by Corinne Nabavi and Arne Mielken
last updated 07 June 2020
The world as we know it is slowly coming to an end, so it seems. Who still remembers the 29 March 2019, the original date the UK was supposed to leave the EU? We spent three years in Europe engulfed by separation issues with hardly any consideration for anything else. When we eventually left some 10 months later, on 31 January 2020, little did we know what catastrophe was coming our way, even though, admittedly, the signs were already there.
Today, Brexit and Free Trade Agreements and Global Britain seem so far away one can hardly remember what all the fuss was all about, it seems. Does the question change from “How great will Great Britain be outside the EU?” to “What is left of the Great in Great Britain after COVID-19”?
No bandwidth for anything else - but still forging ahead with 31/12/2020, at least at the moment. Last week, the final scheduled round of Brexit negotiations has concluded.
This article summarizes the main points raised and take a closer look at the impact of the customs that trading with the EU outside the Customs Union and the Single Market really means.
Customs Declarations, IT & Customs Brokers
With all the issues of the Coronavirus now, it is difficult for companies to still focus on Brexit preparations. Yet to date, the UK is still pushing ahead with cutting the last remaining ties by the end of the transition period, scheduled for the 31 December this year – a mere nine months away. And the time to get ready is running out fast… COVID-19 or not, FTA or not: The reality is that Customs Declarations are coming You can blame COVID-19 for a lot, but not for its lack of clarity.
Now we know what leaving the EU will actually mean. Sure, we may get a free trade agreement, and this may alleviate some pain points of losing the EU Single market access. But when the transition period ends, all companies currently trading with the EU will be required to complete import & export Customs declarations for all their movements of goods from and to the EU – with or without the FTA, with or without COVID-19 – at least from what it looks like today. This is provided the UK government does not prolong the transition period. They would need to change UK law to be able to do that.
False Expectations: The EU-UK FTA is not a replica of the EU Single Market
So, back to this nebulous Free Trade Agreement with the EU. With both Chief Negotiators out of action due to COVID-19, there is not a lot of negotiating going on. With both The EU and the UK are not able to focus on FTAs right now, so it would be a miracle for the UK and the EU to get even close to a deal now, especially with so many open questions and battle lines drawn. For example, the UK asked for a Free Trade Agreement (FTA) with the EU similar to that of the Canada FTA agreement. But, what does this really mean? For companies that only trade with the EU, they could mistakenly be of the opinion that the FTA will solve all their problems in that they will still be able to trade as they do now with the EU and only provide the monthly indirect tax Intrastat declarations for businesses that move goods cross-borders in the EU (if over the thresholds) on a monthly basis. This is not what even the best FTA deal will do!
Update 7 June 2020: Main outcomes of the Forth Negotiations Round
Update 22 May 2020: Main outcomes of the Third Negotiation Round
UK letter to the EU (19 May 2020)
What is key to know about FTAs? ROO of course!
The FTA is a complex agreement covering many business areas e.g. Market Access, Technical Barriers, Investments and Customs & Trade Facilitation. The FTA will also include the so-called rules of origin (ROO). To benefit from a duty reduction under the terms of the FTA, products will need to be evaluated to find out if they conform to the relevant origin rule based on the tariff code assigned to the product. The devil is in the detail when it comes to making sure that you allocate the one and only customs tariff code to your product. Any mistakes and you may mess up looking at the incorrect rules of origin and any claim for preference and reduced duty may prove to be wrong. In the worst case, you would be under or overpaying customs duties. If, however, the product with the right tariff code conforms to the origin rule, then the import duty will either be reduced from the standard rate or ideally to zero. If the product does not qualify under the rules of origin, then, unfortunately, the standard duty rates apply. If you do make a claim for preference, make sure to keep detailed records of your reasons for tariff classification and origin determination. You must keep those for potential future Customs audits.
CFSP to the rescue!?! IT solutions are popular right now for being the miracle solutions to all customs problems. “Seamlessly file import and export Customs Declarations,” “automate all FTA rules of origin qualifications,” “speedy imports,” “export in full compliance” is what I read again and again. But what does this actually mean? Often, practically, the solution proposed to those embarking on filing customs declarations for the first time is to get authorised for HMRC’s “Customs Freight Simplified Procedures (CFSP).” This enables a Customs Broker to submit a Simplified Frontier Declaration (SFD) to Customs, which clears the goods from the frontier and is then followed up with a Supplementary Declaration (SDI). Why does this matter? Holding a CFSP authorisation could result in quick processing of the declaration and the release of the goods, to be followed by another declaration later, post-import. So, you can get your goods faster than following the traditional route. So, a no brainer, right?
There is no such thing as a free lunch…. Well, not so fast. A company will usually need to purchase a software package to communicate with the current UK Customs system CHIEF, train their staff to operate the system and also employ a Customs Broker to allow for goods to ‘arrive’ at the air/port. Customs can then decide to inspect the goods or documents if selected. This is time-intensive and may delay the arrival of the goods, regardless of the company is CFSP certified or not. To limit the possibility of Customs selecting the goods for inspection at the air/port, a company could apply for ‘Authorised Consignor/Consignee’ authorisation which is yet another authorisation to obtain (requiring investment in time and funds), but this would enable customs authorities to inspect the goods at your premises rather than at the air/port. Either way you spin or twist it, if Customs wants to see your stuff, they will! And you will wait patiently until they are done!
Outsource it!? Yes, but no, but yes….but only if I know-how… If a company decides that they do not want to be involved in submitting Customs declarations for their EU transactions, then they can employ a Customs Broker. The customs broker can submit an import or export declaration to Customs on your behalf (at a cost), but your company is legally liable for all the information in the declaration which is submitted to HMRC. And while the customs broker will usually be as helpful as possible and can provide you with information on the applicable origin rule, they will require clear instructions from you. You would need to confirm the customs classification code and if the product qualified for preferential trade.
Conclusion Since 1 February 2020, we know what Brexit looks and feels like, kind of. We know, it’s not as Great yet as I’m told my Great Britain will be. We are still in a transition period. We are still under the COVID-19 shock. The global virus does not care about Brexit or Free Trade Agreements. It does not care if and how we take back control. The social and economic consequences are beyond comprehension. FTA negotiations with the EU are on pause and the clock is still ticking. We may not know about every little detail of the rules which will be implemented on 1 January 2021, but customs declarations will be coming. So, even while at home we can talk about something else other than COVID-19. We can prepare for the real EU exit. We can and must get ready and the best way is to understand how your business operates today and how it should operate on 1 January 2021. Even if nothing seems to be the same as before.
The author of this article, Corinne set down with the Founder of Customs Manager, Arne, in “Meet-The-Expert” Live meet-up. Previously, we had requested other customs managers and global trade professionals to send in their questions for Corinne. Request a copy of the recording to listen to her live responses as they discuss the following five themes:
1. The Transition Period
2. The EU-UK Free Trade Agreement
3. Customs clearance
4. Post-Brexit easements and facilitations
5. Top Five Tips that Customs Managers and Global Trade Professionals can do now..
Corinne's Brexit Need-To-Know Guide
Get a quick overview of the key issues that Corinne covered in her live presentation with this comprehensive guide on Brexit. Excellent to get up-to-speed on key issues on Brexit and can also be used by Customs Managers and Global Trade Professionals to prepare for a meeting or ad-hoc presentation on Brexit. Get the free Brexit Need-To-Know Guide.
About the author Corinne has 45 years’ experience working in different business sectors setting up controls and procedures relating to Customs Import & Export compliance. Experienced in implementing Customs computer systems for importing, exporting, warehousing and IP for direct reporting to HMRC. Involved in projects advising on the Customs Authorisation requirements for EU & Non-EU countries being implemented into a Swiss Principal company model which then owns all the stock in those countries. Having worked pronominally in commercial companies, Corinne is well placed to understand the complex issues that importers and exporters face with tariff classification, rules of origin, Customs authorisation applications and Customs audits. In 2017, through setting up her own Customs Consulting and Training business Corinne provides consulting and training on Import, Export, Customs Special Procedures and Preferential Origin.
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