So, todays headline is that the idea of a bespoke Brexit deal with the EU being offered by the Government this week will most likely be rejected by the EU 27.

It appears that the only acceptable options to the EU27 are either a Norway-style arrangement, where the UK remains in the single market but loses decision-making powers, or a having a traditional free trade deal (FTA), which brings other complex challenges in to play like proving preferential origin.

Whatever the outcome businesses in the UK can definitely get themselves Brexit ready. You will see none of the actions below depend on the UK-EU agreement but will definitely ensure that you are in the driving seat and know what you need to do once the outcome becomes clear.

• Minimise the impact on your supplies
• Minimise the impact on your costs:
• Minimise the risk & therefore the worry

Review your end to end supply chain. Steps to take include checking on your customers and suppliers based in the UK, as they could be trading internationally and you wouldn’t want their lack of planning to interrupt your business activity. You are well within your rights to ask them to share their post-Brexit supply chain plans so that you can have confidence in their ability to maintain the service levels you have currently agreed. Where possible check and update all stakeholder agreements including your customer, supplier and 3pl contracts. Where necessary formally document the way you will work together in as this will ensure that nothing falls between the gaps and will minimise conflict by ensuring both parties understand their roles and responsibilities.

Review Trade and INCO Terms. These are internationally recognised terms that outline how the costs and risk are shared between the buyer and seller when trading internationally. Almost everyone I speak to has a story about lost cargo, unexpected costs and disagreements that have come about by the incorrect application or interpretation of these trade terms. Therefore, the advice is to look at and negotiate the most cost-effective INCO terms for example supplying DAP rather than DDP will eliminate both transport & duty costs.

Review your costs. The amount of duty and VAT paid depends predominantly on three things:

• Classification: i.e. what the goods are
• Origin: where the goods come from
• Valuation: how much they cost including freight and insurance.

There are three main reasons to get a handle on these three cost drivers.

The obvious one being to ensure that you retain a competitive edge by buying and selling for the best price. Look at your product costs, additional costs freight and insurance charges and make sure that these are being correctly declared on import/export.

With the second being to avoid unnecessary or unexpected costs as a result of a design feature. Product design can significantly affect the amount of duty paid, for example plastic toys will attract more duty than wooden toys. As the import/ exporter of record you are responsible for the classification of your goods — so make sure that your processes and procedures ensure that this is done at the earliest opportunity to minimise the amount of duty payable. This will also allow you to correctly calculate margin and selling price as duty rates vary between countries, and where there’s an FTA in place
you can take advantage of duty free supplies.

Finally, and possibly most importantly to avoid the costs and business interruption that comes from HMRC intervention. This can either be at the border when they hold goods or from HMRC paying a visit to your offices and reviewing your import/ export activity.
This is often when I get a call from a company saying ‘HMRC have assessed us for 3 years back tax due to a classification issue’, or ‘HMRC are holding our goods because the documents are invalid’ or ‘HMRC have just done a VAT inspection and assessed us as we have zero rated an invoice and the goods are still in the UK’.

Don’t be that company – we can help you with this review and planning and give you clarity & confidence in your international supply chain and help your business thrive in the post-Brexit trade. Whatever it is.

Simply put: Be proactive rather than reactive

There’s a good explanation of INCO terms on the International Chamber of Commerce site here

Complexity

Continuing the series on the issues faced by importers and exporters, this post looks at some of the current complexity faced by Brexit negotiators and suggests some ways for businesses to plan a way forward.

Complexity of disentanglement:

Firstly, Britain needs to adopt or re-write the vast amount of EU legislation which is embedded into UK law.
Once the EU negotiators have the terms of a Brexit deal with the UK it will have to be voted on by the EU27 – the remaining members of the EU. As you would expect there are rules on what constitutes a majority vote.

Voting rules of the EU:

Withdrawal from EU – A reinforced Qualified Majority (RQM) 20 Member states (65%)
Transitional Agreement – A ‘Qualified Majority’ (QM) – 15 Member states (65%)
New Trade Deal – A ‘Qualified Majority’ (QM), ratified by the 27-member states
EU is 18 months into the permitted transition period for this law to become practice.
Given that the EU is made up of 27 very different member states, with very different requirements from membership consensus is definitely not guaranteed and may prove difficult to get the deal agreed & ratified.

The Law In

addition to the time, monetary and logistical constraints the volume of legislation required coupled with the requirements to have a voting majority approval of any deal could severely impact delivery of successful outcome of Brexit for the UK.

Legislation stats – there are:

• Over 12,000 EU regulations in force.
• Around 7,900 statutory instruments which have been implemented into EU legislation.
• 186 (14.3%) of the 1,302 UK Acts have a degree of EU influence to be re-written
• Between 800 and 1,000 statutory instruments which will need correction in addition to other statutory instruments required for purposes other than leaving the EU.
• Usually just 1,300 statutory instruments are made per year

These stats are enough to make your eyes water and question how, without a majority government, much of the legislation will be driven through Parliament and what projects will be shelved to allow Brexit related issues to be given priority.

Some key implications:

New Customs Law

Currently the UK as part of the EU is governed by the European legislation on trade. This legislation is called the Union Customs Code (UCC) and was adopted into law on 1st May 2016. It replaced the old legislation known as the Combined Customs Code (CCC).

Adherence for traders to comply with the new requirements under the UCC has come at a cost to many businesses either through the loss of a relief they were previously entitled to claim or from the requirement to have a new mandatory guarantee Combined Customs Guaranteed (CCG’s) in place when operating a customs simplification. The UK should consider reversing the more punitive elements of this new law as part of a Brexit agreement with the EU. However, agreement to do so cannot be guaranteed and will come too late as the 2-year transition expires on 29th May 2018. It simply adds to the complexity of disentanglement, not to mention a double hit for traders.

In October Rt. Honourable Philip Hammond MP issued a white paper outlining the Treasury’s stance on intra EU trade and customs post Brexit. It clearly advocates a soft Brexit transition period whereby the UK adopts the Union Customs Code (UCC) until such times as a Free Trade Agreement (FTA) can be reached. Below is a link so you can read the paper in full
customs_bill_white_paper_web.pdf

Possible Outcome:

A transitional agreement should allow us to continue to move goods freely within the EU and will give the UK more time to work on the special arrangements it wants to negotiate with the EU. They want to disentangle us from the bureaucracy and from being bound by decisions under EU law by the European Court of Justice (ECJ) achieving this without damaging trade there will take a huge amount of work and care to ensure that there are no holes left in the EU statute books.

What can businesses do now to prepare?

Check compliance with the UCC: Perform a check on your current processes and procedures and make sure that there is no exposure to fine and penalties for inaccuracies and errors.
Invest in EDI data exchanges with your forwarders: A huge amount of shipping data could be exchanged electronically cutting down errors and keystrokes. Successful implementation of such a solution is key to tracking successfully the movement of stock for any business that trade internationally.

This blog 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

Borders

There are many issues facing the UK as we leave the EU, but the one that could be the most problematic for importers and exporters are our borders.
In my conversations with business leaders and import and export professionals this is one of the issues that comes up most often.

UK borders: issues to consider post Brexit

• EU movements becoming real imports and exports impacting both cost and time
• Full customs entries
• Physical borders including Ireland
• Insufficient resources, people and finance
• Not to mention Gibraltar and the Spanish interest

According to a recent article in the Times:
‘Every day almost 700,000 inbound shipments would require border checks if the UK leaves the EU without a deal, the British Retail Consortium said. Officials at Dover, the country’s busiest port, warn that an extra two minutes to clear trucks through customs could lead to 17-mile traffic jams.’
https://www.bloomberg.com/news/articles/2017-10-30/brexit-s-retail-mess-you-can-t-move-a-supermarket-to-frankfurt

Currently lots of businesses throughout Europe move goods freely throughout the EU. This is due the ability to move goods in free circulation i.e. imported goods which have been subjected to the payment of VAT and duty in the country into which they entered Europe. The subsequent sale and movement of these goods requires minimal paperwork to travel with the consignments and they are only subjected to minor border checks, meaning minimal delays or border issues.
Currently EU law allows for the periodic reporting of these movements via Intrastat, VAT and EU sales reports which allows the aggregation of the mandatory fiscal reporting of these movements which is obviously much more efficient than having to submit a report per shipment or movement.

Some key implications:

Once the UK has left the EU all these movements will immediately become genuine imports and exports and therefore will become subject to border checks and require full import and export declarations. The administrative burden will have severe implications for businesses.
Delays and disruption will increase as border inspections and import clearance requirements will slow up the transition time of goods to pass through the port/borders.
The administration costs for the importer will increase as additional documentation containing full fiscal details of the shipment will need to be submitted at the time of import.
Submitting a full declaration into the HMRC customs system CHIEF will increase the cost of submissions as forwarders and their agents will have to charge for their time.
In addition, the HMRC import software CHIEF doesn’t have the capacity to cope with the anticipated increase six-fold increase in transactions following Brexit. Its replacement CHIEF II is in development but might not be ready and HMRC openly confirm that functionality will be limited, at the same time shelving any plans to deliver an improved system

Possible Outcome:

The administrative burden on businesses will have to be addressed and things like continued use of Intrastat needs to be considered so that the time and costs of processing the declarations and the transition time through the border are reduced. It is to the benefit of neither the EU or the UK to have queues of tucks waiting to cross the border into or out of the UK.
HMRC is looking at subjecting trusted traders like those companies with AEO to fewer and minimal checks as they pass through the borders using simplified declarations and period reporting to allow the fiscal information to follow later in a monthly or quarterly return. The difficulty here is that we would need the EU to agree to such a scheme which will take time and may not be ready for the UK’s exit.

What can businesses do now to prepare?

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 use post Brexit to facilitate the cross-border movement of stock.
Apply for CFSP & warehousing: You can either use an agent or do this yourself
Train your teams: Invest in some international training in areas like Incoterms®, import/export documentation & special procedures.
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.

I hope you’re finding this series useful – it 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:
Disentangling the UK from the EU

Time

This series looks at Brexit through the eyes of importers and exporters and in this edition we’re watching the clock. I’ll also outline some of the steps businesses should consider taking.
The Brexit clock is ticking down to 29 March 2019 – but it is abundantly clear that 2 years isn’t going to be enough time to negotiate the complex arrangements required to ensure a mutually beneficial agreement with the EU. Even the simplest of Free Trade Agreements (FTA) take a minimum of 5-10 years to negotiate and there are just 14 months left before a deal must be signed off by the remaining 27 members of the EU.
However, Brexit is not the only issue on the EU agenda, there are a vast amount of issues currently going through the EU parliament including trade talks with Australia and New Zealand, EU-legislation to protect whistle-blowers, protecting workers from exposure to carcinogens. The link takes you to the EU Press room which gives additional information on these and other issues.
http://www.europarl.europa.eu/news/en/press-room
Talk of red-lines and potential stale-mate will only result in a so-called hard Brexit which could have a massive impact the financial stability of the UK. It would possibly result in chaos at the ports and debilitating legal issues may allow the UK to be crippled by gaps in the statute books which could cost millions.

The lack of time will result in compromises. This means taking a Hard or a Soft Brexit.

Option 1 – ‘Hard Brexit’:

Here, the UK is free to broker its own worldwide trade agreements. However, as of 30th March 2019, all UK imports and exports would be subject to the World Trade Organisation’s (WTO) most favoured nation tariffs. In other words, imports and exports will become more expensive.

Option 2 – ‘Soft Brexit’:

Here, the UK would need to agree on a Transitional Arrangement with other EU countries i.e. a ‘copy and paste’ of current EU legislation as laid out in the Union Customs Code (the UCC) into UK law. This would allow the UK to continue to trade freely with the EU and its partners while allowing more time to broker a full trade deal with the EU and the rest of the world.

Some key Implications

Free Trade Agreements

Under hard Brexit the UK will lose its tariff free trade with the EU & other territories like Turkey, Israel, South Korea. It will take to negotiate Free Trade Agreements (FTA) with each country individually, as even the simplest FTAs take a minimum of five years to agree and adopt. Also, being much smaller, the UK may not have the same bargaining power with larger countries like China and the USA as it did as part of the EU.

Transitional arrangements

The UK and the EU agree that if there is a period of transition this period should be time bound for a maximum of another two years. Many companies have already started to relocate their European activities from the UK to one of the EU27 countries and a prolonged, drawn out fight with the EU would give us a longer period of uncertainty which would mean more businesses moving out of the UK.
These kinds of negotiations take time, lots and lots of time, and having triggered article 50 the UK no longer has the benefit of full membership so will no longer have a voice or be able to vote on European policy or law. The UK will continue to be bound by the EU legislation permitting free trade between the UK and the EU & its partners, so during this extended period the UK would have to accept and adopt the decisions made by the EU. This type of transitional arrangement would not deliver what many Brexiteers feel they voted for.

Possible outcome:

Current rhetoric would lead us to believe that soft Brexit is the most likely outcome. Whatever happens in March 2019 there will be winners and losers. If, as the government has stated, the UK would like to negotiate a whole new set of rules on trade unlike any other arrangement currently permitted when trading with the EU, this will not happen overnight or without costs.

What can businesses do now to prepare?

Whatever the Brexit outcome the suggestion is for business to adopt best practice. So why not act now to stay ahead of your competitors – and of course we can help you.
Review your supply chain: Look at your Incoterms® in place https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-rules-2010 & learn about the origin of your raw materials i.e. where they come from. This can impact your duty bill. https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/rules-origin_en
Apply for customs simplifications that allow you to import & re-export with little or zero duty
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:
What Brexit means for borders

Cost

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

Possible outcome:

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

There are many issues facing the UK as we leave the EU, but which are going to be the most problematic for the country and therefore for importers and exporters?
I’m regularly talking to business leaders and import and export professionals – these are the issues that crop up most often in conversation.

The Top Ten, in no particular order.

1. Cost: No precedence for countries leaving means that the cost of exit cannot be predicted or guaranteed and therefore is up for negotiation. The Brexit Bill, the admin costs
2. Time: The clock is ticking to 29 March 2019 – insufficient time to agree a Free Trade Agreement
3. New UK border: EU Movements becoming real exports and imports impacting both cost and time
4. Complexity of disentanglement: We will need to adopt or re-write the vast amount of EU legislation which is embedded into UK Law
5. It’s not just trade, it is about the four freedoms of the EU:
   • a. Free movement of goods (tariff)
     b. Free movement of Capital (CT/currency)
     c. Provision of services (freedom to provide services within the EU)
     d. Free movement of people (workers & citizens)
6. Fear of the domino effect: A good UK deal could encourage other members to leave
7. Resource: Insufficient knowledge or skill-set as this is all based in Brussels not in the UK
8. No majority in government and no longer have a voice in EU: A deal requires an EU voting majority i.e. 20 of the 27 to agree
9. Conflicting interests: Similar to a divorce, both sides will want the best individual outcome
10. Border control: Full customs entries, physical Irish Border, insufficient resources, people, finance, not to mention Gibraltar & the Spanish interest.

I’d be interested to hear what issues matter most to you, and what should be added to the list. 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, so if you’ve found this useful, bookmark the page and come back for more updates as Brexit Bites!

In my day job helping importers and exporters stay on the right side of HMRC compliance rules, I’m regularly asked for information and views on how Brexit will affect trade. So, ‘Brexit Bites’ is born.
This blog will look at Brexit from a trade perspective, aiming to give the reader an insight into the issues and suggest simple actions that businesses should consider to get ahead of the curve. And the good news is we don’t need to know the outcome of the negotiations in order to do this, as it makes great business sense for any business involved in international trade to make the changes.

The challenge facing us with Brexit is not dissimilar to those encountered during a marital divorce or separation. The complexity is magnified exponentially when it involves getting an agreement with 28 member states, their national Governments and the diverse needs of the 510 million individuals who reside within its borders.

Brexit to date

The Prime Minister Theresa May triggered Article 50 on the 29th March 2017 which gives us just two years of negotiations between the UK and the EU to agree EU exit terms on which the remaining 27 members states will be asked to vote to approve. If an agreement is not reached, negotiating times could be extended, but for the moment, the UK is scheduled to leave the EU on Friday, 29th March 2019, with an exit deal agreed and all existing trade agreements ceasing to apply.

Possible outcomes

In the time since negotiations started little clear progress appears to have been made, despite much political rhetoric. Even if the UK and the EU agree to replicate a trade agreement similar to those the EU has with Switzerland, Norway or Turkey, (none of which satisfy the UK’s trade requirements), 18 months is not long enough to implement a Free Trade Agreement (FTA).
This leaves the UK with two options:

Option 1: ‘Hard Brexit’

• Here, the UK is free to broker its own worldwide trade agreements.  However, as of 30th March 2019, all UK imports and exports will be subject to the World Trade Organisation’s (WTO) most favoured nation tariffs.  In other words, imports and exports will become more expensive.
• Free Trade Agreements (FTA) will also need to be negotiated with each country individually, but even the simplest FTAs take a minimum of five years to agree and adopt.  With the UK being a much smaller country than some of our EU counterparts, it will not have the same negotiating power with larger countries such as China and the USA.

Option 2: ’Soft Brexit’

• Here, the UK would need to agree on a Transitional Arrangement with other EU countries. i.e. a ‘copy and paste’ of current EU legislation into UK law. This would allow the UK to continue to trade freely with the EU and its partners while allowing more time to broker a full trade deal with the EU and the rest of the world.
• The issue with soft Brexit is that it prolongs everything.  Not only is it feared that this would damage UK businesses, but it could cause more multinationals to relocate their businesses overseas.  The UK will no longer have a voice in the EU so it will be forced to abide by legislation without having any voting rights.

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 so if you’ve found this useful, bookmark the page and come back for more updates as Brexit Bites!