Brexit became reality on January 31, 2020, with the United Kingdom (UK) exiting the European Union (EU). A transition period is underway during which the UK continues to abide by EU rules while trying to reach an agreement with the EU on their future relationship, most importantly on trade. The transition period ends on December 31.
Starting January 1, 2021, Brexit is expected to cause major tremors in international trade. Your business will be impacted if it buys or sells goods/services to or from the UK, if it moves goods through the UK, and if it uses goods manufactured in the UK to trade under preferential schemes with EU members. This piece explores the challenges of doing business in a post-Brexit Europe. Read on to find out:
Brexit is a combination of the words “Britain” and “exit”. In 2016, the UK government called for a referendum or vote on whether the country would leave the EU or remain a part of it. Fifty-two per cent voted to leave. In 2017, the UK gave formal notice to the EU to quit the bloc it had been a part of since 1973. With the UK – comprising England, Scotland, Wales and Northern Ireland – out, the EU now has 27 members.
Since its exit, the main challenge for Britain has been to strike a new free trade agreement (FTA) with the EU. An FTA encourages trade between countries by eliminating barriers such as tariffs. Should the deal materialise – though it appears unlikely – it is expected to eliminate tariffs but not border checks. The most likely outcome seems to be a no-deal scenario, what is called a “hard Brexit”. And this has businesses worried.
While the UK was a part of the EU’s Single Market and Customs Union, goods and services moved freely between their territories inviting zero tariffs and minimum checks. Now that the UK is out of the Union, and if it ends up without a trade deal, businesses will face both border checks and tariffs. Tariffs both in the form of customs duties and charges arising from new customs requirements.
Additionally, UK-EU trade will be governed by World Trade Organisation (WTO) rules, which means both sides would likely impose tariffs on goods manufactured in each other’s territory.
A hard Brexit also means Britain is free to negotiate trade deals with other countries. While in the bloc, it was automatically a part of 40 EU deals with 70 countries. Since its exit, it has managed to close 20-odd deals with 50 of those countries. These deals could come into effect on January 1.
The key changes that await importers and exporters on January 1 are:
If there is no deal, you will have to pay customs duties on goods moving between the UK and EU. In addition, you will pay import VAT (value added tax) on goods above £135. To avoid hold-ups on account of VAT payment at the border, the UK has proposed postponed VAT accounting, which allows you to defer your payment to the time you file your VAT return. To be eligible for this, your business must be registered in the UK for VAT and your VAT registration number must be included in your customs declaration.
Goods crossing the UK-EU border will be subject to:
There will be no checks on the border between Northern Ireland (UK) and the Republic of Ireland (EU) under the Northern Ireland Protocol, which is part of the Brexit Withdrawal Agreement.
The introduction of border controls means more paperwork.
Currently, it takes an estimated two minutes for goods to move between the UK and EU by truck. With a border infrastructure now in place, delays are inevitable. A leaked UK government report warns that January might see 7,000 trucks – the UK’s preferred mode of transport – queued up at England’s Dover port because some vehicles might not have Brexit-compliant documentation. If goods are delayed, they might need to be stored at ports, which are already short on space. The Goods Vehicle Management System, the UK government’s software solution for quick border verification of customs documents, is reportedly still not ready.
Under new rules on customs representation, you will need to hire a customs agent to complete your customs declarations if:
The customs agent will be liable for all information in the declaration, including for any potential fines. As such, many agents might be unwilling to take on such a responsibility. For the exporter/importer, hiring a customs agent means additional expense.
A hard Brexit might force businesses with UK operations to move their supply chains out of the EU. The EU accounts for 54% of all imports into the UK and Brexit makes these supply chains uncertain. However, finding an alternative supply chain that can deliver quality goods on time and at an acceptable price is easier said than done.
The logistics sector, given its role in cross-border movement of goods, is expecting a huge hit. Road haulage (trucks) might be hit particularly hard. Here are the expected changes in a hard Brexit scenario:
The UK and EU are important trading partners for India. How will Brexit play out for Indian trade?
In the aftermath of Brexit, Indian businesses can expect two things – a volatile pound sterling and a general slowdown in growth in the UK. In this scenario, here are the possible implications for India-UK trade:
The EU is India’s largest trading partner and the second-largest destination for Indian exports after the US. Goods trade between the two has grown three-fold between 2002 and 2018, from €28 billion to €91 billion. How will Brexit affect this relationship?
Finally, some tips on how to prepare for the end of the transition period:
With days to go, there’s a lot to do to secure your business from Brexit. Try Cogoport for competitive freight and haulage rates and to connect with freight forwarders and customs agents who have the expertise to help you navigate the choppy waters of post-Brexit trade.
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