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Trade and the Impact on Imports and Exports in 2020

trade

Trade and the Impact on Imports and Exports in 2020

Significant and sustained increases in the world trade index (an index measuring the number of times the word uncertainty or its variants are mentioned in Economist Intelligence Unit (EIU) reports at a country level) should be a worry for many as “the increase in trade uncertainty observed in the first quarter could be enough to reduce global growth by up to 0.75 percentage points in 2019”[1]

In August, the US Institute for supply management[2] latest report shows a contraction in production, purchasing, and employment indices.

Ahir, H, N Bloom, and D Furceri (2019), “The global economy hit by higher uncertainty”, VoxEU.org. https://voxeu.org/article/trade-uncertainty-rising-and-can-harm-global-economy

 

Uncertainty generated from Brexit, the US-China trade war, Japan – South Korea trade wars, and general discontentment with global trend towards widening income inequality is creating a toxic mix for politicians to deal with. The irony is the conventional approach of blaming your trading partners for your problems is only likely to exacerbate a general lack of confidence and increase further uncertainty.

The current round of the G7 summit in Biarritz concluded with support “to overhaul the WTO to improve effectiveness with regard to intellectual property protection, to settle disputes more swiftly and to eliminate unfair trade practices.” In essence, it’s signaling a need to strengthen the capabilities of the WTO to act faster and more decisively in resolving disputes that are even more political than structural in nature, requiring a more multi-faceted engagement approach. Whilst this may help in the long-run, in reality, companies will have to contend with uncertainty in global trade for some time to come as well as the impacts on the real economy from these disputes.

And all of this is happening as IMO 2020 approaches, the January 1, 2020, date by which the International Maritime Organization mandates a switch to lower sulfur fuels in order to achieve an 80% reduction in sulfur emissions leading to significant cost increases in the shipping goods via ocean freight (initial estimates between 180USD – 420 USD per TEU dependent on routing, base fuel costs, carrier).

So given the significant uncertainty around global trade agreements, the increasing use of trade as a political football, the increasing costs to trade and the shortening of product lifecycles as customers want faster, newer more differentiated offerings. Is it still worth it?

Of course this is very much dependent on what industry you are in. Whether you’re a global manufacturer or a wholesaler sourcing goods, your perspectives may be different based on investments made, sensitivity to current trade/tariff measures, customer demands, your markets, and the degree to which you are exposed to political debate and targeting.

However, I would offer that the benefits of specialization, economies of scale and unique factors of production that have underpinned global trade still exist as Adam Smith put it in 1776:

“By means of glasses, hotbeds, and hot walls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?”[1]

Today this simple analogy still holds true in skills, competences, capabilities, and access to markets and insights so that over time the expectation is that trade will prevail.

While the recent outlook has been gloomy, opportunities for 2020 include a resolution to a number of ongoing disputes and a final settlement on Brexit (we hope). Additionally, the maturation in technologies such as blockchain, process automation, forecasting and demand management solutions can also offset costs associated with IMO and support greater agility in the uncertain supply-chain world that we currently live in.

Indeed, if 2019 was the year of trade uncertainty, 2020 could be a restorative year in our ability to execute global trade.

Partnering with an experienced supply chain leader will be essential to minimizing cost increases while ensuring the efficient flow of your company’s goods and services.

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[1] World Economic Forum:https://www.weforum.org/agenda/2019/07/how-trade-uncertainty-is-impacting-the-global-economy/

[2]https://www.instituteforsupplymanagement.org/ismreport/mfgrob.cfm?SSO=1

[3]Adam Smith: Wealth of nations 1776

Neil Wheeldon is the Vice Presidents Solutions, BDP International.

intermediary banks

Connecting the World: The Importance of Intermediary Banks

Whether you are initiating electronic international payments through a fintech solution or buying physical currency, the chances are high that a bank will be involved. The relationship between banks, as well as the role of intermediary banks, often eludes the general public, who are content with the process as long as it works.

However, understanding how the sausage is made can provide valuable insight into the way you conduct your business. Let’s take a closer look at intermediary banks and their subsequent relationship with currency exchange.

What is an Intermediary Bank?

In layman’s terms, an intermediary bank is where funds are transferred prior to reaching their destination, the payment bank. 

To transfer money, banks must hold accounts with each other in the same way that a typical client would. However, there are too many banks for one to hold accounts with all the others, so instead, they strategically choose where to open accounts. The result is a fragmented network of financial institutions. 

When a bank needs to send money to a location where their bank does not hold an account, the bank instructs an intermediary bank to act as a “middle man” to pass on the funds on their behalf. Funds can transfer between multiple intermediaries, especially if one of the banks is not networked with many larger banks. If the payment bank is across an international border, the intermediary bank may also act as the currency exchange provider.

The Role of Currency Exchange

Currency exchange refers to the use of one currency to purchase the same value in another currency. It’s required any time one entity wishes to pay another in a currency different from their default option.

Each country has either a “fixed” or “floating” exchange rate. A “fixed” exchange rate—also known as the “gold standard”—means that all the country’s money has a physical equivalent in gold or another precious material. “Floating” exchange rates may not have a physical worth, but are influenced by the market and politics, as is currently the case with the Great British pound’s relationship with Brexit.

Breaking Down the Cost

For businesses, currency exchange is vital to a true international payment process. Some vendors may wish to be paid in their customer’s default currency, which would not warrant an exchange. U.S. businesses may experience this when working with vendors in countries like China or Japan, who often prefer payments in USD. This happens when a vendor finds it cheaper to open accounts specific to currencies other than their own in order to avoid exchange fees.

Some vendors have opened multi-currency accounts, which enable vendors to accept and store more than one currency in a single account. Because this method is still gaining traction, it’s good practice to ask if vendors have multi-currency accounts before sending them money. If they don’t, and their account cannot support your currency, the payment bank will likely reject the funds.

Other hidden costs to consider when working with international payments are:

The exchange. If your origin currency is weaker than the payment currency, your money may lose some value in the trade. However, the market is continuously shifting, so the exchange will also gain value at times. The more international payments you make, the likelier that this cost will even out over time.

Intermediary bank fees. Some intermediary banks shave off a fee for their services, which is usually taken from the sum – the net amount is deposited into the vendor’s account. Not all intermediary banks will charge this fee, and it’s not immediately obvious which banks will do so.

Payment bank fees. Similar to the intermediary banks, certain payment banks also charge a fee for processing international payments. Again, not every bank charges this fee, but those that do will deduct it from the payment sum before depositing the net amount into the vendor’s account. Vendors can discuss this charge with their bank if it occurs.

Disrupting the Status Quo

With all these nuances to keep in mind, it can feel like involving a fintech will only add another cog to an already-overwhelming process. However, a fintech can determine the most efficient route through an intermediary bank, and assist in locating missing payments. If funds are returned for any reason, fintechs also act as a holding account while you decide if you want to exchange the funds back or resend them. Following a process like this ultimately saves time, money, and hassle.

If you’re on the fence about using a fintech for international payments, keep in mind that you aren’t losing out by mitigating an overly complicated bank processes. You’re merely side-stepping the complications in favor of usability.

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Alyssa Callahan is a Technical Marketing Writer at Nvoicepay. She has four years of experience in the B2B payment industry, specializing in cross-border B2B payment processes.

Uncertainty Over Brexit Leaves the B2B World in Suspense

When talk turns to Brexit, much of the discussion revolves around what will happen once the United Kingdom of Great Britain and Northern Ireland leaves the European Union. While the United Kingdom Parliament hashes out a withdrawal agreement, with Prime Minister Theresa May at the helm, the economy is already shifting in anticipation of… what? The trouble is, no one is quite sure. Even experts can only make educated guesses since their research hinges on the type of withdrawal the United Kingdom and European Union ultimately consent to.

Where Brexit currently stands – A high-level view

The European Union recently approved a second extension of the Brexit deadline to allow May additional time to forge a deal in Parliament and finalize the United Kingdom’s withdrawal from the Union. While the new October 31, 2019 deadline offers some breathing room, it leaves the United Kingdom and European Union in an uncertain economic limbo for most of this year.

The spiderweb of potential events that lay ahead for the United Kingdom stem from two of the most likely outcomes:

-May passes her withdrawal agreement in Parliament by October 31st. If she succeeds, the United Kingdom can hammer out future trade deals with the European Union, to be expanded upon after the separation is finalized.

-May does not pass her withdrawal agreement by October 31st. This would mean the United Kingdom leaves with no trade deals in place, and very little room to negotiate ideal terms in the future. A “no-deal” situation has the potential to create lingering consequences, particularly at the border between Northern Ireland – which is part of the United Kingdom – and the Republic of Ireland, with the European Union.

While those in favor of Brexit are eager for a more economically independent United Kingdom, others hope that the withdrawal agreement will come with lenient tariffs, not just at the Irish border, but for trade across the United Kingdom and European Union. Unfortunately, only time (and an approved withdrawal agreement) will tell how the trade relationship between the United Kingdom and Europe continues.

What Brexit means for businesses in the United Kingdom

Politics aside, the United Kingdom has already seen changes to their market and businesses since the original Brexit vote in late 2016. The pound sterling (GBP), which dropped drastically after the majority of United Kingdom citizens voted to leave the European Union, remains weakened in comparison to the United States Dollar (USD). The approach of each Brexit deadline has triggered a slight drop in the market, followed by a recovery a few days after the granted extensions.

The GBP and Euro (EUR) have become tied to shifts in the political sphere, rather than the market. Companies are making financial decisions in anticipation of a plummeting currency values caused by Brexit.  Many banks have already moved their home offices  from London to various European cities. Healthcare facilities are stockpiling life-saving medicines in the event of a shortage. United Kingdom-based businesses are reducing their investments and employment opportunities. 

How will Brexit affect U.S. business with the United Kingdom?

With a diminished value for pound sterling, currency exchanges between USD, GBP, and EUR won’t be very attractive for a while, especially when considering the added per-payment fees charged by banks to transmit funds across international borders. Global businesses depend on stable markets to keep exchange rates as uniform as possible; someone will always be paying the difference, whether it’s the buyer purchasing more currency, or the supplier receiving a reduced amount.

Companies whose accounts payable teams have adopted payment automation into their processes can use their rebates to mitigate irregular exchange rates. Payment solutions that lower the cost of electronic payments through exchange rate transparency ultimately improve the buyer’s relationships with their suppliers.

Only one thing left to do

The United Kingdom and European Union are in a transitory stage – and that is an enormous understatement. The Brexit experience is genuinely frustrating because it has no precedent, so no one’s sure what will ultimately happen. Economic growth may stagnate for a while, but as with any market, where there are ebbs, there will be flows. The only thing left to do is what the United Kingdom already does best: “Keep calm and carry on.”

Alyssa Callahan is a Technical Marketing Writer at Nvoicepay.  She has four years of experience in the B2B payment industry, specializing in cross-border B2B payment processes.

GTKonnect Sets the Bar Higher with Global Trade Management Platform

“Sometime last week, I was chatting with a long-term customer about our recent rebranding. She asked me why we had the tagline, “Our goal is to drive your Global Trade success?” And this was my explanation, “We have all been observing the constant changes that have been happening with global trade in recent times. Brexit, US-China tariffs on each other, the US pulling out of the Trans-Pacific Partnership (TPP) trade deal, NAFTA renegotiations and more. More and more businesses now have a global footprint and such economic and political decisions have a major impact on global trade. Compliance rules and trade regulations are changing rapidly, and businesses cannot afford to adapt a reactive stance to Global Trade Management (GTM) any longer. They need to be armed with information and keep pace with the changing trade environment to stay ahead of the pack. Protection and polarization are becoming more relevant in the existing political and economic conditions and trade partnerships are being altered more often.”

“Businesses constantly need to keep watching baseline outcomes and be prepared with content relevant to changing compliance rules. For instance, vehicle manufacturing companies might require some percentage of the components to be made locally and due to a broken partnership, businesses might not fall under the same compliance rules as before. While adherence might appear to be a stumbling block, free trade zones could be an option to address the concern and optimize costs at the same time. Irrespective of the compliance regulation, and the possible solutions, businesses can stay ahead and reach out for success only if they lead with content. In the current changing GTM environment, additionally, businesses need to be proactive and collaborative. GTKonnect offers solutions to bridge these gaps and empowers businesses to achieve GTM success. And that explains the reason for our new tagline.”

“Let me now give you a wider perspective that places the current GTM trends in context. Global trade professionals have stayed in the background for very many years, only making sure the business met compliance regulations, and not influencing business decisions for the most part. The tide is turning now and due to the changing political and economic global climate, company CEOs are now consulting global trade professionals on new regulations and trade policies. On the one hand, countries are approaching trade with a very protective and conservative outlook and drawing up new regulations based on this approach. These are reflecting in terms of control rates, tariff rates, retaliation and other stringent limitations. On the other hand, they are also aiming at expanding their global trading presence, looking to formulate agreements and seeking new marketing opportunities.”

“Businesses are now compelled to keep an eye on the wider global trade scenario along with the impact on their costs and efficiency. However, many companies have not yet adapted this two-pronged approach and are lacking the information and tools to be successful in GTM. Data has to be proactive and global trade professionals need to be aware of the changes and stay in step with the top management’s needs. In order to do this, they must be equipped with the latest information, stay connected with industry experts who can offer advice on the latest developments and take advantage of the cost savings and opportunities that are available. A mix of the right tools, content to power the tools and the ability to collaborate can help the business remain competitive and lead to the right decisions in GTM. Let’s also not forget that any information on global trade, and access to expert advice tend to be expensive.”

“Businesses vary in their capabilities vastly, some being technologically well-equipped and others not so much, but all of them require the right content and information that is readily available on demand, at a reasonable cost. GTKonnect has been listening to customers and having observed these needs in the context of global trends in GTM, came up with the iKonnect+ feature to connect the dots. Harmonized Tariff Schedule (HTS), dumping case details, import/export procedures and customs office locations are a few factors for which content is difficult to find. iKonnect+ is a single content platform that helps source all the information in one place, without added costs. The first social platform of its kind in the GTM space, the tool helps global trade professionals connect with a community that can offer expert advice and help develop contacts in the global trade arena.”

“No matter what rules and trade partnerships change, a business’ preparedness to adapt to global trade changes and trends makes it efficient and successful. And GTKonnect is here to help businesses achieve success in GTM.”

Find out how we can help you achieve GTM success.

Anand Raghavendran is GTKonnect’s President & CEO.

Tigers Opens UK Facility Despite Brexit Environment

As e-commerce demands continue to increase, global solutions provider, Tigers, announced its new Thurrock facility this week. The new facility will serve as a larger space for operations currently held at the company’s Basildon location and adds an additional 50 jobs to the company’s employment portfolio.

“We have always viewed the UK as an important market and remain committed to investing in the expansion of our e-commerce and fulfillment operations,” said Andrew Jillings, CEO, Tigers. “The Thurrock facility significantly expands our UK presence and provides us with a strategically located hub to cater for increased customer demand.”

Located near the London Gateway off the M25, the facility’s location provides an advantageous location close to all main road routes to the Midlands, Wales, northern England, and Scotland. The expansion will also continue efforts for UK-investment goals.

“This is a multi-million-pound investment by Tigers in the UK, despite Brexit, and not only will it create new jobs, it will also secure our future as a leader in the logistics and supply chain industry as e-commerce demand continues to grow,” said Shahar Ayash, Managing Director UK and Europe, Tigers.

What to Consider when Planning for the Post-Brexit Period

The past weeks have seen a flurry of parliamentary activity in London, none of which has yielded any more clarity regarding the status of the UK’s membership in or relationship with the European Union. At time of writing, British lawmakers have twice voted down a proposed Brexit deal that EU officials have said is non-negotiable, and subsequently voted against leaving the EU without a deal.

Even in the likely event the EU agrees to delay the Brexit deadline, the future of Brexit remains very much in question, as Britain’s divided Parliament won’t be any more likely in the coming months to reach consensus than European officials are likely to re-open negotiations.

The innocent bystanders, of course, are the countless businesses on both sides of the English Channel, which have hitherto relied on seamless trade between the two entities, and which are increasingly reconsidering their relationships with suppliers and vendors across what has the potential to become a hard border.

Unprepared for Brexit

While the impending Brexit deadline has generated expected urgency in Britain’s parliament, the inevitability of Brexit has been known for nearly three years. Yet, as it stands today, many businesses are unprepared for the very real possibility of a hard Brexit. In fact, a recent report in the Wall Street Journal, citing a study by the Chartered Institute of Procurement & Supply (CIPS), notes only 40 percent of British businesses would be prepared to comply with a new customs compliance regime.

That’s a daunting number and serves as a call to action for those who have yet to prepare for Brexit’s rapid approach. Should a hard Brexit occur, it will serve as much more than a milestone; it will turn Britain’s customs regime on its head, sowing confusion and uncertainty that will inevitably result in disruption to supply chains, administrative headaches and unexpected costs. Industries heavily integrated with European supply chains, such as aerospace, pharma, food manufacturing and autos will face acute disruption.

Increasing Landed Costs

Perhaps the most urgent consideration for those who engage in trade will be the spike in associated landed costs. In the event of a hard Brexit, the current European customs regime will cease to apply to imports. The immediate effect will be the application of tariffs and Value-Added Taxes (VATs). Those tariffs will be based on Most Favored Nation (MFN) rates, which will vary by product and could be quite substantial. While the British government has already stated that, in the event of a hard Brexit, it plans to waive seven percent more tariffs than which  currently exist, VATs will still apply as will tariffs on virtually all imports from non-EU origins. That includes countries with which the EU currently maintains free trade deals, such as the Comprehensive and Economic Trade Agreement (CETA) recently signed between the EU and Canada.

Compliance (New customs regime)

While tariffs for EU imports may be reduced for the most part, customs declarations will still be required. This is a critical development. Given that approximately half of the UK’s imports come from the EU, and the EU has several trade agreements with key trading partners, there’s been little need for customs declarations in the UK to this point. However, after Brexit, the number of customs declarations is estimated to increase almost 400 percent (from 55 million to 205 million) at a cost of approximately £6.5billion or USD $9.1 billion to businesses. In addition, there will be 180,000 British business who will be filing a customs declaration for the first time, while those who have already been filing declarations will need to adjust to a new regime of customs classification.

The importance of correctly classifying these cross border movements cannot be overstated. In a best-case scenario, such as declarations with missing information, importers will face delays at UK border crossings, which are already anticipated to be backlogged. In a worst-case scenario in which goods are misclassified, importers may face retroactive payments on top of financial penalties and – in extreme cases – lose their authorizations to import.

Border Delays

According to CIPS, 10 percent of UK businesses could lose EU business if there are delays at the border, and about 20 percent will see their EU buyers demand discounts for delays of more than a day.

The organization notes 38 percent of EU businesses have already changed suppliers because of Brexit and up to 60 percent of EU businesses would look to switch suppliers if border delays were to extend to two weeks or more.

Delays are almost inevitable given the more robust customs administration requirements. Today, tractor trailers pass through the UK-EU border without stopping. At the Port of Dover, the UK’s busiest and closest port to mainland Europe, some 17,000 tractor trailers pass through on a daily basis with only about two percent being stopped. After Brexit, almost all of them are likely to be stopped. Even if that stop is only for a few minutes, it’s going to result in a significant backlog of transports.

In short, importers into the UK and exporters out of the UK will need to factor in additional time in transit and set expectations with their trade partners on the other side of the English Channel.

Preparation is Key

Given the shrinking time window for preparation, businesses that haven’t done so already should be working with their trade services partners – carriers, freight forwarders, trade lawyers and consultants and customs brokers – to ensure they’re able to minimize the negative impact of Brexit on their trade activity.

The UK’s official leave from the EU may very well be imminent, or potentially months or even more than a year away, but given the consequences of inaction, getting prepared late is still better than not being prepared at all.

Mike Wilder is vice president of Managed Services at trade services firm Livingston International. He has 30 years of experience in trade compliance. He can be reached at mwilder@livingstonintl.com.

David Merritt is a director in the Global Trade Consulting division of trade services firm Livingston International. He can be reached at dmerritt@livingstonintl.com.

 

 

BIFA Advises Members to Prepare for No-Deal Brexit

With less than 10 days until the long awaited Brexit outcome, BIFA’s Director General Robert Keen stands by his initial warning to freight forwarders to prepare for a no-deal environment and remain one step ahead in a statement this week. Keen’s comments further reiterate the confidence he has in the proactive measures implemented by the company’s members.

“Confusion reigns and with less than a fortnight to go before Brexit, no proposal is off the table and some suggest that a ‘no deal’ exit can happen because last week’s vote was advisory.

“A no-deal departure would be very disruptive and damaging for the UK economy as a whole, but freight forwarders – many of whom are Authorized Economic Operator (AEO) accredited – would play a key role in tidying up the mess left by the politicians by ensuring UK importers and exporters can continue trading with the rest of Europe as best as possible after March 29.

“I am pleased to report that BIFA members are ahead of the curve and planning for every eventuality, with their trade association trying to make sure it gets relevant information to its members following the release of that information from the various UK government departments.

“BIFA’s executive management has engaged with various government departments over the last two years regarding the issues that affect the movement of visible trade post March 29th, in order to provide our members with advice on those discussions whenever procedures are finalized.

“Our members have also been discussing the possible impacts with their clients.”

“Large and small, BIFA members have taken actions to review all options to overcome the disorder that a no-deal Brexit could bring to international trade in order to define sustainable solutions as the set of Brexit conditions becomes clearer.

“One thing is certain, our members are ready, willing and able to clear up any mess regarding the movement of freight into and from the UK, created by politicians.”

Source: Impress Communications

Dachser Offers Customers Tips in Potential Brexit Environment

As March 29 draws closer, companies heavily involved in customs clearance prepare for the the changing environment in the near future. With these changes, companies are encouraged to employ forward-thinking and strategic approaches to gauge predicted shifts. Dachser Logistics released three essential tips on how their customers can best prepare for unpredictable changes while maintaining streamlined operations.

“We recommend that our customers prepare for a potentially hard Brexit,” says Wolfgang Reinel, Managing Director European Logistics North Central Europe at DACHSER.

Time is of the essence as companies have about three weeks to strategize and plan for what’s to come once March 29  confronts them. Dachser stresses the importance of acting now, rather than waiting for a Brexit-filled environment to be confirmed.

Additionally, the company added the potential implementation of shifting customs procedures should a hard-Brexit come to fruition, impacting both imports and exports. Company leaders explain Dachser is well able to support its customers, but requires cooperation on all ends for success.

DACHSER can provide its customers with support in many ways when it comes to customs. That being said, here we’re dependent on close cooperation,” said Vinzenz Hingerl, Department Head Customs at DACHSER. “These can all be prepared well in advance. “It’s also important to agree with trade partners on the Incoterms that will apply in the future. This will help avoid processing delays ahead of time. The Incoterms define who commissions customs clearance as well as who assumes the costs for dispatch and for import duties.”

Lastly, as Dacsher continues preparations for a hard-Brexit environment, the company encourages its customers to tap into its well prepared and reliable network of resources.

“Uncertainties are part and parcel of the logistics business,” says Reinel. “Brexit is a challenge and DACHSER is ready to meet it. The UK is and will remain an important part of DACHSER’s European network. We are posting continuous growth there, and despite the disruptions that Brexit could cause, we expect that this positive trend will continue for our UK country organization.”

 

Source: BSY Associates 

Is a Future U.S.-UK trade deal stuck in a Catch 22?

It seems the aspirations of the pro-Brexit camp have been put in a rather uncomfortable place, which may restrict the degree to which the UK can take advantage of its upcoming independence from the European Union.

As many will recall, much of the impetus behind the Brexit movement was to break Britain free from the shackles of EU regulatory policies and the multilateral system of negotiating agreements through Brussels, rather than London. The “Vote Leave” movement felt the UK would be better off negotiating trade deals on its own, emphasizing the value of a bilateral UK-U.S. trade deal.

No Backstop, No Deal

Yet, precisely how successful negotiations between London and Washington might be has become a very open question. During a recent visit to Washington by Irish Deputy Prime Minister, Simon Coveney, members of U.S. Congress stressed unequivocally that any Brexit deal between the UK and EU must include an open border between Northern Ireland and the Irish Republic. The members of Congress – which include Richard Neal, a Democrat who chairs the House Ways & Means Committee that will oversee any future U.S.-UK deal – believe a hard Brexit that establishes a hard border would jeopardize the peace process set out in the Good Friday Agreement of 1998 and, therefore, would be unacceptable. House Democrat Brendan Boyle, a member of the Friends of Ireland caucus, even went so far as to introduce a resolution in the House to oppose any reestablishment of a hard border.

Britain’s parliament recently rejected a proposed Brexit plan that would have included a backstop to maintain a soft Irish border in the event the UK and EU were unable to come to an agreement on the terms of trade in the post-Brexit transition period. British Prime Minister Theresa May is now in discussions with EU officials to receive assurances in writing that the backstop would be only a temporary measure, so that she may ease the concerns of pro-Brexiters who see the backstop as a mechanism to bind UK customs policy and processes with those of Brussels.

Soft Border Could Also Sour Deal

Even in the event the UK and EU come to mutually agreeable terms on Britain’s exit from the EU that satisfies the British parliament, the possibility of Washington and London finding common ground on a trade deal is far from a foregone conclusion.

In spite of the tensions caused by Brexit, the EU will remain the UK’s largest trading partner and London’s first priority will be to secure favorable terms of trade with Brussels. Such terms are likely to demand adherence to the EU’s elevated regulatory standards for health and safety, particularly as it pertains to food items. If the recent feedback from U.S. industry groups on the negotiating objectives of a U.S.-UK agreement are any indication, adherence to these regulations will likely be a point of contention, as U.S. producers believe the EU’s current regulations are too onerous and restrict the degree to which U.S. producers can sell their products in the EU.

EU regulations are also likely to creep into areas such as data privacy. If the UK agrees to adhere to the EU’s recently implemented General Data Protection Rules (GDPR), this may become a stumbling block in negotiations as data privacy in the U.S. is not regulated in the same manner.

The upcoming decision by the U.S. Department of Commerce as to whether or not to apply Section 232 tariffs on European automobiles will likely also have an influence over negotiations. As noted in a recent Harvard working paper that examines the prospects for U.S.-UK trade, the EU will want to ensure the UK does not serve as a backdoor for entry into the EU of tariffed U.S. goods. This will be particularly true for automobiles and auto parts in the event the EU is forced to reciprocate possible U.S. Section 232 tariffs on EU autos.

Is a U.S.-UK trade deal doomed?

The aforementioned challenges certainly present a less-than-optimistic vision for what trade across the Pond might look like. But it’s in both nations’ interests to see a deal through. The U.S. is an important export market for the UK, representing half of the UK’s non-EU exports. The UK is a critical international financial and service center to which many U.S. companies would like to secure access, and a trade deal with the UK would likely make the path to securing a U.S.-EU deal much smoother.

But the challenges noted above are very real and the outcome of Brexit will have a profound influence over how the parties negotiate a future trade deal. A soft Brexit, while far more complex from a negotiation standpoint, may provide greater opportunity for negotiation than a hard Brexit that not only shuts out the EU but also runs the risk of compromising the integrity of a critical peace accord the U.S. helped to broker.

Either way, the process is likely to be slow and the conclusion a long time coming.

Mike Wilder is vice president of Managed Services at trade services firm Livingston International. He has 30 years of experience in trade compliance and consulting, and specializes in the auto sector. He can be reached at mwilder@livingstonintl.com.

Gavin Everson is a London-based senior director in Livingston’s Global Trade Management division. He has more than 30 years of experience in customs, trade and logistics management. He can be reached at geverson@livingstonintl.com.

Freight Forwarders Defended by BIFA General Director

In response to HMRC’s Transitional Simplified Procedures  for Customs in a post-Brexit environment, BIFA General Director Robert Keen released the following comments stating his concern of the impact and fairness between freight forwarders and other players in global trade:
“As the trade association for freight forwarders, which are responsible for managing the supply chains that underpin the UK’s visible international trade, we have long campaigned for friction-less borders post Brexit.
We note the publication of these Transitional Simplified Procedures by HMRC in the event of a non-deal Brexit, and are led to believe that they are aimed at making importing easier by simplifying the declarations at the border and postponing the payment of import duties that would otherwise be due.
However, having reviewed the documentation that has been released, BIFA believes that they are aimed solely at those traders, which have not been previously engaged in international trade, giving an overview of the procedures available to those traders.
Whilst some of the easements that they contain regarding simplifications and special procedures may make it easier for new applicants to obtain these authorizations, there does not appear to be equivalent liberalization of the regimes for existing holders, such as freight forwarders.
In many ways the documentation appears skewed in favor of new applicants for authorizations and actually discriminates against existing holders, particularly relating to special procedures.
It appears to us that TSP allows traders without any customs expertise, and tried and tested systems, to by-pass the strict authorization requirements which otherwise apply to freight forwarders and customs agents.
If the above are the case this will be highly unpopular amongst freight forwarders and customs agents as they appear to be excluded from them and no-one seems willing to say why this is so. That is something on which we will be seeking clarification from HMRC. If this is a true picture of the situation, we question whether the preparations are far enough advanced and whether the systems that will be needed are fully tested.
It is all very well to write down these procedures, but the unanswered question is will they work when systems are largely untried, communication links between the parties involved on the processes are not established, many will be unaware of their responsibilities, and the freight forwarding companies that are at the heart of international trade movements appear to be excluded from them.
TSP should be for all involved in visible international trade movements, including freight forwarders.”
Source: Impress Communications