The days of free movement for goods are over so what can businesses do to mitigate risk?
Free movement of goods as we know it has ended. Many are flustered. Ben Fletcher from Make UK, a manufacturers organisation, believes some firms might go into a form of hibernation and not even bother to move goods in and out of the UK, preferring to see how the land lies in the coming weeks.
Then there are those involved with fresh food who are unnerved by the possibility that goods will either perish waiting to cross the channel or will arrive with a good proportion of shelf life wasted on the tarmac. This very real prospect was seen towards the end of November last year when a five-mile tailback built up on the M20 as the French tested their post-Brexit system.
For Andy Cliff, director of Straightforward Consultancy, the problem is that everything has changed. From January the ‘UK became a so-called ‘Third Country’, meaning that if we import something from, say, Germany, it will require a similar level of complexity to imports from China or the US. We have left the Customs Union, discarded their Common External Tariff and launched our own UK Global Customs Tariff which has different duty rates.’
The question is – how will this be dealt with?
Catherine Stephens, head of International Trade Services at Business West, says that the number of customs declarations which companies will need to complete could increase from 55m to 255m. She cited a pre-January Business West Quarterly Economic Survey that found that 12 percent of companies surveyed were aware that they needed to complete customs declarations but were not organised to do it, while 11 percent traded with the EU and did not know what they needed to do to get prepared.
Andy is just as direct. He’s found that many companies did little to prepare, seemingly delaying any preparations until they had more clarity on the outcome of trade negotiations, and of course, hoping that the deal would mean minimal changes to the way they traded with the EU. What particularly worries him is that many companies appear ignorant of the fact that ‘customs declarations will be required for exports and imports regardless. If they made no preparations at all, then the truth is that they may damage their own business considerably, especially if they are reliant on EU business, be that export or import.’
After the UK joined the Single Market in 1993, customs declarations were no longer needed and almost all of the expertise within European logistics providers relating to declarations left the industry or later retired. Some 28 years later, the result is an estimated shortage of 50,000 customs agents in the UK needed to support the new EU trading environment. And to compound the problem, a combination of huge import volumes and a lack of knowledge of Customs Procedure Codes, Commodity Codes and schemes like Postponed VAT Accounting – and an equal lack of knowledge within UK importers – is only going to make matters worse.
Allied to this is a concern for UK exports to the EU. They face losing business to competitors in the Single Market if their EU customers are without warning presented with charges for customs declarations, duties and taxes.
Planning for red tape
Firms need to be aware of how to comply with the new regime – and fundamentally, this requires an understanding of form filling.
Customers who traded primarily with the EU now need to educate themselves on Incoterms, the international rules of commerce which determine who pays what part of the transport costs, duties and taxes, and at what point risk passes from seller to buyer. Andy predicts that door to door delivery times will lengthen from three to four days on a typical UK-France movement to a possible 10-14 days, and ultimately, he can see duties impacting the margins on any final customer selling price as will charges for customs declarations.
And on top of that, customers need to take responsibility for classification of their goods both for exports and imports and export documentation as each side must now meet a new, much higher, standard.
Training is key, and a number of organisations offer courses, though doubtless many will ‘self train’ referring to the GOV.UK’s transition page which features hotlinks to advice pages on importing from and exporting to the EU and Northern Ireland.
But whichever route to knowledge is taken, the process of completing customs declarations is complicated and time-consuming. If any details are incorrect then it has the potential to cause delays and incur extra costs.
Similarly, it’s important to check the details of trade agreements with countries that firms trade with as this determines the documentation required. It’s central to Catherine’s concerns that regulations vary for different companies in different sectors, so firms who have not investigated the specifics for their own sectors risk being caught out by the new landscape.
Adapted from an article by Adam Bernstein in Credit Management, Jan/Feb 2021