Whilst the UK remains part of the EU’s internal market, it’s as easy to export to Athens as it is to sell goods to a buyer in Aberdeen. Imports from Munich are as easy to obtain as buying from a supplier in Manchester. All this is about to change fundamentally writes Tim McNamara.
It’s over 20 years since anybody in the UK has had to worry about any Customs procedures when exporting/importing to/from the rest of the EU. It’s over 40 years since anybody has had to consider filling in Customs forms to have duty free status. Yet May’s plans to be outside of the Customs union will bring a plethora of paperwork, a huge rise in the necessary resources and complications to the UK’s trade with the EU (and vice versa).
The UK is scheduled to fall back on World Trade Organisation rules. Which means that Customs duties on manufactured goods will average about 3.8%. But obviously can vary e.g. 10% on cars or 0% on aircraft parts. Since a lot of manufacturing works on small profit margins, the effects will be highly significant.
One of the most difficult areas will be what is termed ‘intermediate trade’, that is the complex relationship in a manufacturing process/supply chain whereby goods/processes cross national boundaries (often several times) so as to arrive at the finished good.
Take automobiles for example, each car manufactured in the UK contains numerous parts that are sourced from across the EU and to much lesser extent the same applies to cars manufactured in the rest of the EU. Outside of the Customs union, each individual importation/exportation of such components/parts will require a Customs entry form, a proof of origin declaration, a tariff classification and an accurate tariff description.
It will require the accurate calculation of the cost of carriage/freight (of the item as well as the cost of insurance (CIF) up until the national border. It will also require the accurate amount of the invoice value for VAT purposes, not easy to verify when trade is between related partners or within the same organisation.
The finished product, if exported/imported, will require an origin calculation as the amount of value-added in the manufacturing process to confer origin of the product. A further complication will be the ability to claim import duty back (Duty Drawback) on any parts imported from the rest of the EU if the finished product is exported.
If the finished product is exported outside of the EU via another country’s ports or airports (e.g. Rotterdam or Antwerp). the export documentation will also require a transhipment form to be completed, alongside the standard duty drawback calculations. Each transhipment will require that the goods are tracked and certified by another customs agency,in the EU, that the transhipped goods were exported in the same amount/condition/value as declared on importation.
If the finished product/ any physical product is being used to tour around the EU (e.g. to Industrial Fairs or Musician’s equipment), they will need a Carnet form in order to avoid paying import duties on the value of such goods and then having to claim duty drawback on re-importation into the UK.
Besides complex engineered goods many people are not aware how much intermediate trade/transhipments goes on (both inside and outside of the EU). Ireland used to tranship malted barley from the Guinness brewery in Dublin to its brewery in Nigeria. It exported cows’ phlegm to pharmaceutical plants in the EU for cultivating antibiotics. Both transhipped through the UK for onward forwarding, both, obviously, needing customs entry procedures/transhipment forms for the phlegm and transhipment procedures for the barley.
It would certainly make sense for manufacturers in the EU27 to rationalise their buying of components to those that can be sourced within the EU. This so as to avoid complex paper trails that may be necessary if dealing with UK component manufacturers.
Since the majority of exported goods are transported across the English channel (La Manche) or the North Sea, trade will be subject to the whims of the French/Belgian/Dutch governments and more importantly to their Customs officers and dock workers. All this without recourse to the European Court of Justice for protection. The UK will also be precluded from bidding on any public procurement tender if it specifies (quite legally) that only EU entities may apply.
The greatest scourge of international trade (after customs duties) is non-tariff barriers (NTBs) wether they be necessary (random inspection) or restrictive (deliberate disruption). For example exporters will require a phytosanitary certificate for each consignment of controlled plants, fruit, vegetables or plant material that is dispatched to the EU. Such exports may be subject to inspection which can require completely ‘turning out’ a full 40ft container.
Perishable goods are particularly vulnerable to NTB delays caused by customs procedures and consignees can refuse receipt of goods if e.g. ambient temperatures rules are breached during customs inspection.
In the most inventive NTB historically, France insisted that all Japanese VCRs had to be cleared at one Customs post in the middle of France (Poitiers). The Customs office was staffed by one Customs officer who only worked part-time. This was in retaliation for the Japanese banning the importation of French origin skis on the basis that the skis had not been tested sufficiently on Japanese snow.
Imports of perishable goods from the EU will have to adhere to what is known as the GO12/30 deposit scheme (Government Order 12 of 1930). This means that as the market price (for customs valuation) is not known until the goods are sold, then the a deposit is paid on importation and the duty is calculated ex post by customs officials to see if a refund is payable or more duty needs to be paid. This is a particularly resource-heavy process. Tariff rates and quotas on fresh fruit, can also vary depending on the time of year.
Whist the big supermarkets will avoid this by importing direct from EU suppliers (e.g. in Spain), they will still have to be checked for customs valuation purposes against the prevailing daily market price.
It is also 99% certain that the curvature of cucumbers, the size of apples etc. will remain exactly the same. As the present day standards on fruit and veg were demanded by the trade and not at the whim of the European Commission.
The UK faces an almost insurmountable challenge to put in place Customs facilities at ports and airports and achieve the requisite number of fully-trained staff resources and their consequent administration facilities. Since a large number of UK imports are customs cleared in Antwerp and Rotterdam for free circulation across the EU, UK Customs is going to have to massively scale-up its numbers to get anywhere near being an efficient organisation.
UK Customs is already the subject of the attentions of the EU’s anti-fraud unit (OLAF) for failing to collect two billion euros on false valuations of Chinese imports of textiles and footwear. Some of which were subject to EU anti-dumping duties. (An area in which no UK customs officer has any experience in investigating).
Finally, as Brexiteers spouted about ‘taking back control’, the design of a UK Customs entry form already has to adhere to an international standard known as a SAD1. It’s a UN agreed design by the Simplification of International Trade Procedures Organisation.
Tim McNamara is a former UK Customs & Excise officer and worked in the European Commission’s Directorate-General for Trade for several years, specialising in Anti-dumping matters and non-Tariff Trade Barriers. He is the co-author of a Journal of world trade article entitled ‘Special trade law issues in the EC for assembly products’ and has written numerous articles on EU matters for PolicyReview.eu
