The EU is to impose border checks on UK products entering the bloc
from 1 January, and UK border controls on EU goods will begin next
July. In this QAD Precision Report we outline the challenges for
companies engaged in UK/EU trade.
Companies trading between the UK and EU are likely to experience
significant new regulatory headaches from 1 January 2021. Should the
UK and European Union fail to finalize a trade deal, these challenges
could impact e-commerce merchants and retailers as well as manufacturers.
With less than six months before the Brexit transition period ends,
trade talks between the UK and the bloc have not been fruitful.
Face-to-face talks halted earlier this year as a result of the
coronavirus pandemic. Instead, negotiating teams transitioned to video
conferencing, but failed to make much progress.
In-person meetings resumed this July, with both sides agreeing to
intensify talks. Nevertheless, the EU’s chief negotiator Michel
Barnier recently stated that there were points of “significant
divergence” between the UK and EU.
Regulatory Changes are Coming
Even with a deal in place, additional customs paperwork and other
regulatory changes seem unavoidable. As Barnier
tweeted that “there will be inevitable changes” after the end of
the transition period. Reports suggest that up to 400
million extra customs declarations will need to be made under
the upcoming border controls.
This week, the UK government published a document outlining upcoming
border protocols. However, industry experts have warned that these new
procedures rely on
technologies that are not yet finalized or currently
incompatible with industry systems.
The UK has pledged to delay border checks on EU goods until July
2021. It is hoped that this will stem potential disruption to
cross-border trade. Nonetheless, in order to protect the bloc’s single
market, the EU will not reciprocate. Michel Barnier has stated that
the EU will introduce full border checks on UK goods from 1 January 2021.
As a result, trade between the UK and the EU will become more
challenging. The EU
has warned that “rules
of origin” regulations will be followed.
Furthermore, the EU may impose customs duties on goods traded between
the UK and the EU. VAT and excise duties will also be due on UK goods
entering the EU. Whatever the outcome of the talks, companies trading
between the UK and EU will have to prepare for change.
Classification is one of the biggest trade compliance hurdles.
Companies who have not traded beyond the single market are unlikely to
have the correct commodity codes for their goods. Furthermore,
classification is not a straightforward business (you can download our
white paper, “Where Companies Struggle With Product Classification” here.)
Without commodity codes, goods are likely to be “stuck in customs” —
with storage fees mounting and unhappy customers unable to receive
In addition, getting the classification wrong means that companies
could be paying significantly higher duties than need be. Equally
worrying is that a wrong classification can result in a company
underpaying duties. This puts an organization at risk of unexpected —
and steep — back payments as well as fines.
RESTRICTED PARTY SCREENING
A second critical requirement will be the need for companies to
ensure that they are not trading with restricted parties. When the UK
was a part of the single market, goods traded between any EU country
and the UK were domestic shipments. After the Brexit transition period
expires, such trade will be international.
As a result, companies shipping goods between the two regulatory
regimes will need restricted
party screening. Done manually, this is a serious drain on staff
resources. Moreover, the lists of sanctioned individuals or denied
parties are subject to frequent updates. Therefore, any company
relying on manual checks is at risk of a trade compliance misstep.
Companies that ship goods internationally have to complete a number
of documents. Without all the correct documentation in place, goods
will be stuck in customs until authorities receive all the required
paperwork. These documents can include:
Commercial invoices: customs authorities often
use the commercial invoice to determine the duties due on a
shipment. However, a standard commercial invoice is often not
enough. You may need to prepare the commercial invoice according
to a specific format. Furthermore, you may need to prepare it in a
particular language as well.
Customs declarations: this is an official
document that outlines what goods are being exported or imported.
The customs declaration also puts goods under a specific customs
procedure. Examples of these include export, free circulation,
transit, temporary admission, inward and outward processing and so
forth. Governments around the world use customs declarations to
control what goods can enter a country as well as to calculate duties.
Bill of lading: this document lists the shipper
and the consignee, the goods are being shipped, and quantities.
Dangerous goods notes: any shipment that includes
items classified as dangerous must also have a dangerous goods
note. This is a requirement of the International Air Transport
How Automated Trade Compliance Solutions Help
With automated trade
compliance management, companies trading between the EU and UK can
mitigate the risk of a compliance misstep. Automated compliance and
global trade management solutions will ensure that companies trading
between the UK and EU meet all regulatory requirements. We have
outlined some of the most critical below.
SIMPLIFYING PRODUCT CLASSIFICATION
The most critical process of every importation is the proper
classification of goods. Incoming products must be assigned the
correct commodity codes. This means using the correct first six digits
of the Harmonized Commodity Description and Coding System (HS) as well
as current country-specific codes. TARIC, the integrated Tariff of the
European Union, uses a 10-digit system.
classification solution will walk users through the HS’s General
Rules of Interpretation. Once a classification is assigned, this
determination should be added to a Global Product Item Master. This
will capture the good’s key attributes, along with supporting
documentation and decision criteria. In addition, a comprehensive
solution should automatically generate admissibility flags and
identify preferential duty eligibility under a free
ENSURE DOCUMENTATION ACCURACY
Automated trade compliance software solutions take the guesswork out
of the documentation process. Whether importing or exporting, all the
required documentation is prepared in the correct format and
appropriate language. This also includes licenses and permits.
management software helps enterprises proactively ensure that
all export processes, including trade compliance, shipping and
documentation requirements, are met. As a result, enterprises can
adhere to regulatory requirements and reduce the hidden costs of
SCREEN VENDORS AND TRADING PARTNERS
National governments and their agencies, as well as international
organizations issue lists of restricted individuals, groups and
entities. These denied parties may be associated with organized crime,
the proliferation of nuclear weapons, or terrorism. Therefore, it is
illegal to conduct business with them.
Automated screening allows a company to perform due diligence and
validate that they are not trading with sanctioned parties. In
addition, this allows companies to not only identify denied parties,
but also controlled products and embargoes or sanctioned countries.
Furthermore, a trade compliance solution should offer ongoing,
regular updates to trade content, including restricted party screening
lists. These lists are subject to frequent changes, making updated
content a necessity.
TRACK KEY PROCESSES
A robust global trade compliance solution will capture and store all
shipment data in a consistent manner. This allows organizations to
have clear, repeatable processes across customers, shipments and countries.
ENSURE CONSISTENT GLOBAL TRADE PROCESSES
Best-in-class global trade compliance solutions allow a company to
capture business-specific rules and processes. Without automation,
companies must rely on a handful of subject matter experts to handle
these processes. Automating these business-specific rules to ensure a
consistent process to global trade and compliance processes.
LET’S KEEP IN TOUCH
If you would like to subscribe to the QAD Precision Report, or would
like to receive notifications about QAD Precision events, webinars and
news, please click here.
About QAD Precision – Trusted Global Trade and Transportation Execution
QAD Precision, a division of QAD Inc., provides industry-leading global
trade compliance, and multi carrier transportation
execution solutions from a single, integrated platform. An
ISO-certified company, QAD Precision assists companies to streamline
and transportation operations, optimize deliveries, and increase
logistics ROI. QAD Precision’s scalable and extensible solution easily
integrates with existing ERP and WMS solutions. Industry leaders in
every region of the world rely on QAD Precision’s global support
centers to leverage thousands of carrier services and manage millions
of global trade and shipping transactions every day. For more
information about QAD Precision, visit www.qadprecision.com.