFN duties once it leaves the EU);
- ‘customs declarations would be needed when goods enter the UK (an import declaration), with this requiring a detailed knowledge of the component parts and origin of component parts used in the final product and how, as a consequence, the product should be classified for customs purposes (4);
- ‘separate safety and security declarations would also need to be made by the carrier of the goods’ (3).
More specifically it was highlighted how under a ‘no-deal’ scenario when importing goods from the EU27, UK businesses would need to:
- ‘register for a UK Economic Operator Registration and Identification (EORI) number’ (in a context where this service is not yet operational);
- ‘ensure their contracts and International Terms and Conditions of Service (INCOTERMS) reflect that they are now an importer’
- ‘consider how they will submit import declarations’, whether handling it directly or via the services of a 3rd party agency (3).
Against this background the government suggests UK businesses should consider the following mitigation measures:
- assess ‘the likely changes to customs and excise procedures’ which will be required as a result of a ‘no-deal’ outcome;
- assess ‘the volume of their trade with the EU and any potential supply chain impacts’ of a ‘no deal’ outcome;
- assess ‘the impact on their role in supply chains with EU partners’ of trade taking place on an MFN basis;
- take steps to ‘renegotiate commercial terms to reflect any changes in customs and excise procedures, and any new tariffs that may apply to UK-EU trade’;
- review ‘how they will submit customs declarations for EU trade in a ‘no deal’ scenario, 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 authorisations’;
- UK businesses involved exclusively in trading with the EU should consult the existing guidance notes made available to enterprises trading with non-EU countries so as to ‘familiarise themselves with the key processes’ (3).
| Comment and Analysis
The information set out in the governments’ technical guidance notes strongly suggests the UK governments’ willingness to take ‘unilateral action to maintain as much continuity as possible at least in the short term…. irrespective of whether the EU reciprocates in practice’ is unlikely to extend to the UK’s application of standard import duties and other import controls. Rather efforts to ensure continuity are likely to focus on the technical solution being set in place by Her Majesty’s Revenue and Customs service (HMRC) aimed at minimising delays and additional burdens for UK importers. It is noteworthy that while the UK technical guidance notes dealing with future UK/EU27 trade focus on the technical trade documentation requirements which will be faced under a ‘no-deal’ scenario from 30th March 2019, what is not addressed is the likely trade flow consequences of the sudden increase in administrative requirements along the principal UK/EU27 trade routes. The guidance notes appear to equate the challenges which will arise in UK-EU27 trade under a ‘no-deal’ scenario with those currently faced in trade with non-EU countries. However this vastly understates the nature of the challenges which will be faced in future trade with the EU under a ‘no-deal’ Brexit scenario. These challenges reach substantially beyond the tariffs which will be imposed and the new trade documentation and verification requirements which will be faced. More profoundly a ‘no deal’ Brexit will lead to a 33-fold increase overnight in the workload at the principal points of entry for UK-EU27 trade if standard 3rd country treatment is accorded UK/EU27 trade flows under a ‘no-deal’ scenario. This needs to be seen in a context where the application of standard 3rd country controls on non-EU consignments passing through the principal ports of entry for UK/EU27 trade take 10-times longer to clear the port of entry than EU originating consignments. This means in terms of mitigation measures which businesses can take assessing the potential impact of a ‘no-deal’ Brexit on the functioning of EU27/UK supply chains is particularly important. This applies equally to ACP exports entering the UK market via a EU27 port of landing and to ACP exports serving a EU27 market via a UK port of landing (e.g. entering the Republic of Ireland via the UK). What seems likely is that all of the required steps which the government is suggesting UK businesses should take are likely to add costs along the supply chain, including supply chains handling ACP good which transit on EU27 member states on their way to the UK market. This will need to be taken on board by ACP exporters serving the UK market along triangular supply chains which first pass through a EU27 member state and by ACP exporters who serve a EU27 market by first passing through the UK. It needs to be borne in mind that many of the companies involved in UK/EU27 trade will have no experience of the customs and regulatory control procedures which will be required once the UK is no longer a member of the EU. For some of these companies getting to grips with these new requirements could prove burdensome. In the light of these additional burdens some existing UK businesses may well disengage from trade with the EU27. This would then reduce the number of UK intermediate traders handling ACP goods for onward shipment to EU27 markets (and EU27 traders handling goods for onward trade to the UK market). This could reduce trading options and weaken the position of ACP exporters within the supply chain. Indeed, an important issue which will need to be addressed along ACP triangular supply chains will be how the extra costs arising from a ‘no-deal’ Brexit are to be distributed along the supply chain. The very real danger exists that along triangular supply chains it will be the ACP suppliers who carry the bulk of the additional costs incurred as a result of a ‘no-deal’ Brexit. In this context whether the UK government is willing to extend the mandate of the Groceries Code Adjudicator to 3rd country supply chains, in line with the UK governments’ current acceptance of the EU’s new regulation on the elimination of Unfair Trading Practices will be an important issue. Equally just how the EC plans to operationalise the new UTP regulation in regard to ACP-EU supply chains will also take on added significance. |
Sources
(1) Guardian, ‘UK won’t trigger battle with Brussels after no-deal Brexit, says Raab’, 22 August 2018
https://www.theguardian.com/politics/2018/aug/22/dominic-raab-uk-wont-trigger-no-deal-battle-with-brussels
(2) Gov UK, ‘Secretary of State Dominic Raabs speech on no deal planning’, 23 August 2018
https://www.gov.uk/government/news/secretary-of-state-dominic-raabs-speech-on-no-deal-planning
(3) Gov UK, ‘Trading with the EU if there’s no Brexit deal’, 23 August 2018
https://www.gov.uk/government/publications/trading-with-the-eu-if-theres-no-brexit-deal/trading-with-the-eu-if-theres-no-brexit-deal
(4) Gov UK, ‘Classifying your goods in the UK Trade Tariff if there’s no Brexit deal’, 23 August 2018
https://www.gov.uk/government/publications/classifying-your-goods-in-the-uk-trade-tariff-if-theres-no-brexit-deal/classifying-your-goods-in-the-uk-trade-tariff-if-theres-a-no-brexit-deal