By Paul Hardy, John Forrest, Chloe Barker.
The UK government has published a collection of technical guidance notices to assist companies trading in or with the EU to prepare for a “no deal” Brexit scenario, whereby the UK leaves the EU on 29 March 2019 without an agreement in place to govern the future UK/EU relationship.
Whilst the government states that a no deal scenario is “unlikely”, it underlines the importance for businesses operating in the UK to consider the implications for the trade in goods between the UK and EU countries and the actions that should be taken to mitigate the potential impacts in the event of a no deal Brexit.
TRADING WITH THE EU IF THERE’S NO BREXIT DEAL
Businesses can currently move goods freely between EU member states. From a customs perspective, this means that businesses trading with the rest of the EU do not have to make any customs import or export declarations, and their trade with the EU is not subject to import duties.
If the UK leaves the EU without a deal, the free circulation of goods between the UK and EU would cease. Businesses importing goods from the EU would be required to follow customs procedures in the same way that they currently do when importing goods from a country outside the EU. This means that for goods entering the UK from the EU, an import declaration would be required, customs checks may be carried out and any customs duties must be paid. Businesses exporting goods to the EU would be required to follow customs procedures in the same way that they currently do when exporting goods to a non-EU country.
Therefore, in considering the impact of a no deal Brexit on commercial operations, businesses should consider issues such as:
- How will your contracts and INCOTERMS with EU based counterparties need to be amended to reflect the fact that you are now an importer and/or exporter?
- How will you submit import and/or export declarations? Is it worth considering whether to engage a customs broker, freight forwarder or logistics provider to handle import/export formalities on your behalf? Businesses that want to do this themselves will need to acquire the appropriate software and secure the necessary authorisations from HMRC.
- Would using a customs procedures (e.g. customs warehousing, inward processing, temporary admission, authorised use) be beneficial and if so which one? These procedures allow businesses to delay or relieve the payment of customs duty for goods they import into the EU until goods are ready to be released into free circulation.
Read the full Guidance “Trading with the EU if there’s no Brexit deal” here.
CALCULATING APPLICABLE DUTIES IF THERE’S NO BREXIT DEAL
The government has made it clear that when the UK leaves the EU it is going to leave the EU’s single market and Customs Union.
This means that in the event of a no deal Brexit, goods traded between the UK and the EU will be subject to the same requirements as third country goods, including the payment of duty. Under World Trade Organisation (“WTO“) rules, the principle of most-favoured-nation (“MFN“) treatment means that, unless a preferential agreement is in place, the same rate of duty, on the same good, must be charged to all WTO members equally.
In practice this means that:
- For UK exports to the EU, the EU will require payment of customs duty at the rate specified under the EU’s Common Customs Tariff (“CCT“).
- For goods imported to the UK from the EU, the UK will require payment of customs duty at a rate that will be set by the UK Government. The government will determine and publish these new UK duty rates before 29 March 2019 and they may be different from the rates in the EU’s CCT.
- The government has stated that it does not intend to immediately change the classification of goods in a “no deal” scenario. Therefore, there is no planned immediate deviation from the current commodity code list published in the UK Trade Tariff.
Currently imports into the UK from a country with which the EU has a free trade agreement may qualify for preferential rates of duty and rules of origin. The government has stated that it will be seeing to transition all current EU Free Trade Agreements in order to ensure continuity for both goods imported to the UK, and for UK exports to those countries.
Read the full Guidance “Classifying your goods in the UK Trade Tariff if there’s no Brexit deal” here.
CONCLUSION: WHAT CAN YOU DO?
The UK government is clear that businesses operating in the UK should consider how a ‘no deal’ scenario could affect operations, and may want to begin taking steps to mitigate against such a risk.
Practical steps include:
- Assessing the impact of the likely changes to customs and excise procedures on day to day operations and procedures, including considering how customs declarations will be submitted in a no deal scenario.
- Reviewing the volume of trade with the EU and considering any potential supply chain impacts, including engaging with the other businesses in the supply chain to ensure that the necessary planning is taking place at all levels.
- Putting steps in place, if necessary, to renegotiate commercial terms to reflect any changes in customs and excise procedures, and any new tariffs that may apply to UK-EU trade.
DLA Piper’s Global Trade & Government Affairs team
We are market leaders in proving informed analysis, accurate forecasting, and practical contingency planning for clients impacted by Brexit.
Our Brexit service is led by a dedicated Brexit Director, Paul Hardy, the former EU Legal Adviser to the House of Lords and John Forrest, Head of the UK Global Trade and Government Affairs practice, and a former UK Government trade negotiator. It is supported by DLA Piper’s specialists, who have in-depth knowledge of almost every area of commercial activity and work from our offices all around the world, including in 18 EU Member States.
For more information contact Paul Hardy, John Forrest or Chloe Barker.
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