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          Brexit focus on tariff barriers and the new EU/UK customs relationship – what this means for your business

          There remains no guarantee that, from the intended Brexit day of 30 March 2019, the current tariff-free movement of goods between the two territories will not cease. Various models for future relationships are in debate, but the UK is currently ruling out the simplest (and least change) model of remaining in a customs union with the EU.

          Date: 23/04/2018

          Whilst preliminary agreements are in place for a transitional period of minimal change through to 31 December 2020, there still there is no guarantee that this would be fully ratified; therefore, uncertainty remains as to the future EU/UK tariff situation for the movement of goods into and out of the respective territories. This creates particularly acute political and practical issues for the border between Northern Ireland and the Republic of Ireland but leaving those to one side for the moment it is the threat to integrated supply chains in which the EU and UK more fundamentally feature.

          Furthermore, even if the movement of goods would be secured without tariffs between the UK and EU going forward, if the UK is outside the so-called Single Market there may no longer be guarantees of regulatory equivalence between the UK and the rest of the EU. Without these guarantees secured by the Single Market, there are possibilities of further disruption from non-tariff barriers; for instance, UK goods not deemed safe or otherwise suitable for being put on the market from a regulatory perspective; at this time, the Single Market prevents this.
          Many businesses have already taken steps to safeguard their risk of a future tariff and/or non-tariff barriers scenario impeding their ability to continue doing business across the UK/EU borders in the manner they do now. It is clear that a change in the trading framework is a threat to continuity to differing degrees for different businesses, but whenever there is change of such a nature there is also opportunity.

          What follows are a small list of actions to hekp you prepare your supply chain to either protect or enhance your business pre-Brexit in respect of potential tariff barriers on goods:

          1. Audit your supply chain and update records. 

          Carry out a risk assessment to determine the impact of Brexit on your trade supply chain.
          What are you bringing into the UK from the EU now and what are you selling into the EU (that has been made in the UK), and vice versa? Having identified the trade flows that are "at risk", consider what such products are (in terms of their Harmonisted System classification numbers) and accordingly consider what is the EU external tariff on such products, that is, what is the additional customs duty on entry of those into EU customs territory from outside.
          Consider also, from your contractual arrangements, if a customs duty was brought in who would be liable to pay it and how might this be passed on to final customers; if so what would be the impact on sales going forwards?
          Only having identified and costed the relevant risks is it possible to devise a suitable strategy to mitigate such risks and/or even take advantage of the current situation.

          2. Consider realigning your supply chain along domestic lines to minimise trade across borders.

          Having identified and quantified the potential risks, consider your sourcing and sales arrangements as to whether goods currently brought across EU/UK borders could be sourced and sold domestically only, such as UK sales of UK origin products and vice versa with the EU. Products sold and sourced entirely domestically cannot be in danger of future customs duty impacts.

          3. Consider your tax situation due to trade flows and whether using suitable tax exemptions would minimise disruption going forward.

          Consider the tax implications on the supply chain of products moving in and out of the UK and EU but with each other's origin components. For example, consider whether the use of inward processing relief, whereby customs duties paid on products that are imported (and wholly consumed in the manufacture of a further product that is eventually exported) are reclaimed. Consider whether any further investment is necessary to put a manufacturing structure in place from which such exemptions can effectively be invoked.

          4. Consider whether the manufactures in the UK that are currently protected by the EU's external trade defence mechanisms will be subjected to unfair competition from imports from various third countries. 

          At present the UK is protected in the same way as the rest of the EU by use of WTO instruments such as anti-dumping, anti-subsidy and safeguards, which result in the protection of EU markets from unfair competition from non-EU markets, typically the Far East. Measures such as anti-dumping that the EU currently has in place against unfairly cheap imports are expected to cease as of Brexit. If you are a UK manufacturer that has benefited from, and relied on such protection historically, you will need to look to a future UK rather than an EU remedy. You must also consider how quickly such a remedy can be in place and whether, or not this can carry on simultaneously from the EU remedy. Equally, if you are an importer of non-EU products subject to such measures, Brexit may be an opportunity for your business.

          5. Consider products of interest that are currently subject to restriction on import into the EU, and whether or not there may be greater potential for importing the same into the UK in future. 

          A number of products, particularly agricultural goods, are currently subject to limitation on import into the EU from non-EU countries, (so-called "third countries"). These limitations are typically in the form of quotas in terms of sheer volume limits and/or "tariff quotas" whereby different volumes are subject to different tariffs. There may be opportunities for greater importation into the UK of such products going forward. If this is of interest, then it is strongly advised to enter into consultations with government to seek to influence the relaxation of such rules on a UK only basis going forward.

          -> To find out more about how to brexit-proof your supply chain, reach out to Jonathan Branton and Vassilis Akriditis today.

          Related people

          Jonathan Branton

          • Partner // Head of Public Sector // Head of EU Competition

          Vassilis Akritidis

          • Partner // Head of WTO & International Trade