Customs Possibilities

Brexit Scenarios

If there is a so-called hard Brexit, then full customs and regulatory requirements will apply to goods imported from the EU to the UK and goods exported from the UK to the EU. The UK government has indicated that it will not impose borders in Northern Ireland in any circumstances.

Although there is considerable political uncertainty, it is assumed by all parties that a “hard” Brexit is likely to be avoided by extension of the transition period or approval of an amended withdrawal agreement. Even in a no deal scenario, it might be expected that some steps will be taken to mitigate the worst effects of a hard Brexit. It is not apparent that customs controls can be avoided.

If the withdrawal agreement or a revised version of it is approved, then there would be a transitional, so-called implementation period until the end of 2020, which can be extended by a year and perhaps, longe by further agreement.  After the transition period, the UK may enter a backstop arrangement which involves a continuing customs partnership with the European Union.

Customs Partnership or Trade Agreement

The Labour Party policy favours a customs union between the EU and the UK. It is possible that the customs partnership in the draft Withdrawal Agreement might be the basis of the future customs relationship, which may obviate the need for customs formalities between the UK and the EU. However, a tight customs partnership sufficient to avoid customs formality would not be consistent with the UK having an independent trade policy with third countries which would allow independent free-trade deals on different terms to those of the EU.

The Conservative Party policy and the EU / UK Future Trading Declaration propose a free trade agreement. If this happens, there must be, of necessity, customs controls even though there are no customs duties, in order to deal with non-tariff trade policy issues, such as quotas, issues of the origin of goods as well as VAT and regulatory compliance.

It would be necessary to comply with the certification/proof of origin requirements under any UK/ EU agreement in order to qualify for the low or zero tariffs duty that might apply between the EU and the UK. Sometimes it is worthwhile in the case of low duty to waive production of the required certification of origin and pay the duty. This is because the issue of origin may be complex in cases where goods are composed of materials from several countries outside the EU.

Trade Agreement Customs Controls

It is virtually certain that even if some of the above checks are reduced under a common EU UK agreement (e.g. food standards chemicals) checks will still remain necessary even with no customs duties to verify the origin of goods to undertake a risk assessment on regulatory compliance issues and to account for VAT.

It is estimated by customs experts that even with a full free-trade agreement with no tariffs, most and up to 80% of the customs compliance costs, would still remain. In the absence of a customs union or a very close customs partnership having the same effect of a customs union, it would remain necessary for both the EU and the UK to maintain import and export controls to check the origin of goods collect VAT and check compliance with standards.

Other Trade Agreement Controls

In relation to agricultural products and food, further checks would apply effectively requiring veterinarian or other health certification of food in the absence of a common food and animal health area.

In addition, increased licensing requirements will apply to certain types of goods because they are subject to controls such as weapons diamonds and chemicals.

VAT deferral would be available, at least in a hard Brexit, to VAT-registered traders who can reclaim VAT generally. The customs system will be used to verify the entry out of the UK or the EU and the corresponding entry into the EU UK of goods for VAT purposes. VAT is likely to be payable either immediately or accounted for and paid in the next VAT period.