With Brexit looming and a way forward still not clear, the only outcome manufacturers have all the facts for is a hard Brexit scenario, which will come about in the event of no deal being reached.
The manufacturing industry realises that moving out of the Single Market and Customs Union will result in friction at borders, increased costs and a gradual adjustment process so that they can put contingency plans in place.
If you’re a UK manufacturer, we think the top three trade issues to think about now are:
A tariff is a customs duty charged on imports at the border, which in effect makes locally-produced goods more affordable than their imported counterparts. After Brexit, without a special trade deal in place, the EU will charge tariffs on the import of all UK goods. In preparation, manufacturers should familiarise themselves with:
• the tariff code that applies to their exports, and
• the amount of tariff the EU charges on those products
The levels of tariffs that the UK will adopt itself in the event of a hard Brexit are to be the same as those levied by the EU under its WTO tariff schedule. Therefore manufacturers importing components and other products from the EU, will need to look at the tariff codes and tariff amounts charged by the UK when importing.
2. Customs Administration
On leaving the EU, the UK will face a hard border and an increase in levels of customs administration when exporting and importing goods to and from the EU. This trade friction could take the form of paperwork/ electronic form-filling for pre/at-the border measures or providing an origin certificate. The other alternative is to become an Authorised Economic Operator – an internationally recognised “quality mark” indicating that a company’s role in the international supply chain is secure, and that customs controls and procedures are efficient and compliant.
3. Rules of Origin
Currently, the movement of goods within the EU is not based on where they originate because all goods produced by EU members circulate freely inside the Single Market. Post-Brexit, specific rules of origin are important to determine the economic nationality (rather than geographic nationality) of a product travelling to and from the EU, and the UK.
When raw materials are sourced and manufactured in different global locations within any one supply chain, a set of rules will need to be agreed to determine a single nationality for each product crossing each other’s borders. Once the origin of a product is established, the correct rate of duty or tariff can be applied to it when it crosses a border. For example, EU tariffs on goods originating from China may be different from those charged on UK products, depending on the agreements in place between the parties. The most common ways of defining rules of origin include whether a good is wholly obtained (such as grown or harvested) in the originating country and whether (and where) they were substantially transformed through processing/manufacturing.
It’s in manufacturers’ interests to prepare themselves for all Brexit scenarios by starting with assessing their readiness in these three areas. See our recent publications on Life after the EU Single Market and Customs Union: Post-Brexit Trade Issues at the Border
and Rules of Origin
for further information on these issues.