Brexit Customs Risk
After Brexit, the European Union customs laws will no longer apply to the United Kingdom. If there is a transitional period, they will continue to apply until the end of the transitional period. United Kingdom has passed legislation which replaces the EU customs law with United Kingdom customs law on virtually identical terms. See the separate sections of this website in relation to the new UK legislation.
The WTO rules require states to apply the most-favoured-nation and the non-discrimination principle to all other states. There is an exception to this requirement where there is a customs union or comprehensive trade agreement with the other state.
Therefore, states and in the case of the European Union a trading block such as European Union must apply to all countries with which it does not have a customs union or comprehensive trade agreement, the same non-discriminatory trade rules and tariffs. See the separate sections of this website which deal in detail with the World Trade Organisation obligations and issues in respect of comprehensive trading agreements.
Because of the above principles, the generally understood position in the event of a so-called hard Brexit is that each of the United Kingdom and the European Union would have to apply to each other the same customs tariffs and trade policies that they apply to third countries with whom there is no comprehensive trade agreement such as China or the United States.
Because it appears that each of the European Union and the United Kingdom will start on day one after Brexit with identical trade policies, each will apply to each other the same treatment which the European Union now applies under its customs tariff and trade policies to such ‘ third countries as China and the United States.
The expectation as of November 2018 is that despite the apparent stand-off and running out of time to approve a withdrawal agreement, which provides for a transition period for the United Kingdom of the 31 December 2020, that a withdrawal agreement will be concluded and entered by the UK and the EU prior to the scheduled Brexit date of 29th of March 2019 11 pm GMT.
However, should despite the expectations of the parties, the European Union and United Kingdom fail to enter a withdrawal agreement, the default legal position is that each of the United Kingdom and the European Union would commence trading with each other on the WTO terms, i.e. the terms of the custom tariff and trade policies apply to third countries with whom there is no comprehensive trade agreement.
Possible Hard Brexit Mitigation
It may be that even in the absence of a withdrawal agreement and Brexit becoming fully effective by default on 29 March 2019 (may also apply to new exit date on 31 December 2020), that each of the EU and UK may take some steps to mitigate some of the effects of Brexit including some of the requirements of the WTO obligations. However, there would be potentially serious consequences for each of the EU UK should they fail to apply “WTO” terms to each other after a hard Brexit.
Third countries could claim against each of the EU and UK that their nationals and businesses are entitled to the same favourable treatment that the UK or EU was extending to the other. There are mechanisms under the WTO treaties whereby these claims can be determined and ultimately trade sanctions and remedies can be permitted in favour of one state in consequence of the other state’s (or trading bloc’s; the EU) breach. There is a very real and serious risk that the failure to put in place the terms of customs tariffs and trade policies applicable to other third countries could lead to real sanctions and economic consequences for the UK and EU.
The United Kingdom has indicated that it will not put a hard border in place in Northern Ireland irrespective of whether there is or is not a hard Brexit. This may arguably be permissible under WTO rules on a very wide interpretation of the so-called frontier exception.
Customs and Security Formalities Irish Side
In the event of a so-called hard Brexit, goods imported into the EU from the United Kingdom or goods exported to the United Kingdom from Ireland will be subject to EU and UK customs control. Customs formalities and requirements would apply to both the exportation of goods from the EU and their importation into the UK. Equally customs formalities would apply to the exportation of goods from the UK and their importation into the EU.
Importers must ensure the carrier submitdan entry summary declaration at the time of import. They must submit an import declaration to Revenue using their software or through the agency of a broker, freight forwarder or logistics provider on their behalf. They must pay value-added tax, customs duties and import duties including excise duties where applicable. Duty and Vat may be postponed while the goods are entered into a duty suspension arrangement. See generally other sections in relation to the suspensions arrangements available.
Businesses which export to the UK will be required to submit export declarations. The importer in the UK must make the relevant import declaration. The exporter may need to consider whether they require a customs broker, freight forwarder or logistics provider or put themselves in a position to do so themselves.Export and import licenses and supporting documents may be required in more cases than at present.
Customs and Security Formalities UK Side
After Brexit, each movement of goods will be subject respectively to export and import formalities on the EU and UK side as the case may be.Businesses must apply the same customs and excise rules to goods moving between the UK and the EU the EU and UK as apply in trade with third countries outside the EU.
Hauliers and carriers must make a safety and security declaration on goods moving between the UK and EU.Safety and security declarations are required from the carrier whether an airline, haulier or shipper .
There are two types; an exit summary declaration and an entry summary declaration. The carrier submits the exit summary declaration to the customs authority of export. This may form part of the export declaration for customs purposes. The carrier is required to submit the entry summary declaration to the customs authority in the country of import.
Customs declarations will be required when goods are imported into or exported from the UK. Declarations must be made and lodged with Revenue and HMRC (UK Revenue) in each case. The goods may be required to be presented at the frontier. The customs authorities may require payment or guarantees for potential or existing customs duties. Further returns and record will be required.
Businesses must determine the correct classification and valuation of the goods under the customs code and enter it on the customs declaration. The tariff information is available online with guidance in relation to the applicable commodity code, required to classify goods
The TARIC / Tariff
There is a common system worldwide for the classification of goods.The common customs tariff defines the applicable customs treatment. See the article in relation to the customs tariffs. See the InterTradeIreland website which in relation to goods classification and assistance in classifying goods and using the tariff
Businesses must consider the goods they export and their constituent parts and in some cases their purpose or use. The origin of the components and parts must be considered.The UK has enacted legislation to provide for the establishment of a UK trade tariff equivalent to the EU trade tariff.
Classification is made into one of a number of numeric commodity codes. They are listed in the tariff together with the rate of import duty applicable under the code. The duty may be a percentage or calculated by a formula. This is usually based on the customs value of the goods. The code describes the method of determining the duty applicable with reference to the customs value.
The commodity code is 10 digits for imports and eight digits for exports. They are standardised under the World Customs Organisation harmonised system for the first six digits of the code. Longer tariff codes are used in some cases for particular purposes
VAT and Excise
Goods entering the EU from the United Kingdom or dispatched from the EU to the United Kingdom will be treated as imports and exports respectively in accordance with EU VAT legislation. Taxable persons established in the United Kingdom who purchase goods and services or import goods subject to VAT from an EU state may be required by that state to designate a tax representative in certain limited circumstances as the person liable for payment of VAT.
The existing EU excise movement and control system no longer applies to excise duties suspended movements of excise goods from the EU into the UK. They are treated as exports, and the excise supervision ends at the point of exit from the EU. The movement of excise goods to the United Kingdom will require an export declaration as well as an electronic administrative document.
Before importing goods from the United Kingdom, a business will need to register for an economic operator registration and identification (EORI) number. Businesses should consider how they will submit import and export declarations. They may need to consider engaging a customs broker freight forwarder logistics provider. The terms of the import and export contract must reflect the necessity for customs controls.
Authorisations granting the status of the authorised economic operator and other authorisations for customs simplification issued by the UK authorities will no longer be valid in the EU customs territory. Equally, EU authorisations may not be recognised in the UK.
Licensing / Prohibitions
There may be a need to obtain import licences or export licences depending on the specific nature of the goods concerned. A greater range of licences will be required after Brexit EU wide licences will no longer be available on certain specific areas.
Some goods entering the EU from the United Kingdom or leaving the EU to go to the United Kingdom are already subject to prohibitions and controls on the grounds of public policy and security, protection of the health and life of humans animals or plants and the protection of national treasures.
The nature of the goods determines the controls applicable. Some further controls and restrictions will apply after Brexit, as common EU systems of control will no longer apply. The tariff flags up the licensing requirements applicable to goods.
Third Country Trade Agreements
The EU has preferential trade agreements with numerous third countries. Under those trade agreements, goods imported from the EU may benefit from a preferential tariff rate treatment. Under the agreements, the goods must generally be wholly obtained from the EU. This requires that they are to be manufactured in the EU totally or substantially. The particular agreements may define the exact criteria.
After Brexit, goods or parts originating in the UK may no longer qualify as EU content for the purpose of the EU’s trade agreements with third countries. This may cause the loss of the preferential tariffs and duties available under the trade agreement for those goods on import into the third country concerned. They may no longer qualify under the rules of origin applicable. The origin of the goods may be certified by governmental authorities or bodies or in some cases by the exporters themselves, subject to prior authorisation.
Procedures may be available to postpone or manage payment of customs duties excise duties and VAT. The various facilitations commonly used are dealt with separately on this site. They include
- customs warehousing
- inward processing
- temporary admission
In the case of excise goods, there is a provision for suspension which may ease cash flow requirements