EU warn of Brexit supply chain disruption

With no real progress on the terms of Brexit, the EU is urging Member States to prepare for all outcomes and warned of disruption to supply chains whether or not a deal is reached.

On 30 March 2019 the UK will leave the EU which, the European Commission says will have repercussions in both the United Kingdom and the EU, ranging from new controls at the EU’s outer border with the UK, to the validity of UK-issued licences, certificates and authorisations and to different rules for data transfers.

Even if an agreement is reached, it says, the UK will no longer be a Member State after withdrawal and will no longer enjoy the same benefits as a member. “Therefore, preparing for the UK becoming a third country is of paramount importance, even in the case of a deal between the EU and the UK.”Berlaymont_building_european_commission

While the UK and EU have agreed the option of a two-year transition period beyond 30 March 2019 to allow new post-Brexit arrangements to be put in place, this is conditional on a Withdrawal Agreement being signed between the two sides.

There are two possible main scenarios:

  • If the Withdrawal Agreement is ratified before 30 March 2019, EU law will cease to apply to and in the UK on 1 January 2021, i.e. after a transition period of 21 months.
  • If the Withdrawal Agreement is not ratified before 30 March 2019, there will be no transition period and EU law will cease to apply to and in the UK as of 30 March 2019. This is referred to as the “no deal” or “cliff-edge” scenario.

Under this “cliff-edge” scenario, and with no trade agreement in place, the UK would be forced to trade with the EU under World Trade Organization (WTO) rules – with Most Favoured Nation (MFN) import tariffs applied on goods traded between the two, and long delays at ports and borders for customs and regulatory checks.

It has been estimated that under WTO rules the average tariff on fashion and textile products coming into the UK will be between 10-15%. Products sourced from Least Developed Countries (LDCs) such as Bangladesh and Cambodia moving from a zero tariff to a double-digit rate.

Estimates suggest 1/3 of Britain’s apparel imports are made, or processed in the EU.

Almost as much again arrives from Asia at continental ports like Rotterdam, where it passes through customs before travelling to retailers’ warehouses in the UK.

The Commission’s advice for EU members to avoid disruption after 30 March 2019 includes:

Responsibilities in the supply chain
Under EU law, businesses have different responsibilities depending on where they are situated in the supply chain (manufacturer, importer, wholesale distributor, etc). For example, post-Brexit, if EU27 businesses that buy goods from the UK are considered as importers for the purposes of EU product legislation, they will have another set of obligations under EU law. If you receive products from the UK, you should assess your responsibilities under EU law now.

Customs, VAT and excise
For customs and indirect tax, it makes a big difference if you are moving goods within the EU or to/from a third country. Doing business with the UK post-Brexit will become more complex in terms of customs and VAT procedures. If you trade with companies in the UK, you should get acquainted with the EU procedures and rules that will apply post-Brexit, in particular if you have so far had little or no experience in trading with third countries.

Rules of origin
When exporting products to third countries with which the EU has a Free Trade Agreement, exporters may enjoy a preferential tariff rate if the products have enough ‘EU content’ according to rules of origin. Post-Brexit, you can no longer count on UK input to the finished product being considered as EU content. You should therefore examine your supply chains and start treating any UK input as “non-originating,” in order to ensure EU preferential origin for your goods.

A version of this article first appeared on Just-Style