On July 12th, the UK government published a whitepaper specifying broadly their proposal for a post-Brexit relationship with the European Union. This much-anticipated document outlines the UK Government’s best-case scenario on customs and trade policy after the separation. The below details reflect the UK Government’s desired outcome, not the final agreement between the UK and EU.
The UK Government will propose to the EU the following:
1. Cross-Border Trade: The UK proposes to create a Facilitated Customs Arrangement between the UK and EU, whereby there would be no border checks or customs declarations required when moving goods between the two territories. In lieu of this, the UK would ascertain at the time of importation whether or not goods are destined for the UK or EU market. If destined for the UK market, the UK would charge its own tariff rates. If destined for the EU market, the UK would charge the EU rate.
2. Refund Procedure: Where traders import goods into the UK and do not know whether or not the goods will be destined for the UK or EU market, the higher of the two tariff rates (UK Rate vs. EU Rate) would be applied and, once the end destination of the goods is determined, the trader would be eligible to apply for a refund if duty was overpaid. The intent of this policy is to protect customs revenue for both the UK and EU, while facilitating UK manufacturing and distribution. An example of this would be intermediary goods used in a manufacturing operation, where ultimate destination of the finished good is unknown.
3. Trade Policy Independence: While the UK has stated that they would like to adopt the EU’s Union Customs Code, they have stated that the Facilitated Customs Arrangement would differ from participation in the customs union in that the UK would be able to (1) establish its own tariff schedule with independently determined tariff rates, and (2) have the freedom to negotiate free trade agreements independently with third countries.
4. EU Free Trade Agreements: The UK has stated that they would like to continue to remain a member to all existing and future free trade agreements in place as a member of the EU, and that they would like to be recognized as an “originating” country, even after leaving the EU, to allow origin cumulation of UK products when used for processing and export from the EU.
5. Authorised Economic Operator/Trusted Trader: The Authorised Economic Operator (AEO) program would be preserved, as it is a part of the adopted Union Customs Code. The UK has also stated that, under its independent trade policy, it would quickly seek a mutual recognition process with the EU Authorised Economic Operator program. Additionally, the whitepaper makes reference that, in order to appropriately apply either UK or EU tariffs at the UK border, the UK and EU would need to adopt a new trusted trader regime to facilitate the appropriate deposit of duties by the importer. Thus, it may be necessary to have AEO, or some form of AEO, to appropriately deposit duties under this proposed regime.
Following the publication of this White Paper, the UK and EU negotiating teams will engage to conclude negotiations this autumn on the future relationship between the UK and EU. Once the negotiations culminate with a Withdrawal Agreement being drafted, both the UK House of Commons and EU Parliament must consent to the content of the Withdrawal agreement before it goes into effect.
The full whitepaper can be read on the UK government's website.
Should you have any questions, please do not hesitate to contact Tradewin.