On 23 June 2016, the citizens of the United Kingdom voted to leave the European Union. This is formally named the “United Kingdom European Union membership referendum,” but is more commonly referred to as Brexit, a portmanteau of “British” and “exit”.
Nine months later Brexit became official. On 29 March 2017, the UK served their withdrawal notice under Article 50 of the Treaty on European Union. By triggering Article 50, Prime Minister Theresa May started the clock on a two year period to negotiate terms for the UK’s withdrawal.
Brexit Withdrawal Dates and Extensions
The UK and the EU concluded negotiations and drew up a withdrawal agreement in November 2018. On 15 January 2019, Prime Minister Theresa May put the deal before Members of Parliament (MPs) in the House of Commons. MPs rejected the deal, 432 to 202. The withdrawal agreement — with some adjustments — was put before the Commons two more times. Both times MPs rejected it.
The UK was due to leave the EU on 29 March 2019. Since MPs would not ratify the deal, the Prime Minister asked the EU to extend the departure date. The departure date was initially pushed back to 12 April 2019, but is now slated to take place on 31 October 2019. The extension meant that the UK avoided a “hard Brexit” — that is, leaving the EU without a deal.
A hard Brexit outcome, however, remains possible. Theresa May announced her resignation on 24 May 2019, and her successor is unlikely to champion some version of her withdrawal agreement. Furthermore, EU officials have repeatedly stated that substantial changes to the agreement are not possible. If MPs do not ratify the withdrawal deal, or agree upon a different model for future relations with the EU, the UK will leave the bloc without a deal.
The Impact of a Hard Brexit on UK/EU Trade
Under a hard Brexit, the UK will cease to be a part of the EU customs union. Without a deal, trade between the UK and the EU would be governed by World Trade Organization (WTO) rules. This would mean that goods which currently move freely between the UK and the EU would be classified as imports and exports, adding time, cost and complexity to the supply chain. This will impact UK/EU trade in a number of different ways. Here are six key issues.
Under WTO rules, goods leaving an EU member state for the UK will require an export declaration. The export declaration must be made to the relevant customs authorities in the originating country. Let’s take the example of goods being shipped from Germany to the UK. In such a case, you would file an export declaration with the German authorities.
Customs authorities must accept the declaration and assign a unique identifier to your shipment before it can be transported. Customs can also call for a physical examination of your goods before they clear them for export.
To comply with these regulations, companies will need to create and electronically file export declarations for each shipment. This can be accomplished by implementing a software solution to file declarations with the relevant customs authorities, or by engaging a third party, such as a carrier or customs broker, to file on your company’s behalf.
Import declarations will be required under a hard Brexit. For example, a company bringing goods into Germany from the UK would need to make an import declaration to German customs authorities. The EU will impose duties on goods imported from the UK. The company would be obliged to pay the duties on imports before customs releases the goods. The company, however, would be exempt if the goods are to be re-exported and the company participates in a duty suspension program. Therefore, whether you are importing or exporting between the EU and the UK, you will need to file declarations for each shipment by using a software solution, or by engaging a third party to file on your behalf.
Any company engaged in export or import activities has to classify their goods using commodity codes. Examples of these codes include the WTO’s Harmonized System (HS); the EU codes from TARIC, the integrated Tariff of the European Union; and the Harmonized Tariff Schedule (HTS) of the United States. Should a hard Brexit occur, the UK will publish its own tariff book and classification codes.
Commodity codes identify the type(s) of goods to customs authorities and allow authorities to determine if the goods are restricted and if tariffs apply.
If your company is based in the UK and has only traded across the EU, it is likely that you won’t have classified your goods since there was no regulatory requirement to do so. You will need to do so, however, under a hard Brexit. Goods traded between the UK and the EU bloc will be seen as imports and exports, therefore, they need to be classified using the relevant codes.
Free Trade Agreements
Manufacturers in the EU may be adversely impacted if they source raw materials from the UK. Under a no-deal scenario, goods made with UK content may no longer qualify as EU origin products. Thus, if a manufacturer is exporting to a non-EU country that has a free trade agreement with the EU, the goods would be subject to tariffs and cost more to land in that country.
Some carriers have made contingency plans in order to facilitate UK/EU trade under a hard Brexit. These plans include charging for their services for shipments between the UK and EU, which previously did not need a customs declaration. To use these services, companies will need to provide additional information and shipping documentation such as a Customs Invoice and a Packing List containing commodity level details. To do this, companies may need to change their tools and processes for order processing and fulfillment.
Grouping together shipments going to different customers in the same country or market is a “consolidated shipment.” Consolidating shipments means fewer export declarations — you only need one for the entire shipment instead of a separate declaration for each package.
DHL, UPS and other express carriers that handle high shipping volumes offer consolidation services, but those services come at a cost to reduce regulatory headaches. It is also possible for exporters to manage consolidations in-house; consolidated shipments are exported and sent to an express carrier’s depot for last mile delivery.
How Automated Software Solutions Can Help
The trade and transportation challenges presented in a hard Brexit requires agile adaptation of tools, processes and services to handle the new rules and regulations that would be implemented. Many of the processes can be automated by integrated software solutions to manage global trade and transportation to ensure accuracy and adhere to the newly implemented guidelines.
QAD Precision’s solution allows shippers to manage global trade, trade compliance and transportation from a single platform. With QAD Precision’s integrated solution you can satisfy compliance requirements, minimize regulatory exposure, perform due diligence and ensure accuracy by automating documentation production and customs reporting. Industry leaders use our international trade management solution to adhere to regulatory requirements and reduce the hidden costs associated with global trade.
With QAD Precision, you are able to deploy a transportation solution that manages multiple providers, gives you visibility across carrier costs and service levels and creates consolidation opportunities upfront. With a single, detailed view of your freight spending, you can undertake supply chain planning, route optimization and carrier rate negotiation based on fully vetted data. QAD Precision offers not only a hedge against Brexit risk, but also offers tools to better navigate through tariff uncertainties.