The UK’s departure from the European Union has been a three year process and though final trade negotiations are still to-be-decided, the transition period (also called the implementation period) will end on 31 December 2020. This transition period is the time given between when the UK has left EU government bodies but is still in negotiations to solidify their international policies and agreements. Until the transition period ends, many things will remain the same—travel and work visas, for example—and UK-EU trade will continue without any extra charges or checks being introduced.
Whatever the state of the trade negotiations (even if it ends in a “no-deal” and the negotiations continue on) any new policies will go into effect on January 1, 2021. Trade is a major part of the remaining negotiations, and the outcome will directly affect customs and border controls, tariffs and taxes for supply chains that touch Great Britain, Northern Ireland, and the EU.
“Great Britain (GB) is likely going to follow a very similar classification interpretation for products after Brexit, because when the UK countries were part of the EU, they followed the same interpretation for the most part. The best advice if you ship to the UK or EU, or trade between the two, is to work closely with your customs broker and trade attorney to ensure you’ve got all your bases covered.”
Who Does Brexit Trade Negotiations Affect?
Primarily companies importing to the UK countries and trading between the UK and EU. Larger shippers with big global brands (Apple for example), will likely feel the effects on their supply chain much more than smaller companies.
Until this year, many US companies have established an importer of record, VAT number, and distribution warehouse in the UK in order to ship to the rest of Europe. As of January 1, 2021 entities established in the UK who import or export with the EU will no longer be considered an EU entity. These companies will now need to set up separate entities in a EU country, otherwise they will now incur import fees on products going into the UK and additional import fees upon shipping anywhere in the EU.
“Sellers used to be able to use the UK to send products all over Europe, it was easy and cost effective, but now that has changed dramatically. If sellers continue to do that, they’ll be paying the 20% import fee in the UK, and then another 20% import fee into any other EU countries. Plus their customers in the EU will be required to be the IOR (importer of record) which usually leads to bad customer experience. I advise companies to get a VAT number in an EU member state to avoid these doubled import fees and dropped sales due to poor customer service.”
It’s important for companies to prepare now for new customs compliance and their effects. Here is a checklist of what you should be reviewing based on upcoming changes to UK import and export conditions. Work with your customs broker or freight forwarder to better understand what changes you need to make to ensure compliance.
Checklist to Review Before Brexit Deadline
Review all customs documentation. All trade between the EU and UK will need new import and export declarations, as well as safety and security filings. If you have any goods imported to the UK then shipped into EU countries, you will have significant documentation to prepare and renew. This includes any licensing requirements that may change in the UK.
Check your HTS codes. It’s too early to tell, but there may be changes to classification interpretation. For any given product most countries will assign it a certain HTS code (also called HS code, or in Europe a Taric Number). But it happens sometimes that a country, even within the EU will have a different interpretation and assign a totally different classification that has a different duty. It’s very possible UK countries may change the classification interpretation for some products, which may raise or lower duty a few percentage points.
Understand the new taxes and tariffs. The UK may institute new tariffs which will change duty rates. These are still to be determined and will be based on the trade negotiations between the UK and other countries they trade with.
Review your Incoterms. It’s always a good idea to review your contracts, but especially in times of change like this, it’s important to update your terms. If you have manufacturing done in the EU your situation may not be changing, but with so much flux happening it’s a good time to renegotiate.
Understand new taxes. VAT applied to goods imported to the UK was originally established under the EU. With the UK leaving the EU there will likely be changes to their VAT, although it’s uncertain what those changes will be—they may be abolished, they may go up, it’s currently undetermined. These will likely only be determined once negotiations are completed.
Stay updated on trade negotiations. There are still many negotiations still to be finalized due to the Brexit deadline. A new US president is also factoring into deals, and all trade negotiations may not be completed until Spring of 2021.
Factor the timing into your strategy. Any change to your operations means you’ll need to spend more time and resources on administration. Factor this into your Q4 workflows this year. What will transportation look like? Will there be bottlenecks? Ask all of the questions you can now, and plot out a few worst-case-scenarios so that you’re not stuck with an international headache that could have been avoided.
If you are worried about your fulfillment being disrupted due to Brexit, we can help steer you in the right direction. Our network of international partners have great expertise in international trade and compliance. Get in touch!