The UK leaving the European Union (EU), once materialised, will bring a brand new scenario for both the UK and the EU. From a Customs point of view this presents a number of challenges and opportunities to modernise Customs, commerce and logistics in line with international guidelines and best practice. Among many other implications, this means an increase in the volume of Customs declarations, impacting both UK business and government (HMRC).
With all the discussion around Brexit many people in business have been introduced to topics such as a Customs Union, Single Market, Free Trade Agreements and the World Trade Organisation (WTO) for the first time. Some have tried to find out about these important elements in order to make sense of the political debate and to find out what it means for their business. There are others who still ‘don’t know what they don’t know’. These series of articles aim to help explain some of the complexities of Customs and trade and provide as many people as possible with a clearer understanding so that you can make decisions and be prepared for whatever materialises as the UK’s trading position in 2019 and beyond.
International trade falls into two very broad types, EU and Non-EU. Post Brexit all sales and purchases to and from outside the UK (including the other 27 EU member states) will become Non-EU movements and subject to customs and border controls. In simple terms, and with what we know today, this means, submitting a customs declaration in some form or another, potentially paying duties on EU goods which has never been the case, and, having physical border inspections and controls.
Today there are a large number of companies that only trade with EU countries. The government has assessed that the number of customs declarations will go from about 55 million per year today to over 350 million, post-Brexit. This will affect Original Equipment Manufacturers (OEMs), traders, retailers, suppliers, etc. and HRMC alike, both from a systems and resources point of view.
Whilst the government are being bombarded by comments from Trade on minimising the impact of costs and delays, Trade can help themselves by taking some simple steps in key areas:
Know your trading partners and patterns. What countries are your suppliers and customers in, will your contracts still be valid, what products do you buy from or sell to, and, how urgent are the shipments, who is responsible for shipping the goods, you or your supplier/customer?
Understand regulations and requirements. Do you have any ‘customs’ experience, do you have service providers that know the customs and border requirements, do you know what the potential increase in costs due to ‘customs requirements’ will be? Most importantly do you know that, no matter who does the customs work for you (service providers and customs brokers, etc.), you as the importer and/or exporter are responsible and liable for the accuracy of the information given to ‘Customs’ on your behalf.
One of the statements made by The Prime Minister is that the UK will remain as closely aligned to the European Customs regulations (The Union Customs Code (UCC)) as possible.
Why? In simple terms there are a few main reasons. First, it is a tried and tested set of rules that are recognised around the world and, importantly, followed by all EU Member States. The UK is going to continue to ‘do business’ with the 27 remaining countries and the rest of the world. To keep everything as simple as possible, the UK’s customs regulations, processes and procedures should be as closely aligned as possible. However this does not mean it is perfect and changes will be required to make it more acceptable to UK business.
This leads into the second reason. There is a tremendous amount of work involved in changing the regulations (laws) significantly. This takes time and resource, both of which are in short supply. Not only do the government have limited resource, expertise and time to make IT changes, but so too do businesses, especially if they have not previously had to deal with customs and border requirements. Not to mention the similar issues faced by the other 27 Member States.
Business has made it clear that one of the areas of concern in the Brexit process is lack of certainty. What is going to happen? What will Trade need to do?
If we know the customs regulations, processes and procedures aren’t going to change significantly, international traders should do all they can to prove compliance with today’s regulations - today. In this way Trade will be as ready for Post Brexit as any business can be in respect of customs matters. By doing this now, as well as identifying weaknesses and gaps in knowledge, processes and procedure traders will most likely identify opportunities to be more efficient and reduce costs. Or, as a minimum, be well placed to plan for minimum cost increases resulting from Brexit.
In 2011 the Department for Business Innovation and Skills (now the Department for Business, Energy & Industrial Strategy) recognised that the UK has a relatively “light-touch” regulatory regime, and scores well in international comparisons. But a closer look at the costs of trading here suggests that there is still room for improvement. Even for the UK, which is generally regarded as having a fairly business-friendly Customs environment, there is evidence of scope for further Trade Facilitation improvements which could bring opportunities for greater trade.
In 2015, nearly £700 billion of goods crossed the UK border and the continued smooth operation of these crossings is critical to the UK’s economy and consumers, for example maintaining the trade flow of perishables such as food products. In 2016, the UK came fifth out of 160 countries in the World Bank’s ranking of the efficiency of the border clearance process, including customs. The government aims to maintain or improve this position while supporting effective border and customs controls. Having a fully functional customs system is an important factor in safeguarding against undue disruption to trade after the UK leaves the EU.
In October 2016 Greg Clark, the business secretary, told Nissan UK that the UK Government’s objective would be to ensure that we have continued access to the markets in Europe and vice versa without tariffs and without bureaucratic impediments. Mr Clark also said that as well as seeking a "common ground" in Brexit talks, it included commitments to continue to make funds available for skills and training, to "bring home" elements of the supply chain which had migrated overseas, to support research and development and to keep the UK car industry competitive. He signalled that Ministers would seek tariff-free trade with other EU countries and would provide support to ensure the industry remains "competitive" in Britain.
On 17 January 2017 the Prime Minister set out the 12 principles which will guide the Government in forging a new strategic partnership between the United Kingdom and the European Union. One of the headline statements for this process is “Maintaining free and frictionless trade”. Other key points are to provide certainty and clarity (Customs policy), take control of our own laws (initially adopting the Union Customs Code), ensure free trade with European markets and new trade agreements with other countries (free trade and a new customs agreement) and ensure the UK remains the best place for innovation.
In leaving the EU, the UK will seek a new customs arrangement with the EU, which enables us to make the most of the opportunities from trade with others and for trade between the UK and the EU to continue to be as frictionless as possible. There are a number of options for any new customs arrangement, including a completely new agreement, or for the UK to remain a signatory to some of the elements of the existing arrangements. The precise form of this new agreement is now the subject of negotiation.
Whatever form that customs arrangement takes, and whatever the mechanism to deliver it, the UK will seek to maintain many of the facilitations that businesses currently enjoy, whilst aiming that, if there are requirements for customs procedures, these are as frictionless as possible. Whilst the UK will look at precedents set by customs agreements between other countries, we will not seek to replicate another country’s model and will pursue the best possible deal for the UK.
If you have never had to deal with customs at the border – don’t be concerned but don’t wait. Take control and responsibility for your customs destiny and act now:
Understand your trading patterns and talk with your partners
Understand the regulations as they are today
Become aware of the potential changes to your supply chain, knowledge needs and potential increase in costs
Prove compliance with today’s requirements even if you only have EU movements today
Remember ‘You don’t know what you don’t know!’
Brexit – Customs - What are you waiting for!
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Five Lanes Consultancy Ltd