Questions Remain Over Brexit Origin Treatment, Customs Procedures for UK Companies

January 23, 2020 by Ian Cohen|Top News

Most aspects of the United Kingdom’s trading environment will remain the same for U.K. companies during the Brexit transition period, according to Kevin Shakespeare, director of stakeholder engagement at the Institute of Export and International Trade. But there are some important developments companies should monitor, including a changing trade relationship with Ireland, preparing for new customs procedures and an unclear environment surrounding origin of goods. Perhaps most importantly, Shakespeare said, U.K. traders need to maintain communication with customers, suppliers and stakeholders to retain their confidence during the transition period.

While most U.K. companies closely follow Brexit updates, foreign companies and other countries may not be as familiar with recent developments, Shakespeare said, speaking during a Jan. 22 webinar hosted by the institute. Some companies may assume the U.K. formally leaves the EU on Feb. 1 without a transition period. “We can't control what the news is in Europe and the rest of the world. But what businesses can control is communicating and advising their customers, suppliers and stakeholders,” he said. “What we don’t want are misunderstandings.”

The U.K. is scheduled to formally leave the EU Dec. 31 after a transition period beginning Feb. 1 (see 1912130063). Although the U.K. can extend the transition period for up to two years, Shakespeare said most political observers think an extension is unlikely. During the transition, U.K. companies will remain subject to all European laws and trading regulations, including any new EU laws that are passed. “The working assumption is that everything remains the same,” Shakespeare said.

There are questions, however, about how third countries might treat U.K. traders during the transition. It is unclear whether third countries will honor U.K. goods as originating in the EU for purposes of preferential treatment, Shakespeare said. Although U.K. goods will still be considered EU origin by law, countries outside the EU may make their own determinations. “You could argue it’s up to the individual countries as how they interpret that,” Shakespeare said. Some countries, such as South Korea, have agreed to continue considering U.K. goods as EU origin for three years, Shakespeare said. Other trading partners have no such agreements with the U.K. “It is sometimes difficult to legislate what customs authorities in certain countries will adopt,” Shakespeare said. “You could argue that further clarification is required on that.”

One of the “biggest changes” for U.K. businesses may be its trading relationship with Northern Ireland after Brexit, Shakespeare said. Although Northern Ireland will technically remain in the U.K.'s customs and value-added tax territory, the region will be subject to EU rules, he said. This may cause confusion as Northern Ireland continues to apply EU customs rules, Shakespeare said, and will raise questions about whether a “customs and regulatory border” will be established in the Irish Sea. This may lead to border checks on goods moving from Britain to Northern Ireland, with potential checkpoints for customs declarations at ports in Scotland, Wales, England or Northern Ireland. “Will some goods not be subject to border controls and customs requirements?” Shakespeare said. “That remains to be seen.”

U.K. companies should also ensure they know who their end-purchasers are in Ireland, as different customs rules will apply in the north and in the south. “If your goods are going to Northern Ireland, are they eventually being sold to southern Ireland? Where is that sale taking place? Are they part of the production process in Northern Ireland for raw materials before they move to the south?” Shakespeare said. “In practice, it has to be worked out what the situation will look like.” He also said “there has been lots of talk” about tariff rebates for goods in cases where the British exporter can provide evidence that the goods will not be transferred from the north to the south.

Shakespeare also strongly urged companies to apply for government grant funding for customs training before the Jan. 31 application deadline. U.K. businesses are eligible for £2,250 worth of customs training grants, which covers the cost of one employee, Shakespeare said. “Companies have to understand their responsibilities in the eyes of customs for a declaration, even if you’re a forwarder or an agent,” he said. “I cannot stress enough how important customs procedures, customs grants, customs declarations are.”

U.K. companies should expect more government notices throughout the transition period to clarify some of these topics, Shakespeare said. “As we head toward December, there will be more notices … but at this stage, we can't speculate too much about what they're going to look like,” Shakespeare said. “The basic principle is that during the transition period, a lot stays the same.”