How will key aspects of international trade be affected if the UK leaves the EU without a deal?
In the event of a no-deal Brexit, if the UK has not succeeded in concluding its own trade deals with the countries that it currently has under the terms of EU agreements, we could end up working under World Trade Organisation (WTO) rules.
What does this mean?
Department for International Trade (DIT) guidance explains that they have been working towards carrying forward as many EU trade agreements with other countries as possible. However, where those carry forward deals have not been possible then companies will have to apply WTO rules in their dealings with those countries after Brexit.
In particular, the rules state that the same trading terms must be applied to all countries, unless there is a trade agreement between them. This is known as the Most Favoured Nation (MFN) measure. Specifically, unless the UK has a trade agreement with another nation that allows it to trade under preferential conditions, it cannot offer better trading terms to that nation and not another.
How will Tariffs affect my business if we leave without a deal?
If there is a no-deal Brexit, there is a temporary tariff regime that may apply to imports. DIT guidance explains that ‘If the UK leaves the EU with no deal, you may need to pay different rates of customs duty (tariffs) on imports into the UK. These rates would only be applied if the UK were to leave the EU with no deal and would be in place for up to 12 months.’
In terms of export goods, in the absence of an agreed preferential trade agreement, each country decides their own import tariffs which will apply to goods you may export to them. You can expect to go through the same process that you would for any ‘third country’ (countries that the UK does not have trade agreements with).
How will the movement of goods I export to the EU be affected by a no-deal scenario?
In addition to the potential duties arising from tariffs being imposed, all UK exporters to other EU member states will find themselves having to deal with additional export formalities, such as export declarations and potential changes to goods movement processes.
Export declarations will become a standard requirement for UK to EU exports and may incur additional processes for UK export businesses that some may not yet be prepared for, including increased costs for training. The good news here is that there is Government funding in place to support this and is a straightforward application process. Freight Forwarders and other organisations may also be able to support your export declaration requirements.
Due to the challenges that some of these formalities bring, it may also impact on the Incoterms under which you operate. For example, where goods have been sold from the UK to other EU members, it may have been historically beneficial under an Ex-works (EXW) arrangement that made exporting very low risk for UK businesses. This meant that the buyer essentially took care of all the export formalities, as this was easier and often cost effective.
However, with the border challenges that could be in place following a no-deal scenario, these conditions might change to a much higher level of risk for the seller. The buyer could place the onus on the seller under the terms of Delivery Duty Paid (DDP), making the seller responsible for getting the goods to the buyer with all export formalities dealt with by the seller, including the duties. These are all additional costs for UK business and make competitiveness increasingly more challenging for UK exporters in the EU.