What does Brexit mean for my International trade?
In the increasing game of brinkmanship between the EU and the UK there’s a real possibility we could exit the EU stone cold if they make life too difficult for us. Let’s face it, they have a lot to lose, if they make leaving the EU too easy, other member states for example.
But they also have a lot to lose with restrictive trade barriers in place with the UK and the economic problems that may cause the EU. Just what they consider worse is anyone’s guess but we need to be clear, it’s no walk in the park for the UK either, this is serious stuff.
At present there is no clarification on what Brexit really means. Something is going to replace the existing free trade agreement yet we simply do not know what.
Brexit could mean that we have to deal with border controls when a UK business sales cross the UK-EU border. This could range from satisfying rules or origin to substantial increases in import duties.
So let’s consider a couple of Brexit options for a lovely customer that imports leather belts from Italy.
In the optimistic case, Britain would manage to strike a Norway style deal with the EU. That would mean it would be part of the European Economic Area (EEA), so the leather belts imported from Italy would still come in duty-free because there is free trade between EU and EEA members. However, the importer would need to show documents to prove to the UK border authorities that the leather belts were made in the EU and not just re-branded there to bypass duties levied on non-EU countries.
In the pessimistic case, Britain would not be able to strike a trade deal with the EU. The current rhetoric coming from the EU is probably hot air but let’s look at this case. Import duties negotiated at the World Trade Organization would kick in. If £10,000 worth of leather belts were imported from Italy, the UK border agencies would charge £800 as import duties and also collect £2,000 as VAT on the imports. Uuugh…
In either of these cases, Britain would not have access to the coordinated VAT collection of the EU. This would mean a 20% VAT would have to be paid at the UK border, and the importer would no longer have the convenience of combining this with domestic VAT payments.
Are we heading for a future where we go back to customs clearances (an extra cost to consider) and potential delays to transits? These are very real and serious considerations for the future of businesses supply chains. Trading with the UK could essentially be a pain.
There are some other options being banded around. One is a sort of Customs Union agreement like Turkey and the EU have. This would mean many goods could be traded between the UK and the EU without import duties simply by being in ‘free circulation’ – which includes goods previously imported from other countries as well as goods which come from the country of export. This could be preferable as the more restrictive duty-free benefits are limited to goods which ‘originate’ in the UK or EU, based on complex rules of preferential origin, considering not only where the products are made, but the origin of the raw materials. In this case it would be the origin of the leather used to make the belts.
However, all these scenarios would still require goods to undergo customs clearance, when they are exported from Italy, and also when they enter the UK, which would add to the transport costs of all EU consignments.
Also VAT would have to be paid by the importer at the point of entry, unlike the current EU VAT process, which might create cash flow issues for some traders.
So there you have it, a lot of options, a lot of challenges and probably many still to be uncovered.
We think that it’s inevitable there will be extra administration once we exit the EU and we have customs experts and facilities in place depending on what will be required. But we’re preparing for worst case hard Brexit and we strongly recommend all business to do the same.
For advice please do not hesitate to contact us here. Alternatively watch this space as we will keep you fully informed on developments related to Brexit and your International business.
JS – The Jordon Team