FX International Payments
By Karen Lynch
U.S. and other non-European goods transiting the U.K. on their way to Europe could also see some changes under the plan, although current rules and procedures are expected to apply at least until the March 2019 deadline for separation. "American companies have traditionally used the U.K. as a launchpad to export to the rest of the EU, and the supply chains of many of our companies are heavily integrated in both markets," Susan Danger, CEO of the American Chamber of Commerce to the European Union (AmCham EU), said prior to the customs proposal's release.2
The U.K.'s proposal, titled "Future Customs Arrangements: A Future Partnership Paper," aims to "mitigate to the greatest extent possible against any additional administrative burdens or delays" in the import-export trade of goods between the U.K. and EU, which it estimated at $714 billion in 2016.3
The August 2017 paper was the first in a series of proposals the U.K. government intends to release on various aspects of U.K.-EU relations. It is subject to EU agreement, although observers say that U.K.-EU negotiations on other separation matters could present delays.4 The paper does not address trade in services. The only land border that will be subject to change is between Ireland and Northern Ireland, with other changes mainly affecting import-export trade through ports and airports.
The first option for a new customs relationship with the EU is described as "a highly streamlined customs arrangement." It would simplify new requirements to the fewest possible. Some of the current U.K.-EU arrangements would be retained. The plan could also use some customs procedures that now apply to the U.S. and other non-European countries trading through the U.K. into Europe. Technological solutions might include speeding up authorization processes through enhanced data automation and analysis, or pre-arrival notification linked to vehicle identification systems at ports. Administrative solutions could include negotiating mutual recognition of authorized economic operators (AEOs, or companies that are considered to present a low customs risk) , which account for the bulk of the U.K.'s imports and exports. Some solutions in the proposal would need to be collaborative, while others could be unilateral steps.5
The second option is referred to as a "new customs partnership with the EU." This proposal would obviate the need for a U.K.-EU customs border by treating any goods destined for European consumption (whether from the U.K. or from a third country such as the U.S., via the U.K.) under a regime that aligns exactly with the tariffs and rules governing the EU's external customs border. However, given such requirements as the need for collection and distribution of duties, robust enforcement, and tracking of goods, "we acknowledge this is an innovative and untested approach that would take time to develop and implement," the paper said.6
Whatever the contours of the relationship, an interim transition period is recommended in the paper. And in a separate survey of U.K. businesses, 68 percent said they would prefer the transition period to be three years or longer.7 The AmCham EU has also called for a transition period.8
At least until the March 2019 deadline for exiting the union, the U.K.'s ongoing EU membership will continue to mean that U.K.-EU import-export trade is not subject to customs duty, quotas, or routine customs processes such as declarations, the paper said.
U.K. businesses have stressed the need for clarity and time to adjust to the new international trade environment in Europe,9 as have import-export trading partners in the EU.10 "It is encouraging that key business requirements are being listened to," the U.K. Chartered Institute of Taxation said of the customs proposal.11 "The sooner we have clarity about the machinery that businesses and their advisers need to get used to, in order to manage customs after Brexit, the better." The Food & Drink Federation also cautiously welcomed the proposal and its emphasis on minimizing friction in the import-export trade of its industry's often perishable goods.12,13 TheCityUK, representing financial and professional services businesses, pressed for similar consideration of trade in services.14
Without a new agreement of the kind described in the paper, "The U.K. would treat trade with the EU as it currently treats trade with non-EU countries," the paper said. "Customs duty and import VAT [value-added tax] would be due on EU imports. Traders would need to be registered. Traders exporting to the EU would have to submit an export declaration, and certain goods may require an export license. The EU would also apply the customs rules and VAT to imports from the U.K. that it applies to non-EU countries."
In its effort to avoid this scenario, the U.K. would rely in part on a new Customs Declaration Service (CDS) that it has scheduled for implementation in January 2019. The customs paper's authors have described CDS as "accommodating new digital functionality, providing businesses engaged in international trade with a robust, modern, and flexible declarations service capable of dealing with our future trade with the EU and the rest of the world."15 However, the U.K. National Audit Office reported in July 2017 that contingency plans may be needed, such as parallel operation of the CDS and the system it is designed to replace. "There is still a significant amount of work to complete, and there is a risk that [HM Revenue & Customs] will not have the full functionality and scope of CDS in place by March 2019 when the U.K. plans to leave the EU," the auditors said.16
The U.K. government has floated a plan for customs administration with the EU, following its exit from the union. The details will need to be agreed between the U.K. and EU, and they could also affect American and other non-European goods transiting the U.K. into Europe. American, British, and European businesses are pressing for clarity about the conditions for conducting import-export trade in the future.
Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.
1. Future Customs Arrangement: A Future Partnership Paper, U.K. Government; https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/637748/Future_customs_arrangements_-_a_future_partnership_paper.pdf
2. “Brexit: How Do We Move Forward from Here?” American Chamber of Commerce to the European Union; http://www.amchameu.eu/news/brexit-how-do-we-move-forward-here
4. “U.K. Aims to Retain EU Customs Deal for Years after Brexit,” Financial Times; https://www.ft.com/content/b58ca3b6-811c-11e7-a4ce-15b2513cb3ff
5. Future Customs Arrangement: A Future Partnership Paper, U.K. Government; https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/637748/Future_customs_arrangements_-_a_future_partnership_paper.pdf
7. “Brexit Objectives Snap Poll,” British Chambers of Commerce; http://www.britishchambers.org.uk/policy-maker/policy-reports-and-publications/ge2017-snap-poll-brexit.html
8. “Brexit: How Do We Move Forward from Here?” American Chamber of Commerce to the European Union; http://www.amchameu.eu/news/brexit-how-do-we-move-forward-here
9. “Businesses Need Long Lead-in Period for Post-Brexit Customs System,” Chartered Institute of Taxation; https://www.tax.org.uk/media-centre/press-releases/press-releasebusinesses-need-long-lead-period-post-brexit-customs-system
10. “British and German Firms Unite to Call for Business-friendly Brexit Talks,” The Guardian;https://www.theguardian.com/business/2017/aug/28/british-and-german-firms-unite-to-call-for-business-friendly-brexit-talks
11. “Businesses Need Long Lead-in Period for Post-Brexit Customs System,” Chartered Institute of Taxation; https://www.tax.org.uk/media-centre/press-releases/press-releasebusinesses-need-long-lead-period-post-brexit-customs-system
12. “Food Industry Gives Cautious Reception to U.K.-EU Customs Plan,” Food Navigator;http://www.foodnavigator.com/Policy/Food-industry-gives-cautious-reception-to-UK-EU-customs-plan
13. “FDF Response to Latest Government Position Paper on Goods on the Market at the Point of EU Exit,” Food & Drink Federation; https://www.fdf.org.uk/news.aspx?article=7862&newsindexpage=1
14. “TheCityUK Responds to Government’s Customs Arrangement Paper,” TheCityUK; https://www.thecityuk.com/news/thecityuk-responds-to-governments-customs-arrangement-paper/
15. Future Customs Arrangement: A Future Partnership Paper, U.K. Government; https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/637748/Future_customs_arrangements_-_a_future_partnership_paper.pdf
16. The Customs Declaration Service, U.K. National Audit Office; https://www.nao.org.uk/wp-content/uploads/2017/07/The-Customs-Declaration-Service.pdf