Trading Through Brexit

In: Brexit
17th January 2020

Actions to take ahead of January 31

Transition Period
SUMMARY: During the transition period, firms may see changes in tariffs and market access arrangements for trade with some non-EU countries. The UK, through its membership of the EU, is subject to free trade agreements (FTAs) with some ‘third’ countries. In principle these should continue to apply during the transition but it is unclear if this will need the permission of those countries. Check out BCC’s Business Brexit Checklist for the latest information.

During the transition period no tariffs will apply to UK goods placed on the EU market and vice versa. UK-based firms will retain access to the Single Market as under current arrangements, including for aviation, road haulage and other cross-border economic activities.

As far as we know, no tariffs will also apply to goods placed on the market before the end of transition period where the movement of goods has started but has not been completed before the end of transition period. Such goods will move freely until they reach the end-user.

In principle, the EU’s current free trade agreements (FTAs) will continue to apply. The EU will inform partners of the transition period – it is uncertain as to whether the agreement of these third countries is required. The UK would adhere to EU FTAs, working on the basis of reciprocal adherence.

The UK will be able to continue negotiating, signing and ratifying its own agreements provided they do not enter into force before the end of the transition period. This might mean signing further “continuity” deals with the current EU FTA partners or negotiating new treaties.

Post Transition
After the transition period, the UK would no longer be a member of the EU’s Customs Union and the Single Market. This means that in the absence of a trade agreement that sets tariffs at zero, tariffs will apply to goods traded between the UK and the EU.

The default tariffs will be tariffs applied by both sides to third countries. For the EU this would be the current Common External Tariff – a tariff applied to imports from countries like China or the US with which the EU does not have a trade deal in place. This tariff would also, by default, apply to imports from the UK. The UK would, by default, also apply its third-party tariffs. It is currently uncertain whether these would be the recently published ‘No-Deal’ tariffs or the UK Government will review the No-Deal tariffs during the transition period.

Separate provisions would apply to Northern Ireland. After the Transition Period, Northern Ireland (NI) would stay in the UK’s customs territory but would at the same time continue to apply the EU’s customs rules, tariffs, quotas and, partially, EU Single Market rules. This means that NI would continue to apply the EU’s tariffs as external tariffs. The Union Customs Code (UCC) rules will continue to apply in NI. As a result, there would be no tariffs, charges or restrictions on trade between NI and the Republic of Ireland (ROI). However, the proposal creates a de facto customs and regulatory border in the Irish Sea between NI and Great Britain (GB). It is understood that NI businesses would have tariff-free access to both the EU and GB markets.

As a result, GB goods entering NI would technically be subject to the EU’s customs tariffs. According to the agreement, goods considered low-risk of being diverted into the EU through NI would be exempt from tariffs. Goods belonging to UK residents moving across the border would also be exempt (movement of personal property goods). Only goods considered to be high-risk of entering the EU would be subject to them. The Joint Committee would establish which goods would be considered high-risk during the transition period. The tariffs for GB goods entering NI would then be eligible for a rebate if the importer could demonstrate that the goods remained in NI.

Goods entering NI from a third country would be subject to EU or UK tariffs depending on which market they would end up and the level of risk for the EU Single Market. The Joint Committee would need to decide on how to determine the destination of the product. According to the current understanding, the high-risk goods entering from a third country would be initially subject to EU tariffs and rules. If the UK tariff is lower, the NI importers could apply for a rebate for the difference in duties, provided they are able to prove the goods remained on the NI market.

The details of the rebate system are still to be negotiated within the Joint Committee. The system would require businesses to apply for rebates, adding to the administrative burden. Another issue is how, at which point and who can demonstrate that the goods remained on the NI market. This will be especially cumbersome in case of longer supply chains or goods stored in a warehouse. A system would need to be put in place for traders to provide the necessary documentary evidence of goods remaining in the NI market. Fraud prevention would also be an issue.

Article 5, point 6 of the deal mentions that the UK would have the right to waive or reimburse duties on goods brought into Northern Ireland provided that the values do not exceed State Aid thresholds for individual companies. It is uncertain what the aim of this provision is. According to the current understanding, the provision could lead to de facto exemption for smaller traders irrespective of the type of goods and in which market the goods would end up. It could also allow the UK Government to reimburse or wave costs related to exports and imports between GB and NI.

The revised Political Declaration states that towards the end of the transition period, the UK would expect to sign a comprehensive free trade agreement (FTA) with the EU. It refers to an “ambitious, broad, deep and flexible partnership across trade and economic cooperation with a comprehensive and balanced Free Trade Agreement at its core”. If an FTA is negotiated between the UK and the EU tariffs would be eliminated on the majority if not all goods. However, in order to benefit from preferential, tariff-free access businesses on both sides would need to demonstrate that they meet rules of origin. It is uncertain how such proposed FTA would work together with the arrangements for Northern Ireland.

Under the new proposal, the UK would be able to sign its own free trade agreements with third countries. It is uncertain whether the current continuity agreements (the rolled-over agreements) will be amended during the transition period. Some of them require renegotiation of all or at least some provisions (e.g. the UK-South Korea agreement) after a certain period of time.

NI would be able to profit from UK’s trade agreements. Goods produced in NI will have the same preferential access to FTA partner markets as goods from GB. However, when goods from the UK’s FTA partner are imported into NI, it is understood that the above rules for third-country goods brought into NI will apply.

It is uncertain whether NI would be included in EU’s trade agreements and whether as a result EU, businesses would be able to cumulate origin with NI inputs. However, it seems difficult to prevent goods from NI being incorporated into EU products exported under preferential rates into these markets. Therefore, in practice, it would be difficult to prevent NI from benefiting from EU’s trade deals.

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