What does the 5500 relate to?
Any student of customs duties and the wider world of international trade will gleefully tell you it is the approximate number of lines of information contained within the tariff detailing duty and VAT rates, individual preference agreements, quotas, product descriptions and commodity codes that are applicable to each product imported into the UK.
So, with talk of a hard Brexit being the ultimate fall-back position there are two scenarios; dubbed by EU referendum opponents as either potentially the saviour of the UK or conversely the downfall of the UK – what does this mean in practice with respect to the detail within the tariff? To help I have cherry-picked a few selected short topics by way of example to illustrate the issues faced by the UK as it tries to continue trading with the EU and the Brexit is deemed ‘hard’.
Firstly, a hard Brexit may mean adopting the so called “Canada Model” (as opposed to the Norwegian and Swiss Models covering a continuing intertwined relationship with the EU; sometimes referred to as a ‘soft’ Brexit ) or reverting to the World Trade Organisation (“WTO”) rules on trade. Both options may mean beginning negotiations with the EU for suitable trade deals from a position outside of the free trade agreements, customs union, EEA and EFTA (the last two are arguably the hinges of the Norway and Swiss Models).
So how may a hard Brexit impact certain fundamentals of international trade? For example, the current EU ‘Rules of Origin’ state that an exporter must demonstrate that the majority of their product originates in the supplying state to either allow entry or qualify for certain rates of duty. Providing this evidence may increase costs to UK exporters if the UK wishes to continue trading with the EU. As the EU currently offers preferential duty rates on substantiated proof of origin, this may be a cost worth bearing in the short term to ensure UK exporters are compliant. However, given the current EU legislation surrounding the manufacture and sale of goods in the EU with which the UK is already compliant, that cost of gathering the information may not be as large as imagined. That said, with the existing tariff and its agreements becoming almost obsolete the impact of a complex supply chain for a manufacturer could be large.
Rules of origin issues run nicely onto another topic. Again, both models may fall foul of UK exporters subsequently being the subject of ‘Restrictions and Quotas’ on their goods as the EU seeks to protect its members from oversupply of particular products or goods of a poor standard. However, as the UK is already EU compliant on many of its processes and the physical quality of its products, these issues may be minimised. The imposition or removal of quotas by the EU on UK goods and services will be reliant on skilled negotiation at the time of brokering trade agreements.
As we are all aware, the UK is a major exporter of financial services to the EU so the current ‘Passporting’ of services to the EU avoids the necessity of establishing subsidiaries in other states to allow a continuance of these services. However, with this provision of financial services being eyed by other major cities in the EU, the impact of the loss of ‘passporting’ is obvious.
I am sure the tariff will remain in one form or another and I for one will always have a place on my desk for the three large unwieldly binders lovingly updated each month – obsolete or not.
If you wish to know more about the impact of Brexit on international trade and other customs regimes not touched upon in the short article (for example, customs valuation, holding and movements and duty suspension regimes), please feel free to contact me at Neumans LLP.