In the last post I nailed my colours to the mast and listed my top ten Brexit issues for businesses who import and export goods. I thought I should put some meat on the bones of the list, so this time we’re looking at one of the most contentious issues: costs.
There is no precedence for countries leaving the EU, which means that the cost of exit cannot be predicted or guaranteed and therefore is up for negotiation. Pre-referendum, back on 28 February 2013 the President of the European Council, Herman van Rompuy, spoke of the complexities of leaving the EU in a speech:
‘Leaving the club altogether, as a few advocate, is legally possible – we have an ‘exit clause’ – but it’s not a matter of just walking out. It would be legally and politically a most complicated and unpractical affair. Just think of a divorce after forty years of marriage. Leaving is an act of free will, and perfectly legitimate, but it doesn’t come for free’.
Throughout it’s involvement with the EU the British public has been notably unhappy with what is seen as excessive payments into the EU pot and therefore will not be happy if they cannot see the re-allocation of money back into public services in the UK. It is well documented that the main reason behind the public desire to leave the EU was financial i.e. reallocating funds to public services like NHS & schools.
Some key implications:
There are many cost implications as a result of the UK’s decision to leave the EU which include:
The ‘Brexit Bill’ whereby the UK must reimburse EU their portion of future committed costs.
The additional admin costs associated with EU movements becoming imports/exports.
The imposition of new tariffs or levies from a new ‘trade agreement’ or from most favoured nation WTO tariffs which will be imposed in the absence of a new trade agreement.
The Brexit Bill – EU’s financial settlement:
The EU27 agree there must be a single financial settlement and the UK must honour its share of all the obligations undertaken while being a member. The UK should also fully cover the specific costs related to the withdrawal, such as the relocation of EU agencies currently based in the UK. The agreement should include a calculation of the total amount and a schedule of payments, as well as further rules and arrangements to address specific issues. The anticipated settlement figure quoted by the EU is somewhere between €50bn and €100bn.
New admin costs for EU movements
For all goods which enter or leave the UK a full customs declaration containing a significant number of data elements will be required to be populated. The cost of these entries will add a fee per transaction coupled with the cost of capturing this data pre-entry rather than using the current Intrastat reporting methodology which allows companies to aggregate the data and submit period returns.
The World Trade Organisation (WTO) Most Favoured Nation Rates (MFN)
These are the full tariffs which are paid when goods enter a new territory and are imposed in the absence of a Trade Agreement between the trading nations. For goods imported into the UK there are currently more than 17,000 different classifications of goods. Duty rates start from 0% for books & some IT equipment to 10% for automotive products & up to 12% for certain items of clothing. Some products like watches have a per item charge which can, dependant on the item, result in a duty of 50% or higher. This margin impact will either have to be absorbed or will make UK goods more expensive than those countries who have free trade agreements in place with the EU
Compromise will be the only way to secure an agreement, however neither side will be wishing to appear that they have conceded more than the other. It all starts with agreeing one of the EU’s biggest issues – the value of the ‘Brexit Bill’. The measure of success will be whether these costs are higher or lower than the current annual bill we pay for being a member of the EU – the UK is currently a net contributor to the tune of £11bn per annum.
Once this hurdle has been overcome we will need to agree an interim arrangement with the EU to enable trade to continue. This agreement is strongly suggested to be a ‘copy and paste’ of the UCC Union Customs Code which currently underpins trade between the EU and the rest of the world. Failure to agree an interim arrangement will result in a hard Brexit.
What can businesses do now to prepare?
Whatever the Brexit outcome, the suggestion is to follow best practice. So why not act now stay ahead of your competitors – and of course we can help you.
Perform a classification review: We can look at opportunities to optimise your duty bill and help you avoid fines and penalties imposed when HMRC find you have been using the wrong classification codes. We can use the review to calculate any margin impact from the imposition of WTO rates.
Apply for Authorised Economic Operator (AEO): This EU recognised kite mark demonstrates a high level of control over supply chain procedures and will be a tool HMRC will use post Brexit to facilitate the cross-border movement of stock
Get involved: HMRC and the Government are looking to businesses to assist them. They acknowledge your ability and expertise and want to engage and communicate with businesses so that they deliver more of what is required to facilitate growth and promote exports.
This series aims to give you the information you need to help make decisions for your import and export business. There’s lots more to be said on Brexit and I’d be interested to hear what issues matter most to you. Please add a comment below or email me, Tracey@ImportExportSupport.co.uk and I will make sure your voice is heard
Coming up next time:
The Brexit clock is ticking