And the UK General Election results are in….
With a victory by the Conservative Party we may have the start of some clarity about the future relationship between the UK and EU.
It seems entirely possible that the UK Government will get the withdrawal agreement through Parliament in the coming weeks and that the UK will leave the EU on the 31st January 2020.
Whilst this will be a historic milestone it will not immediately affect day-to-day business as the Withdrawal Agreement’s transitional arrangements will apply whereby the UK continues to follow EU rules until the 31st December 2020 to allow time for the future trading arrangement to be agreed. Meaning that goods should continue to flow as they did pre-Brexit.
The next challenge will then be for the UK and EU to agree the future trading arrangement before the end of 2020. Indeed, there needs to be some progress or confidence that will be the case by July in order for a decision to be made on whether an extension to the transitional agreement is needed or not. With such a majority the Prime Minister may feel more relaxed about an extension to get a better free trade agreement without the need for support from the more hard-line Brexiteers or he may stick to his position of no more extensions in which case December 2020 may see the UK trading under WTO terms and within the arrangements of the Withdrawal Agreement in terms of Northern Ireland and the Republic of Ireland.
Any final arrangement is more likely to be a Canada style free trade agreement than any form of Customs Union / close regulatory alignment The need for customs declarations for goods moving between the EU and UK is almost certain at the end of the transition period.
One question is whether the provisions previously made for a Day1 No Deal Hard Brexit (Postponed VAT accounting, Transitional Simplified Procedures (TSP), Temporary External Tariff) will still be available under a 6-month managed end of transition in the case of no agreement being likely and no extension thus leaving on WTO terms?
What is likely to remain is the removal of the low value VAT relief on e-Commerce goods as that is something that is already being introduced in other countries (Norway being the latest to remove its 350 NOK limit) and due to be removed across the EU in 2021.
Northern Ireland
During the campaign there was some confusion over whether declarations or checks would apply to goods going from the UK to Northern Ireland, and whilst it is perhaps true to say that they would not be necessary going from Northern Ireland into the UK (a risk the UK can decide unilaterally), the decision on goods going from the UK to Northern Ireland is already included in the withdrawal agreement. As is the possibility of export exit summary declarations from Northern Ireland to the UK something highlighted in the leaked Treasury documents on Northern Ireland impact with regards to the EU’s obligations under the SAFE framework.
On imports the Withdrawal Agreement states that goods flowing from the UK and Northern Ireland will be free of customs duty unless there is a risk of subsequently being moved into the EU, whether as a finished product or as part of another product following processing.
“No customs duties shall be payable for a good brought into Northern Ireland from another part of the United Kingdom by direct transport, notwithstanding paragraph 3, unless that good is at risk of subsequently being moved into the Union, whether by itself or forming part of another good following processing. The customs duties in respect of a good being moved by direct transport to Northern Ireland other than from the Union or from another part of the United Kingdom shall be the duties applicable in the United Kingdom, notwithstanding paragraph 3, unless that good is at risk of subsequently being moved into the Union, whether by itself or forming part of another good following processing.”
A bi-lateral committee group should be established to determine which goods would be considered at risk but is likely to exclude goods only if they will not be processed and fulfil some criteria based on final destination, nature, value and for example duty differentials between the UK and EU.
The agreement suggest that UCC legislation will apply to Northern Ireland, including the EU Tariff where applicable and in such cases where customs duties may be due to protect the financial interests of the EU it is interesting to note that any duties collected should remain with the UK treasury and not paid to the EU. However, the UK may
- Reimburse duties
- Waived a customs debt
- Reimbursed customs duties in respect of goods that can be shown not to have entered the EU
- Compensate companies to offset the impact of the application of UCC legislation
So, will we see an increase need in traders in Northern Ireland requiring bonded warehousing or duty management solutions to ensure they are not disadvantaged and allow them to suspend or reclaim duties where it can be demonstrated the goods did not enter the EU. For traders with Northern Ireland operations that have never had the need for such solutions early communication with us to discuss your needs will be vital as 31st December 2020 is not far away especially if you need to integrate your ERP systems.
As well as Customs, the Withdrawal Agreement suggest that Northern Ireland will continue to follow both the VAT and Excise directives.
Ultimately uncertainty still remains on exactly how goods traffic between the UK and Northern Ireland will operate and how far the “ambitious customs arrangements” will go both for Northern Ireland and UK -EU traffic in general and whether it could include an agreement to a common security area removing the need to submit safety and security declarations between the UK and the EU.
So, whilst we have some clarity on where the UK is going this is just the start and there are still a lot of questions to be answered in 2020.
For further information on Customs Declaration Software, Import/Export Product Data and Import Badges please contact us via info@descartes.com
Director, Product Management