The UK officially left the European Union (EU) at 11:00 pm on 31 January 2020. However, as part of the Withdrawal Agreement with the EU to help the UK transition away from EU membership, EU law continued to apply to the UK as if it were still a Member State until the end of 31 December 2020. On 24 December 2020, the EU and UK reached a Trade and Cooperation Agreement (TCA), which applies as of 1 January 2021. From this time, the UK and EU became two distinct regulatory, legal and customs territories.
Trade issues are at the very heart of Brexit. The TCA is a complex free trade agreement that has a number of very significant implications for UK business. First, service trade was largely left out of the deal, making trade in services much harder. Second, manufacturers only get duty free treatment if their goods originate in either the EU and UK. This is a huge issue for global supply chains. Third, all imports into either the EU and UK will face new and complex customs and regulatory checks adding significant new costs to trading.
Set out below are the top implications concerning trade which organisations should be considering now that the UK is no longer part of the EU.
-
Review changes to business processes
Have you read the revised UK legislation that affects your business? Does it require you to make changes to your business processes? By when? Does it allow you to do what you expected? If not, reach out to trade associations to see whether the industry takes the same view. Have you spoken to the Government about your concerns? Are you monitoring new EU and UK legislation designed to implement and operate the TCA?
-
Review supply chains
Have you understood your supply chain for goods? What changes will need to be made to (i) deal with new customs and regulatory checks on trade between the EU and the UK and (ii) meet the need for goods to "originate" in either the EU or the UK?
-
Consider tariff rates
What will happen to tariffs on finished goods and inputs for manufacturing under the TCA? The TCA only allows for "tariff-free" movement of goods between the EU and UK where those goods “originate” in either the UK or the EU. These "rules of origin" in the TCA are complex and lengthy. Many manufactured goods will currently not meet these rules of origin, and you may have to decide whether to pay the duty, or spend time and money re-tooling supply chains by, for example, setting up separate supply chains that do not require movement between the EU and UK.
-
Consider additional component costs
Have you checked whether your UK suppliers might import components from the EU or a country with which the UK has an FTA? Are they going to charge you more as a result of the goods failing to meet the TCA "rules of origin"? What happens if they do?
-
Check input costs
If input costs change, for example as a result of failing to meet the rules of origin, who bears those costs? Have you checked any long-term supply agreements for provisions on price changes? Who is responsible for import procedures now that they are relevant?
-
Review import requirements
Have you completed all necessary requirements to import into the UK and the EU? Or are you intending to use a third party, and have you got relevant agreements in place? What about standards and product certification?
-
Consider available customs duty reliefs
Is any reliefs from customs duty available? What steps do you need to undertake to benefit from it? What is the lead time? Is the difference between paying any new tariff and the relief significant? If not, have you considered simply paying the duty and not spending time on the relief?
-
Review shipments and warehousing locations
If you import key components from the EU or a country with which the UK has an FTA, can you move shipments away from a ports that may be crowded, such as Dover, to one that isn't? Have you checked with your logistics provider that it has all the necessary paperwork to operate "hassle-free" imports in accordance with the new rules of the TCA? Should you consider stockpiling certain key inputs? Have you got space to do that? Do you need additional warehousing space? Do you need to consider funding provisions with banks in order to stockpile?
-
Consider provision of customs services
Do you have staff or service providers ready to deal with new customs procedures regarding trade with the EU? Are they trained in new UK customs rules? If you don't have staff, or they are not trained, can you get a third party to provide customs services? Are they available and how much will it cost?
-
Review export controls
Are any of your goods or technologies subject to export controls? If so, you will need to consider how those goods can move between the UK and the EU. Have you applied for UK licences for export to the EU? Have you registered under the EU system to move goods to the UK? Also, remember, licences obtained from the UK do not permit export of controlled items from the EU, and licences obtained in EU Member States do not permit export from the UK.
If you require further information or if you need tailored advice, please do get in touch with your usual Ashurst contact, or the contact listed below.
