Six Impacts of a Hard Brexit on UK/EU Trade

Companies trading between the UK and the EU 27 will be impacted should the UK leave the bloc without a deal. In the latest Precision Report we discuss six impacts of a hard Brexit.

Background to Brexit

On 23 June 2016, the United Kingdom (UK) voted to leave the European Union (EU) by referendum. The departure — known as Brexit — became official on 29 March 2017, when the UK served the withdrawal notice under Article 50 of the Treaty on European Union.

Negotiations for the terms under which the UK was to leave the EU were formally concluded in November 2018. This withdrawal agreement has proven divisive. Members of Parliament (MPs) have rejected the deal three times, making ratification unlikely. Alternatives, such as remaining in a customs union with the EU, have not garnered majority support among MPS either.

The UK was due to leave the EU on 29 March, but the departure date was pushed back to 12 April. On 2 April, Prime Minister Theresa May announced she would request a longer extension. The Prime Minister also announced plans to work with opposition leader Jeremy Corbyn to break the Brexit deadlock. At the time of writing (3 April 12:45pm IST), the EU has not responded to this request.

Should the British parliament fail to ratify the withdrawal deal, or agree upon a different future model for relations with the EU, the UK will leave the bloc without an agreement.

This is the “hard Brexit” option. Under a hard Brexit, the UK will no longer be part of the EU customs union. As a result, trade between the UK and the EU will fall under World Trade Organization (WTO) rules. In such a circumstance, goods that can currently move freely between the UK and the EU would become imports and exports. This will add complexity, time and cost into the supply chain.

Export Declarations

Goods leaving an EU member country destined for the UK will require an export declaration. Shippers will need to make the export declaration to customs authorities in the originating country (for example, Germany).

However, before an exporter can ship the goods, the relevant customs authorities must first accept the declaration. Customs will assign a unique identifier to this shipment to facilitate its movement. They may call for a physical examination before clearing the goods for export.

In order to comply with these requirements companies must create and electronically file export declarations for each shipment. In order to do so, exporters will need to do one of the following:

• Implement a software solution to file declarations with the relevant customs authorities;
• Engage a third party, such as a carrier or customs broker, to file on their behalf.

Import Declarations

Conversely, when goods from the UK arrive into the EU, an import declaration to the customs authorities in the country of arrival is necessary. The EU will impose duties on goods imported from the UK. The importer must pay these duties (unless the goods are to be re-exported and the importer is part of a duty suspension program) before customs will release the goods. Importers — like exporters — will need to comply with these requirements by filing declarations for each shipment by using a software solution to do so, or engaging a third party to file on their behalf.

Customs Classifications

Companies engaged in export or import must classify their goods using commodity codes. These codes include the WTO’s Harmonized System   (HS); EU codes from TARIC, the integrated Tariff of the European Union; and the US’s Harmonized Tariff Schedule (HTS). Under a hard Brexit, the UK will publish its own tariff book and related classification codes.

Without an agreement, all goods traded between the UK and the EU must be classified using the relevant codes. Customs authorities use these codes to identify goods, determine any admissibility requirements, and assess if duties apply. If a company has not previously classified their goods, they will need to undertake the process of doing so. Furthermore, business systems, such as the ERP or WMS, may not be able to store and retrieve this information to support import and export activities.

Free Trade Agreements

Under a hard Brexit, EU manufacturers sourcing raw materials from the UK may find that their goods no longer qualify as EU origin products. This would have an adverse impact if the manufacturer is exporting their goods to a non-EU country with a free trade agreement with the EU. Such products would no longer qualify for preferential duty treatment and would therefore cost more to land in that country.

Transportation Documentation

Some carriers have put contingency plans in place to facilitate trade in the event of a hard Brexit. This includes changing the services they offer for shipments between the UK and EU which previously did not require a customs declaration. However, to use these services, affected companies will need to provide additional information and produce shipping documentation, such as a Customs Invoice and a Packing List containing commodity level details, which may need to travel with the goods. This will require changes in the tools and processes used by customers for order processing and fulfilment.

Consolidations

Express carriers such as UPS and DHL who handle high volume of shipments offer consolidated services. Consolidation is the practice of grouping together shipments destined for different end-customers in the same country, or market like the EU, for customs clearance. This reduces the number of customs declarations required. A consolidated shipment only needs a single declaration for the entire shipment rather than declarations for each individual shipment. Carriers are encouraging customers with large volumes to use these services. These services come with a cost attached, but can result in fewer regulatory headaches.

It is also possible for exporters to manage consolidations in-house. Consolidated shipments are exported and sent to an express carrier’s depot for last mile delivery.

How QAD Precision Services Can Assist Existing Customers

QAD Precision Services can assist you by advising you of any updates which are relevant to your current operations.

How QAD Precision Can Help

The QAD Precision solution allows shippers manage global trade, compliance and transportation from a single platform. With QAD Precision’s  integrated solution you can satisfy compliance requirements, minimize regulatory exposure, perform due diligence and ensure accuracy by automating documentation production and customs reporting. Industry leaders use our international trade management solution to adhere to regulatory requirements and reduce the hidden costs associated with global trade.

With QAD Precision, you deploy a transportation solution that manages multiple providers, gives you visibility across carrier costs and service levels and creates consolidation opportunities upfront. With a single, detailed view of your freight spending, you can undertake supply chain planning, route optimization and carrier rate negotiation based on fully vetted data.

About QAD Precision – Trusted Global Trade and Transportation Execution

QAD Precision (Precision Software), a division of QAD Inc., provides industry-leading global trade management, transportation execution and multi carrier shipping software solutions from a single, integrated platform. Preeminent industry leaders in every region of the world rely on QAD Precision’s global support centers to leverage thousands of carriers and manage millions of shipping transactions every day. Our open architecture easily integrates with Enterprise Resource Planning, Warehouse Management Systems and legacy solutions. An ISO-certified company, QAD Precision assists companies to minimize shipping costs, optimize first mile and last mile deliveries, automate free trade agreement compliance, avoid customs delays and mitigate the risks associated with dynamic trading environments to maximize their competitive advantage. QAD Precision’s customers span multiple industries including banking and finance, life sciences, high technology, retail, industrial, automotive, higher education and public sector as well as logistics providers. For more information about QAD Precision, visit www.precisionsoftware.com.

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