Nick Hart, Senior Director, Indirect Taxes, Radius
The United Kingdom will be leaving the European Union in 2019. For over four decades, it has been a part of the EU’s customs, VAT and excise regimes. UK companies are accustomed to having supply chains that operate across the EU, which incorporates the free movement of goods and services. They have also relied on the EU’s Common External Tariff for trade with non-EU countries.
On March 29, 2019, the UK will need to have in place laws and procedures to operate its own customs, VAT and excise functions. The first big step toward that goal will be the Customs Bill, legislation that is expected to enter Parliament in the near future after a period of further consultation. The UK Government recently issued a white paper, Customs Bill: Legislating for the UK’s Future Customs, VAT and Excise Regimes, laying out its proposals for a new customs landscape with the aim of preserving a “frictionless” movement of goods between the UK and the EU and also to help shape an independent international trade policy.
While the Government clearly hopes for a smooth transition that entails only minimal changes to current procedures and processes, the white paper does go into contingency planning in case of a failure in negotiations with the EU.
What the Customs Bill Will Cover
The UK will need to come up with the details of customs procedures, codes, declarations and duty levels, including interactions with the software that submits customs declarations and preferential tariffs for developing countries.
Options: Negotiated or Contingency?
The British Government certainly wants an interim implementation period, and they hope for a continuation of the shared external tariff and no customs duties between the UK and the EU. This negotiated continuation comes with a couple of possible options:
- A “highly streamlined customs arrangement”, which looks a lot like the status quo but with the UK formally outside of the EU.
- A “new customs partnership” for which they will “jointly consider innovative approaches.” They concede that this will require a great deal of discussion, and it is largely undefined at this point.
It must be noted that there is the definite possibility that negotiations with the EU will break down. The white paper accounts for this by presenting a clear contingency option for a “no deal” scenario. That would result in the UK creating its own system without reference to the EU. Such a contingency option is clearly necessary, but even stating the possibility has caused some concern.
Some Specific Considerations: Small Parcels, Borders, and Ro-Ro Ports
The white paper dedicates particular focus to the importation of small parcels, and how import duties and VAT might or might not apply. This is a matter of some importance for the small business and consumer goods sectors in particular.
In dealing with the Ireland-Northern Ireland border, the white paper says that 80 percent of the movement across the border would consist of smaller, more local business, and proposes a trade exemption for such activities. Larger businesses trading across that border regularly could receive “trusted trader” status allowing for simplified customs procedures. The paper does not, however, provide a contingency plan for this border in a “no deal” scenario.
There is real concern that “roll-on roll-off” (or “ro-ro”) ports, where large amounts of intra-EU trade is carried out, have no space for vehicles to wait while being processed, since waiting areas have not previously been required. The paper says the Customs Bill will require that customs be notified of shipments prior to arrival at the port. Under a contingency scenario, carriers would possibly need to submit a pre-arrival safety and security declaration for both imports and exports. Both would require significant changes in processing for businesses.
Responses to the Customs Bill White Paper
Much of the discussion about the white paper since it was issued earlier this month have been around its language related to contingency options in the “no deal” scenario.
Is the contingency plan just an essential part of planning — something some felt had been neglected previously? Or is it a way of putting pressure on the EU negotiators on the other side of the table? In the event of a no-deal exit, the UK would make no budgetary contribution to the EU. Many feel that the UK must continue to make contributions until at least 2020 to secure a favorable Brexit.
Negotiation at the Cliff Edge
One thing is certain: planning has been slow, while the deadline is perilously close. The white paper notes more than once the Government’s desire to avoid any “cliff-edge” transition in March 2019. Unfortunately that cliff edge is now well within view.