This article will form the basis of discussion for our second 'Talking World Trade Matters' member-only webinar on 13/03/19 at 19:00. If you are a member of the Institute, you can sign up to this webinar at:
No such thing as an 'average exporter'
It’s time to stop talking in terms of averages and start looking at international trade as the diverse entity that it is. Let’s be clear there is no average tariff, there is no average sector and, although this is sometimes inconvenient for the media, no one market solution for all industries. A no-deal Brexit will have thousands of differing repercussions for UK businesses, says the Director General of the Institute of Export & International Trade - the UK’s professional membership body for importers and exporters.
She goes on to explain, tariffs for pharmaceuticals tend to be 0% rated, whereas ceramics can vary from 5% - 25% depending on the component parts and materials, and agriculture can range from 30%-45% - or even more when you consider constituent parts as well. Some countries have differing rules of origin and some operate on different trade agreements. There is no average.
With UK businesses set to be faced with significantly altered trading conditions in the event of a no-deal Brexit, it is imperative for our businesses to become more adept at understanding how customs procedures, tariffs, duties and WTO rules operate. There are 140,000 businesses who currently export only into Europe who will be new to many of these trade administrative requirements, according to the Institute for Government.
After Brexit, to continue selling into Europe, these businesses will need to complete customs declarations and, in the event of a ‘No Deal’, they will need to understand the duty payable for importation into and from the continent under the ‘Most Favoured Nation’ rate set by the EU to the WTO.
There are approximately 5,300 article/product descriptions arranged in 97/99* chapters in the Harmonized Commodity Description and Coding System (HS), each given its own HS Code (a six figure product classification number). Exporters and importers need to know what code a product is given to be able to establish what duty or taxes are payable. The code also triggers other factors including anti-dumping duty, quotas and licences that relate specifically to those goods being moved between the UK and the EU (or indeed the rest of the world).
In essence, in the event of new tariffs being introduced for goods moved between the UK and the EU, UK businesses will be required to pay duties set by the EU tariff schedule to the WTO. They will need to know which of the 5,300 HS Codes relates to their product and understand the duty that will be payable for their goods to be paid under that code as a ‘Third Party’ country. This impacts on the cost of importation which is usually paid by the importer or buyer.
Although, this charge is usually paid by the importer, exporters will need to accommodate this cost to their European customer or partner in their overall pricing to maintain competitiveness. UK importers of goods from the EU will need to pay duties according to the UK’s independent tariff schedule to the WTO, which has not yet been set.
No ‘one-size-fits-all’ answer to how Brexit will affect UK businesses
Lesley Batchelor OBE, Director General of the Institute of Export & International Trade, explains:
“We often get asked how a ‘No Deal’ Brexit will affect our exporters, but there is no simple, overarching answer to this. There isn’t a ‘one-size-fits-all’ approach to international trade. Each product-type has its own tariffs and regulations. Businesses need to identify how their specific product is affected by looking up their HS Code.”
“For example, if the UK trades with the EU under WTO rules in a no-deal Brexit, the import duty for cheddar and beef will be 42% and 40%, while for ceramics this will be between 5% and 25%. The impact of WTO rules on the agricultural, drugs, food and drink industries, will therefore be very different to the impact on the ceramics industry, for instance.”
In the event of a ‘No Deal’ Brexit, businesses will need to have determined their HS Code and identified how they will be affected by trading under WTO rules. This will also apply for businesses trading with markets like South Korea and Canada, who the UK currently has preferential tariff rates with through its membership with the EU.
The UK government lodged a tariff schedule mirroring the EU in July 2018 and this was published on the gov.uk website in December. However, it is still not published as a UK Integrated Tariff, or, more specifically, as Volume 2 of the Tariff, which is the official source for operational use. Unfortunately, it had hoped to replicate the EU’s current tariff schedules, but some WTO members have refused to ratify this, opening up the need for the UK to negotiate its schedules with other WTO members.
However, WTO members do often trade with each other under non-ratified schedules while the proposed schedules are being negotiated.
Businesses need to be prepared
Businesses need to prepare for Brexit by ensuring they know their HS Codes and understand the duties payable under this for the markets they export to or import from. Exporters also need to have an EORI number and to either ensure they know how to complete customs declarations or that their customs broker or agent has this knowledge.
The Institute of Export & International Trade provides online and offline training courses teaching the processes of international trade, including understanding how WTO rules and Free Trade Agreements work, and also customs procedures and declarations. Courses relating to the completion of customs declarations are fundable by government grants until April 5th.
*There are 97 chapters in the WCO’s system and 99 chapters in the EU’s.