Why the EU Customs Tariff must be simplified: Just look at the UK GT!

The UK took a significant step forward its BREXIT preparations when the Department of International Trade published the long-expected UK Global Trade Tariff. This should be a wake-up call for the EU Customs Union.


Time for the EU to step up and modernize an archaic structure


by Arne Mielken


UPDATE 1 June 2020

A friendly conversation with trade expert Richard Bartlett on the new UK Trade Tariff

In this article, I argue that this should be a wake-up call for the EU Customs Union. This started a debate amongst "customs geeks" as to if I was right or wrong. Most liked the article, others argue that "I do think the writer is trying to make an awful lot of very little here. Changing the tariff doesn't really simplify anything".


Some disagreed with me outright saying "By moving away from the common structure of the EU's Tariff, UK businesses will now have doubled the complexity of their classification efforts".


Time to talk it out.


I met up with Trade advisor Richard Bartlett from Export Unlocked and asked him for his views on the UK Global Tariff. No controversial topic was off the table. Is having two rather than one tariffs good for the EU and the UK? Did the UK really gain a simplification? How big of a deal is having ones' own customs' tariff? What are the key changes in the new UK Customs Tariff? Should it really be a wake-up call?


https://www.youtube.com/watch?v=Y3QxZyz0R4E


Bring on the REAL Brexit: We are ready

The UK took a significant step forward its BREXIT preparations when the Department of International Trade published the long-expected UK Global Trade Tariff. On 1 January 2021, the EU is scheduled to end the transition period, which currently ties the UK to EU rules, even though the proud Island in the North Sea left the political structure on 1 February 2020.

Building a new tariff

"Going it alone" means building up once again all those legal, economic, and political structures that were harmonised through EU membership. One of those structures that need to be decoupled from the EU is the UK Customs Tariff. It is an essential piece for all matter's customs. It is essentially, a numeric translation of a product to be imported into the UK.

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A globally harmonised system

Another way to think about it: It is a numbering system with its own, rather complex logic. The system the UK (and the EU and over 170 other countries) follow is known as the Harmonized Commodity Description and Coding System (HS system), developed by the World Customs Organization (WCO). The UK is a member of the WCO along with 182 other countries, which combined makeup 98% of world trade. The process of finding out which number combination corresponds to an import or export goods is called "classification for customs purpose" or "customs classification".

Why sovereignty matters too much for the UK

The UK is not getting tired of letting the EU know that the proud nation of Shakespeare and Fish & Chips is on its way to full independence and is sovereign. Anyone who followed British history knows how deep-rooted and important that sentiment is. So, sovereignty matters a great deal, and the UK government will make use of every opportunity to showcase this. Along comes the UK Tariff. An opportunity to showcase the nation's newly found "independence" (it is a different debate whether the Member States of the EU are actually completely sovereign or not, too – as the fact that you can leave the EU if you want shows).

As a sovereign nation, the current European system of customs classification is deemed overly complex and administrative. Being sovereign means the ability to change it all and create something better. So, did the UK change their system for the better? And is the EU's system overly complex? Let us investigate.

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The EU Customs Union at 50+

The European Union (EU) has its own external customs tariff, the same being applied in all EU Member States. This is possible because the EU operates within a Customs Union, again for all EU 27. This Customs Union in over 50 years old. At 50+, we know from our own life that our body goes through many good and bad changes. You also may get quite stuck in your ways and lose the ability to radically change: "We have always done it that way", is something you hear quite often.


A mini-revolution: The Common Customs Tariff is born

Severn years before the UK joined the EU, in 1968, that all customs duties and restrictions are lifted between the six-member countries of the European Economic Community - EEC. On 1 July 1968, 18 months ahead of schedule, the first common customs tariff entered into force. Its creation was a remarkable accomplishment, given that it swapped about 20,000 national customs duty rates on products by 3,000 common ones. It was a visionary project that businesses could rally behind. It made sense. It brought practical benefits. It simplified and harmonised. It cut red-tape. Businesses rejoiced. It was a mini-revolution based on a common vision. Trade between the Member States multiplied, investment and economic growth increased.


No longer fit for purpose in the 21st century?

While the Customs Tariff was a great achievement in 70th of the last century, the unveiling of the UK Global Tariff, with its focus on cutting bureaucratic delays and "red tape" that pose a burden for moving goods across borders for UK traders, makes me question it the EU's Tariff is still fit for purpose today.


If the UK can do it, so can we, right?

Isn't it time that the EU had a serious and good look at its Tariff with a view to "chuck out" everything that is not strictly necessary? After all, in today's multi-faceted, complex, and global world, every effort must be undertaken to bring about trade facilitation. The EU Commission and the EU Member States say they are committed to simplification, modernisation and harmonisation export and import processes, so go right ahead, and put this commitment into practice, by simplifying the EU Tariff. If the UK can do it, so can we, right?


A closer look at the complexities of the EU Customs Tariff

A closer look at the EU Customs Tariff reveals how complex the EU system is. The EU Tariff consists of eight parts, yes eight (8!).

1. The Combined Nomenclature, the CN.

2. Any other nomenclature which is wholly or partly based on the CN

3. Autonomous customs duty

4. preferential Tariff between EU and third countries

5. preferential Tariff that the EU grants

6. EU's autonomous reduction in the customs tariff

7. EU's favourable tariff treatment specified for certain goods

8. Catch-all provision (any other measures are coming from agricultural or commercial EU law).


Why is the UK not happy with this system?

It is not that the UK is not happy with this system per se, and it will actually maintain most of these provisions, it is a more fundamental problem with the fact that the EU Tariff is not based on national but Union law, so one level further removed from the UK legislation. The UK customs authorities could only provide businesses with information about the Tariff, but national tariffs – like the UK Integrated Tariff - are not authoritative sources of law. With the new UK Global Tariff, the UK alone gets to change tariff duty rates as she pleases (well, kind of).


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What is the UK's Global Tariff?

It is the UK's new MFN tariff regime, called the UK Global Tariff (UKGT). It will replace the EU's Common External Tariff on 1 January 2021 at the end of the Transition Period.

What does it aim to do?

The UK says that the UK Global Tariff

  • is tailored to the needs of the UK economy

  • supports the economy by making it easier and cheaper for businesses to import goods from overseas

  • is simpler, easier to use and lower tariff regime than the EU's Common External Tariff (EU CET)

  • displays duty rates in pounds (£), not euros

  • scraps red tape and other unnecessary barriers to trade

  • reduces cost pressures

  • increases choice for consumers

  • backs UK industries to compete on the global stage

Compare with how the EU sells her Tariff



Does this sound like something that has as a fundamental goal to support EU businesses and strengthen competitiveness?


Streamlining and simplifying – anywhere except for the EU…

The UK says it is taking a "common-sense approach" and streamlines and simplifies nearly 6,000 tariff lines. As it was the case in 1968 for the EU, now it is the UK's turn to lower costs for businesses by reducing administrative burdens. Can the EU really afford not to consider how its Tariff can be overhauled?


What's on the menu?


The UK is

  • scrapping unnecessary tariff variations,

  • rounding tariffs down to standardised percentages

  • getting rid of all "nuisance tariffs" (those below 2%)

Looking at the new UK Global Tariff shows how effective simplification can look:


An early Christmas present to UK businesses

"The UKGT also expands tariff-free trade by eliminating tariffs on a wide range of products. The UKGT ensures that 60% of trade will come into the UK tariff-free on WTO terms or through existing preferential access from January 2021, and successful FTA negotiations will increase this". Hallelujah! I am all for it. It is a no brainer. It will lower costs for certain businesses and increase the choice for consumers, keeping prices down. Highlights in the new UK Tariff according to the EU government:

  • Dishwashers (down from 2.7%).

  • Freezers (down from 2.5%).

  • Sanitary products and tampons (down from 6.3%).

  • Paints (down from 6.5%) and screwdrivers (down from 2.7%).

  • Mirrors (down from 4%).

  • Scissors and garden shears (down from 4.7%).

  • Padlocks (down from 2.7%).

  • Cooking products such as baking powder (down from 6.1%), yeast (down from 12%), bay leaves (down from 7%), ground thyme (down from 8.5%) and cocoa powder (down from 8%).

  • Christmas trees (down from 2.5%).

These are significant savings that can be made. I just love the fact that we got an early Christmas present – even our Christmas tree is now cheaper


So, EU, will you be as bold as the UK?


The Tariff as a contribution to fighting climate change

The publication of the UKGT shows impressively how much of a policy tool a Customs Tariff can be. The EU does not drum up it's advertising for the EU tariff. Nobody knows about it and nobody outside the customs and global trade community cares. This is not acceptable. The UK writes "We will promote a sustainable economy by cutting tariffs on over 100 products to back renewable energy, energy efficiency, carbon capture, and the circular economy". With the EU on a path to carbon neutrality, we expect nothing less in the next couple of years:

In the UK, the following are all dropping to zero tariffs:

  • Thermostats (down from 2.1%).

  • Vacuum flasks (down from 6.7%).

  • LED lamps (down from 3.7%).

  • Bike inner tubes (down from 4%).


Maintaining tariffs to back UK industry

The UK is maintaining tariffs on several products such as agricultural products and sensitive ( lamb, beef, and poultry), automotive and fishing. This makes sense for the UK economy. They are maintaining a 10% tariff on cars and a vast majority of ceramic products.


What does the UK or EU Tariff do for other taxes?

Nothing. Both tariffs do not cover other import duties, such as VAT, the precise details of trade remedies measures or any other restrictions on imports, such as anti-dumping, countervailing or safeguards


Conclusion

The publication of the UK's Global Tariff should be a wakeup call for the EU. The UK is making the most of its newly found "independence" by simplifying and streamlining the customs tariff, for the benefit of UK business. This is significant and should not be ignored. I have always said that the exit of the UK should not be swept under the EU's carpet. An open-ended, open-minded, forward-looking and modern discussion must occur on how the EU needs to change as a result of Brexit. The EU tariff is just one example where a radical revision can lead to real benefits for EU businesses. This is an opportunity not to be missed. Let's go EU.


Additional Reading

  • Download HMRC Explainer Briefing


Sources


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