Classification of Goods in a No Deal Post Brexit World
In the third of our ‘No Deal Guidance Posts’ we look at Classifying your goods in the UK Trade Tariff if there’s no Brexit deal outcome and what this may mean for UK businesses operating in a post Brexit world.
Whilst the Government are confident that negotiations are progressing well to seek a positive deal, we feel that it’s good business practice to prepare for all eventualities, until we can be certain of the outcome of those negotiations.
In this brief we look at the movement of goods between the UK and the EU following an EU exit.
In the unlikely event that the UK leaves the EU on 29 March 2019 with no agreement in place, EU goods will be treated as goods from elsewhere in the world are treated now, until such a time as a preferential trading agreement can be established.
What is the current situation?
The UK is currently a member of the European Union, its Single Market and Customs Union, and so applies the EU’s Common Customs Tariff (CCT) at the external EU border.
- For goods moving between EU countries, there are no customs duties, and no routine intervention during the movement of goods.
- For goods entering the EU’s Customs Territory from the rest of the world (“third country goods”), an import declaration is required, customs formalities and checks are carried out – for example for compliance with EU regulations – and any customs duties must be paid. Imports from a country with which the EU has a free trade agreement may qualify for preferential rates of duty and rules of origin. Imports from a country with which the EU does not have a free trade agreement will be subject to the EU’s Most Favoured Nation (MFN) rates of duty and non-preferential rules of origin.
The implications of a No Deal situation post March 2019
The government has made it clear that when the UK leaves the EU it is going to leave the EU’s single market and Customs Union. The Government hopes to negotiate a future economic partnership with the EU that will allow frictionless movementof goods between the UK and the EU.
However, in the event of “no deal”, goods traded between the UK and the EU after 23h on 29 March 2019 will be subject to the same requirements as third country goods, including the payment of duty. Under World Trade Organisation (WTO) rules, the principle of most-favoured-nation (MFN) treatment means that, unless a preferential agreement is in place, the same rate of duty, on the same good, must be charged to all WTO members equally.
In preparation businesses will want to be aware of the following:
- The Taxation (Cross-Border Trade) Bill will provide the necessary powers for the UK to set its own tariff once it leaves the EU
- In a ‘no deal’ scenario, trade with the EU will be on non-preferential, WTO terms. This means that MFN tariffs and non-preferential rules of origin would apply to consignments between the UK and EU
- The EU will apply its MFN rates to goods imported into the EU from the UK. The EU MFN rates are set out in the CCT, where they are listed as “erga omnes” (which translates as “towards all”), rather than stating a specific country. The EU may change these rates between now and March 2019, but this provides an indication
- The UK will apply its MFN rates to goods imported into the UK from the EU. The government will determine and publish these new UK duty rates before we leave the EU. They may be different from the rates in the EU’s CCT
- The UK intends to continue offering unilateral preferences to developing countries, and to seek to transition all EU Free Trade Agreements for day 1 in order to ensure continuity for both goods imported to the UK, and for UK exports. Maintaining these benefits is of clear importance to businesses, consumers and investors, and will ensure a smooth transition for users of these provisions as we leave the EU. Further information on preferential trade under the UK’s existing trade agreements will be captured in the Trade Agreement Continuity technical notice
- The UK Trade Tariff, detailing the import duty rates and rules that will be applicable to each good, will be made available free on GOV.UK in the same way as now. Importers of goods into the UK will no longer use EU Tariff information published by the EU
- The UK does not intend to immediately change the classification of goods in a “no deal” scenario. The UK does not plan any immediate deviation from the current commodity code list published in the UK Trade Tariff, which is currently applied by the EU, except where necessary to maintain alignment with international standards, or for trade remedies purposes.
What you would need to do
Anyone importing goods into the UK from the EU, or exporting goods to the EU from the UK, will have to comply with customs procedures, where these were not previously necessary. As set out above, this includes the potential payment of duty on UK-EU trade.
HM Government have recently released a partnership pack entitled ‘Preparing for changes at the UK border after a ‘no deal’ EU Exit’. Which can be found here.
Obviously this is a complex area, which we have summarised for guidance purposes only. For more detailed information please visit https://www.gov.uk/government/publications/classifying-your-goods-in-the-uk-trade-tariff-if-theres-no-brexit-deal/classifying-your-goods-in-the-uk-trade-tariff-if-theres-a-no-brexit-deal