BREXIT: IS YOUR OCEAN SUPPLY CHAIN READY?
On January 31, 2020, the United Kingdom left the European Union. According to the rules of the transition period, the UK will remain part of the EU’s Single Market and Customs Union until the end of the year, and the flow of goods and services between the UK and the EU remains uninterrupted to this day. From January 1, 2021, things will be different.
The Situation Until December 31, 2020: the Single Market and Customs Union
The United Kingdom has been a member of the European Union since January 1st, 1973, and part of the EU’s Single Market since its creation in 1993. This means that there is no tariff, no quota, no taxes on exchanges between the United Kingdom and other member states of the European Union. It enabled free movement of goods, capital and people.
Moreover, the European Union works as a customs union, wherewith its member states agree to apply the same tariffs and general entry conditions from other markets. This enabled complex, more efficient supply chains to connect South East Asia to the United Kingdom via European hubs like Rotterdam, where goods would be cleared for import prior to being shipped to their final British destination.
Such models will need reevaluation in the immediate future, and possibly be replaced by new ones that will accommodate for the new trade agreements to be put in place.
FTA or WTO? The Agreements That Will Govern Trade as of January 1, 2021
Agreeing upon terms of exchange is precisely the point of the negotiation running between the European Union and the United Kingdom. Two case scenarios can be anticipated:
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The EU and the UK will start trading under FTA terms. It could potentially mean that zero tariff or quota are instigated for goods crossing the British Channel. It requires for the two parties to reach an agreement on the many goods and services in scope – fishing quotas can for instance represent a contention case.
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If no agreement is reached, then the parties will trade under WTO terms. One of the main dispositions of these terms is the Most Favored Nation principle: if the UK decides to apply any treatment of favor to the EU (except trading under FTA terms), it must also do so with any other country they may have commercial exchanges with.
While the outcome of the discussion is yet unknown, one thing is certain: whether under FTA or WTO terms, businesses shipping from and to the United Kingdom will have to submit customs declaration forms as of January 1st, 2021.
Preparing for Brexit: Five Best Practices to Adopt Now
The added complexity of export and import clearances makes it advisable for organizations of all industry sectors and sizes to make use of intermediaries, such as a customs agent or a forwarder, to submit their customs declarations.
While submitting your declarations through these expert hands and adapted IT systems is probably the best move, it does not mean to say that Brexit will not induce other profound changes to your supply chain. Here are key elements you must consider to get a head start into 2021.
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This piece of advice applies to both EU and non-EU exporters to the UK.
- Non-EU shippers: if your goods first sail to a European Union port from their origin locations, you may want to seek expert guidance on a more desirable supply chain setup.
If you used to clear your UK-bound shipments along with all your other EU-bound goods in the Amsterdam hub prior their export to the United Kingdom, it is time to consider either shipping them directly to the British Isles, or use specific “In-transit” terms. - EU shippers: time is of the essence! Your import declaration has to be finalized before your goods – i.e. the trucks they are transiting in – have entered the UK.
- Non-EU shippers: if your goods first sail to a European Union port from their origin locations, you may want to seek expert guidance on a more desirable supply chain setup.
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Beyond the physical movement of your goods, your contractual agreement with your business partner may also benefit from a revision.
In more concrete terms, shippers may for instance have to start paying for duties in the UK if they are using the Delivered Duties Paid (DDP) Incoterm®.
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This piece of advice applies to both UK shippers to the EU and EU shippers to the UK.
- Do your goods require specific licensing, are they considered dangerous, are they subject to restrictions or quotas?
- Are you shipping excise goods?
- UK shippers to the EU: are your goods entitled to VAT accounting – will you need to pay duties?
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This piece of advice applies to both UK shippers to the EU and EU shippers to the UK - regardless of the agreement reached during EU-UK negotiations and the decision to proceed with FTA and WTO terms.
- Even if an expert third party is submitting your customs declarations on your behalf, they will need to be documented. Prepare and organize your documentation (like your commercial invoices and packing lists) and data (your HS codes, the certificates of origin of your goods, information on their value) for your provider to efficiently perform the clearance.
- UK shippers to the EU: cheddar cheese, vacuum cleaners, and all your British goods will need to be cleared both for export in the UK and for import in the EU.
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This piece of advice applies to all shippers and consignees.
Setting up the best system to guarantee a smooth trading from and to the UK will require you to work with an expert service provider. To finalize its implementation before the end of the transition period, it is key that you allow for enough time.
Remember that all other businesses will need to meet the new requirements on the same day – secure your spot now.
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This piece of advice applies to UK shippers trade-selling to customers in the EU.
If your business model involves that you are not directly selling to the final customer, you will now need to have a legal presence in the EU, as you will need to account for and be able to pay VAT in the Union.
