The Government has indicated that the UK will not be a full member of the EU customs union following Brexit, although the exact deal is currently not clear. Leaving the customs union would most likely require declarations at borders between the UK and the EU, which could disrupt supply chains, involve potential delays and add an additional administration burden. There will be additional compliance costs if companies have to apply rules of origin and enter customs declarations.
Our current trading relationships with the EU have been governed by a vast number of contracts negotiated with suppliers, local employees, agents and customers. Any change in the trading arrangement including licencing and regulatory changes, could have a knock-on effect on the contracts that underpin them. Companies can start to manage their risks by reviewing their existing contracts and starting to consider future contracts in light of what legal changes Brexit may bring.
Possible Opportunities and Challenges
When the UK leaves the EU, unless different arrangements are put in place, it will be treated from a customs perspective as a Third Country. Customs declarations will be necessary for imports and exports. This may add an increased administrative burden on businesses. Some SMEs may have to navigate customs rules and procedures for the first time in an area that can be complex and confusing. It is important to firstly understand the impact that customs may have on your business by reviewing supply chain movements to determine which flows of goods will be affected. A customs capability will then need to be developed and the process managed accordingly to ensure the business can manage this activity effectively.
Changes in tariffs on trade
Tariff changes with EU countries following Brexit will be dependent on the exact deal negotiated in relation to EU country exports. Businesses should consider the impact of a situation where there is no special agreement with the EU and therefore tariffs between EU-UK are based on the Most Favoured Nation (MFN) tariff. Start planning now by identifying the MFN tariff classifications as well as the HS codes (international classification system) for your products to identify potential impact on your cost base.
Rules of origin in UK-EU trade
Even if the UK has a zero-tariff trade agreement with the EU, businesses will need to prove that their product is of UK origin to benefit from this. This usually means that 50-55% of the product has to be locally sourced or that materials or components sourced from outside of the UK must be sufficiently worked or processed in order to be considered as UK origin. The exact terms of these rules between the UK and the EU are yet to be negotiated. Businesses will need to review their supply chain and manufacturing processes to determine what actions may be needed to establish UK origin. This may include an audit of your suppliers covering where they source their materials. Likewise, as a supplier, you may need to provide your customers in the UK with proof of where you source your content.
Licensing and regulatory changes
Changes to the EU regulatory regime may mean businesses are working across multiple regulatory and licencing frameworks. There is uncertainty as to whether UK regulators will be able to provide licences for the EU market or if notified bodies in the UK can conduct conformity assessment checks on goods destined for the EU market. Businesses will therefore need to consider how to comply with separate regulators in the future and the cost implications of this extra burden. Start by identifying which regulatory agencies you work with, which products and services are subject to regulatory requirements, and what steps you may need to take to comply with separate regulation.
UK Government have released a series of technical notices which are available on the GOV.UK website including: