Brexit extension – what does it mean for customs?

Brexit extension – what does it mean for customs? After Boris Johnson formally accepted the EU's offer of a Brexit extension until 31 January 2020 earlier this week, many business owners will have mixed feelings - relief, frustration, puzzlement, uncertainty at yet another delay...

As of 30 October 2019, almost 3 and a half years on from the UK’s vote to leave, no one can still say for sure what will happen when we do leave and there are a multitude of possibilities that could occur. However, no matter where you stand on the Brexit debate, there is no denying that these next 3 months will certainly be more complex when we factor in the General Election as new MPs make their final push for the Brexit outcome they want.

So what could we expect to happen over the course of the next 3 months and what does it mean for customs?

Brexit cancelled - No Brexit because Article 50 notification is withdrawn; OR

Soft Brexit - the UK breaks from the EU but some sort of customs arrangement continues, such as the existing customs union or a common customs territory with the EU; OR

Hard Brexit - the UK is entirely separate from the EU for customs purposes and trades with the EU as a third country with customs borders, customs declarations and customs duties between the UK and EU. Despite many gunning for a Free Trade Agreement, this is not guaranteed and when you read the fine print, there is more to it than simply portrayed in the media. The customs formalities of a hard Brexit are not neutralised by a Free Trade Agreement between the UK and EU.

Having worked in the international trade industry for more than 30 years, never have I heard so much public discussion on the topic of customs. However, along with more publicity, can also come more confusion and misinformation.

With this in mind, I’d like to comment on some of the common topics of discussion, to hopefully clarify what they really mean for Brexit:

1. ‘FTAs are the answer’

Does a Free Trade Agreement (FTA) between the UK and EU mean everything will be as it is now? Not necessarily. FTAs enable goods to move between the countries in the FTA without tariffs (customs duties); however, there would still be a need for customs borders or the need for customs declarations. In fact, FTAs make borders more significant!

So why is that? This is because FTAs mean that there has to be a way to determine which goods are qualifying and which are not. This means that an importer has to a) prove the origin of the imported goods under a set of origin rules and b) the mechanism by which origin is declared and validated is via a customs declaration. So despite the media’s reports, FTAs do not guarantee the streamlining of customs formalities and ‘frictionless’ trade. FTAs address market access and tariffs, not the need for customs controls and formalities, which play a critical role.

2. ‘Why not leave the EU but stay in the customs union?’

In soft Brexit scenarios where the UK remains either in the current customs union or a common customs territory with the EU, the predicted degree of friction is reduced or eliminated close to that enjoyed now. But to be in a customs union means agreeing to follow the same body of rules governing the operation of that customs union. In turn this means agreeing to common arbitration in the case of a disagreement or dispute as to how those rules should operate. So this requires signing up to the jurisdiction of a court (or equivalent) to adjudicate the issue.

This requirement runs contrary to the Brexit objectives of the UK retaking control of its borders and laws because such a court function necessarily sits independently of all the members of the customs union involved. It is the equivalent of the European Court of Justice operating now. Of course all Brexit scenarios involve trade-offs. In a soft Brexit, we cede ‘control’ to an external party in the interests of reducing friction (delay and customs formalities) in the physical movements of goods.

3. ‘Isn’t it the case that at least a “no-deal” has now gone away?

A no-deal could still happen. How is that possible? Here are a few examples:

a) A UK political party with a sufficient working majority could pass legislation to take the UK out of the EU without a deal at all; a UK general election could give us that “no-deal” outcome.

b) The recently extended period granted by the EU until 31 January 2020 is to provide more time for the UK to formally agree the deal struck between the UK Prime Minister Boris Johnson and the EU. There are moves to debate amendments to this deal in the UK Parliament. If any of the amendments are added to the deal, the revised deal would then have to be agreed by the EU since it will have changed from what they have currently offered. However, the EU has signalled that it will not change the deal. Of course that was also said about the Withdrawal Agreement negotiated by the previous Prime Minister Teresa May, so it is unknown whether the EU would actually hold its position on no change to the current deal or not. But if either the UK or EU do not agree with the deal as it stands or as amended, then we will be back to “no-deal” – or a third withdrawal deal.

c) Once a deal is agreed, the UK then enters the transitional or implementation period in which the future relationship with EU is negotiated. The talk will be mostly in regards to FTAs. If a FTA cannot be agreed and the transitional period is not extended, the UK will exit the transitional period on a “no-deal” basis.

So what about customs?

If the UK leaves the EU based on the present deal negotiated with Boris Johnson and transitions to the proposed FTA , or if the UK leaves on a “no-deal” basis at some point, sooner or later customs declarations will be required for goods moving between the UK and EU. There are key elements of information about imported or exported goods that a formal declaration about goods must contain. These are required regardless of when, how and where the declaration about the goods has to be made.

These are:

● the tariff classification of the goods (for determining whether the goods can be imported or exported, require licenses, whether non-tariff measures apply, identifying which taxes* apply and at what rates)

(*the taxes are customs duty, excise duty, CAP levy, anti-dumping duty, countervailing duty, import VAT)

● the customs value of the goods (for determining the value to which the import taxes are applied); even if there is no tax to pay, declaring the correct value is still a legal requirement for imports and exports

● the origin of the goods (for determining whether any lower or higher rates of taxes apply and any special measures which apply); this is key in any future FTA scenario

So for businesses that haven’t had to make import or export declarations in the past, these are practical matters which should be established now, despite other uncertainties. If you’ve not imported or exported before it’s important to get this underway.

Looking to gain clarity on how Brexit and customs could affect your business? Contact us now by email or use the contact form here on the site.