Following the referendum in 2016, the UK Government invoked Article 50 of the Treaty of the European Union, confirming the intention to leave the EU. A third extension to the original deadline was requested, and was granted until 31 January 2020. Tim Hiscock looks at the impact on importers and exporters.
The implications for exporters and importers are now dependent on political developments. The Government agreed a revised withdrawal agreement with the other EU members, which was approved at second reading in the House of Commons, but after the granting of the third extension, a General Election was called for 12 December.
There are five possible outcomes of the current situation, which will each have very different implications for UK exporters and importers.
The Withdrawal Act presented to parliament could be re-presented as it is, and if approved, the UK could leave the EU on or before the 31 January 2020 with a transition phase.
The Withdrawal Act could be removed by government or rejected by parliament. This may lead to a request for a further extension to Article 50, which is under the discretion of the other 27 member states to approve.
The new government could request a further extension in order to hold another referendum. The request for an extension is under the discretion of the other 27 members to approve.
The UK could leave the EU without a deal, on or before the 31 January 2020.
The new government could revoke Article 50, thereby cancelling the UK’s stated intention to leave the EU.
In the first scenario, there would be no significant change to import and export procedures at the date when the UK formally leaves the EU, and ultimate changes would depend on the detail of the deal that was ultimately negotiated.
In the second and third scenarios there would be a continued period where nothing would change immediately, and the consequent situation would be uncertain.
In the fourth scenario, there would be a sudden and profound impact for importers and exporters, caused by the UK’s immediate withdrawal from the Single Market and Customs Union.
In the fifth scenario, exporting and importing procedures would be unchanged.
The scenario with the most significant short-term implications is therefore number four, where the UK leaves the EU without a deal on or before 31 January 2020. In this situation, export and import clearance procedures would apply to all goods entering and leaving the EU immediately after the UK’s departure. Shipments to and from EU countries would be treated by both UK and EU countries as imports and exports from the rest of the world.
In anticipation of a possible no-deal Brexit on 31 October, the UK Government prepared a number of easements that would affect import arrangements, covering import duty suspension, VAT suspension and Transitional Simplified Procedures (TSP). These are described in Brexit Planning in Depth. It is not certain however, that these easements would remain in place as they are currently defined, as a new Government may take a different approach.
If the UK does leave the EU without a deal, it is clear that EU countries would treat imports from the UK in the same way as from other countries, in other words on World Trade Organisation (WTO) terms. This will mean that import declarations will need to be completed in the country of import, restrictions on goods from other WTO members will apply, and import duties and local VAT will be charged.
Because of actions already taken, most UK companies who would need an EORI number should already have one. It’s important to be certain that this is the case, and also to ensure that it is a UK-issued number, beginning with the letters GB.
Traders also need to know how the export and import declarations on the things they buy and sell from other EU countries will be handled. Most companies allow their freight forwarder to do this for them. Talk to the freight forwarder and ensure that they are able to do this. If you deliver or collect goods using your own transport, you may need to make other arrangements. If you send goods by courier, they may be able to continue to provide a door-to-door service, taking care of all new procedures. But there may be additional charges for this.
Some goods will be subject to additional controls after a no deal Brexit. These include Dual Use Goods, chemicals, products containing animal product, fish and some other foodstuffs, controlled drugs, and antiques and items of art/national heritage. Exporters can find information about export requirements from the tariff information on the government website. Look up the information relevant to your product’s commodity code.
The easements described above may or not apply, depending on the decisions of the government.
One of the biggest challenges for many international traders in this scenario will be managing their customers and suppliers. Buyers and sellers in other EU countries might not be experienced in trading outside of the EU. They may not have an EORI number, and they may be unaware of the impact that Brexit is going to have on the way they buy from and sell to the UK. In order to maintain business, UK companies may have to explain the affect of the changes and perhaps help the customers and suppliers to prepare.
Leaving the EU with no deal also raises the possibility of delays in the clearance of imports and exports. The extent of such delays is impossible to predict with any confidence.
In the situations described under two and three above, where a further extension to Article 50 is requested (and granted), trading procedures will continue as at present. The subsequent impact will depend entirely on the future political decisions and outcomes.
If the Withdrawal Agreement is approved by parliament, the UK will leave the EU on or before 31 January 2020. There will be no immediate impact on import and export procedures, although the reaching of a firm conclusion might be expected to have an affect on currency exchange rates, that could impact trade significantly. The longer-term outcome will depend entirely on the nature of the trade agreement that is subsequently agreed. It is conceivable that trade talks could break down and the UK could still leave the EU with no deal. Importers and exporters would need to keep abreast of developments. The government’s aim would be to complete trade agreements by 31 December 2020, and to leave the EU fully by that date. The nature of the impact on importers and exporters would depend very much on the content of the deal, but it would be expected that goods moving to and from the other EU countries would be subject to export/import declarations and controls, as they are with the rest of the world.
A free trade agreement would be expected to mean that there would be no import tariffs on goods bought or sold from or to EU countries, but there may be a requirement to prove the country of origin of the goods. Arrangements for this would be a part of the agreement. Exports of non-UK origin goods to the EU would not be expected to benefit from preferential tariffs, and neither would imports of non-EU origin goods to the UK. Mutual recognition of product standards may be defined by the trade agreement. The right to work and deliver services in other EU countries may also be a part of the agreement. All these are a matter of conjecture, we will only know the impact when the trade agreement is finalised and made public.
In summary, the extension to the Article 50 expiry date has really only extended the ongoing uncertainty, and a General Election means that policies adopted by the UK government such as TSP and VAT suspension could be amended or withdrawn. We are in a position that will be familiar to most companies, where the most immediate and profound impact would occur as a result of leaving the EU without a deal, which could happen on 31 January 2020, or even before if a future government decides to take that path. Businesses need to continue to be vigilant, to be prepared for the possibility of the impact of a no deal Brexit, and to manage their supply chain for such a scenario.