As of exit day on January 31, 2020, the UK is no longer an EU Member State. However, in accordance with the Withdrawal Agreement, the UK has entered an implementation period, during which it continues to be subject to EU law.
On February 3, 2020, the UK and EU set out their opening negotiating positions for a post-Brexit UK-EU relationship. While the Political Declaration, appended to the Withdrawal Agreement, sets out the framework for the future relationship with the EU, it is not legally binding, meaning that either side can choose to depart from parts or all of the text. If negotiations for a trade agreement between the UK and the EU fail (a no trade deal Brexit), the UK’s trade with the EU would be on World Trade Organization (WTO) terms.
As of implementation period completion day, which falls at 11pm on December 31, 2020, the transitional arrangements under the Withdrawal Agreement end and UK moves from transitional to full third country status. New UK/EU relationship commences (to the extent agreed).
‘No trade deal’ Brexit
If no trade deal has been agreed by the end of the implementation period, the UK will overnight become a ‘third country’ from an EU perspective. Customs tariffs will apply between the UK and the EU27 on the same terms as would apply between any members of the WTO who do not have a bilateral free trade agreement.
This will affect the export of goods from the UK into the EU27 as follows:
- current Customs & Excise rules applying to non-EU / EEA territories will also apply between the UK and EU
- customs declarations and safety / security declarations will be required for the movement of goods
- you will not be able to use the Excise Movement Control System (EMCS) to move duty-suspended goods from the UK to the EU
No trade deal rules applicable to export of all goods
- WTO rules will apply between UK and EU27 countries
- The WTO sets rules for international trade that apply to all WTO members. Under the WTO arrangements, there is no provision for free movement of people, or the requirement of a financial contribution to be made in order for WTO members to trade. This is in stark contrast to the existing arrangements under the EU Single Market.
- With regards to trade in goods, the main WTO obligations on member countries are contained in the General Agreement on Tariffs and Trade (GATT).
- Have you got a valid EU Economic Operator Registration and Identification (EORI) number?
- Any business moving goods in and out of the EU requires an EORI number in a no trade deal Brexit scenario. If your business currently does not have an EORI number (for example, if you only trade goods within the EU), you will need to obtain one from a customs authority within the EU27. After the implementation period, UK-issued EORI numbers will not be valid in the EU27. If you currently have a UK EORI (for example, if you trade between the UK and non-EU countries), you will also need to obtain an EU EORI from an EU customs authority to cover the import into the EU.
Will your goods be subject to tariffs?
- Goods leaving the UK for EU other than across the Irish border
- If there is no trade deal, under WTO ‘Most Favoured Nation’ rules, the EU will be obliged to charge the same tariffs on UK goods as it charges on goods imported from all other countries in the world, except:
- those with whom the EU has a free trade agreement (e.g., Japan (recently), Canada, Israel, South Korea), or
- developing countries in respect of which unilateral trade preferences are permitted
This means that tariffs would become applicable overnight to UK goods supplied to the EU where previously no tariffs existed.
Where goods supplied from the UK were not manufactured in the UK but in another country, this should be declared on the applicable customs paperwork. If the goods supplied from the UK were manufactured in a country with whom the EU has a free trade agreement (say, for example, Morocco) and their origin can be proved, they will benefit from the preferential tariff treatment in that free trade agreement. The fact that the goods are supplied via the UK does not make a difference. The origin of goods depend on the product in question, the applicable rules of origin and what processing may have taken place to the goods in question, and must be determined on a case-by-case basis.
Value Added Tax (VAT)
- Goods moving within the EU are subject to different VAT rules from goods moving between the EU and countries that are outside the EU (third countries). A business receiving a cross-border supply of goods within the EU accounts for VAT that is known as ‘acquisition tax’. Acquisition tax is subject to different rules from import VAT (import VAT is payable when goods are imported to an EU state from a third country).
What goods will you be exporting?
- Supplying chemicals to EU
- Where chemicals are imported into the EU in quantities of more than 1 tonne per year, it is necessary to register with the European Chemicals Agency under the Regulation, Evaluation, Authorisation and Restriction of Chemicals (REACH) Regulation.
- During the implementation period, supplies from the UK to the rest of the EU do not count as imports. Those chemicals must be registered when manufactured in or imported into the UK (before their onward supply to the EU27) but no further registration is required after that. In the event of no trade deal, chemicals supplied from the UK to the EU27 would be classed as imports and would need to be registered as such with the European Chemicals Agency (even if they were already registered). UK businesses would also need to appoint an ‘only representative’ to act as their representative in the EU27.
- Applying CE marks to exported product
- Several categories of goods are subject to EU rules requiring CE marking to prove their conformity (e.g., electronics, medical devices, toys, machinery). This will continue to be the case when those products are sold into the EU after the end of the implementation period. However, if any of those products require the approval of an EU notified body before having CE marking affixed (this is the case with many types of product), the approval from a UK notified body will not be valid after the end of the implementation period. It will therefore be necessary to ensure that the products have obtained approval either from an EU notified body or a notified body in a non-EU country covered by a mutual recognition agreement.
- Supplying controlled goods subject to export controls
- Some goods are subject to export controls (typically military or ‘dual use’ equipment). Military equipment supplied from the UK to other countries (even in the EU) already requires a license, and this position will not change. Dual-use equipment does not currently require a license for transfers within the EU. After the end of the implementation period, such equipment will require a license when exporting from the UK to the EU. The government has already anticipated this by introducing a new Open General Export License (OGEL) to cover transfers of dual-use equipment to the EU. Businesses wishing to make use of this OGEL will need to register under it (using their standard SPIRE accounts) before making their first shipments of controlled goods after the end of the implementation period.
Sandip Patel QC FCIArb specialist in corporate, banking and financial service law. He advises clients across a range of industries and geographies, providing proactive and commercial legal advice on a broad range of corporate transactions. Sandip is the Managing Partner in our UK office. For more information about Brexit trade talks and agreements, please write an email.