Trading with the EU if there’s no Brexit deal

A look at the government’s guidance to businesses in the event of a no deal Brexit.

Background

What percentage of businesses (and how many businesses) trade with the EU?

“Depending on which you use, probably between around 5% and 8% of businesses export to the EU.”

Some up-to-date stats on trade flows

About 43% of UK exports in goods and services went to other countries in the EU in 2016—£240 billion out of £550 billion total exports. 54% of our imports into the UK came from other countries in the EU in 2016. That proportion has fallen since reaching a peak of 58% in 2002, although it’s been rising slowly again since 2011.

What is a “third country” and what is the “most favoured nation” rule?

The UK is currently a member of the EU and so part of the EU single market. In the event of a “No Deal” Brexit,, the UK will no longer have any formal relationship with the EU, and so will be what the EU calls a “third country”. “Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.” You have to treat everyone like your “most favoured nation” but there are exceptions for free trade agreements.-

The current situation

There are no restrictions on moving and trading goods between EU member states.

On goods where “excise duty” has to be paid, there is an EU-wide system (the Excise Movement Control System) for moving around the goods before duty has been paid. Excise duty is a tax charged on the importation and manufacture of alcohol, tobacco and oils.

Impact of no deal

  • Importing from and exporting to another EU country will become just like trading with non-EU countries at the moment. This will lead to a significant increase in paperwork for trade between the UK and the EU.
  • “This means customs declarations would be needed when goods enter the UK (an import declaration), or when they leave the UK (an export declaration). Separate safety and security declarations would also need to be made by the carrier of the goods” and “the EU would require customs declarations on goods coming from, or going to, the UK, as well as requiring safety and security declarations”.
  • Businesses importing and exporting goods will need to engage a customs broker or obtain the right software and authorisations from HMRC. Both of these options come at a cost.
  • Moving goods between the UK and the EU on which “excise duty” has to be paid would also be more complicated, as there wouldn’t be a single system.
  • It is unclear how trade between Ireland and Northern Ireland would work in the event of “No Deal” Brexit. The government has committed “to engage constructively to meet our commitments and act in the best interests of the people of Northern Ireland, recognising the very significant challenges that the lack of a UK-EU legal agreement would pose in this unique and highly sensitive context.”
  • There would need to be further consultation about the border between Northern Ireland and Ireland, if there is no deal. The government recommends that “if you trade across the land border, you should consider whether you will need advice from the Irish government about preparations you need to make.”

Government strategy and advice to businesses

  • The government is advising businesses to research now how “No Deal” Brexit would affect them, and to consider starting to prepare for the possibility.
  • “This is contingency planning for a scenario that the UK government does not expect to happen, but people should be reassured that the government is taking a responsible approach.”
  • The UK has applied to re-join the Common Transit Convention, which would mean that charges are only paid in the destination country of the goods. THis would be slightly simpler but negotiations are ongoing.
  • In particular, businesses are being advised to: Understand what the changes to customs and excise procedures would be and how they would be affected; Consider the impact on their supply chain of leaving with no deal and any plans that need to be put in place; Planning how they would deal with the altered customs requirements.
  • “The UK government is clear that in a ‘no deal’ scenario we must respect our unique relationship with Ireland, with whom we share a land border and who are co-signatories of the Belfast Agreement.” There are no further details on that at this stage.