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What to Consider when Planning for the Post-Brexit Period

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

Tariffs Raise Concerns Among Business Leaders

In response to the U.S. – China trade deal meeting delay,  American business leaders continue expressing concerns, stating that the end of the tariff impact is far from over and continues to negatively impact business operations. Freedom Partners Executive Vice President Nathan Nascimento commented on the current situation, adding that damages brought on by the tariffs situation affects growth, job creation, and more.

“From lost sales to increased costs, higher tariffs give America’s job creators big headaches and endanger our prosperity. We urge the administration to work with other nations to drop the tariffs and eliminate all barriers to trade. The time is now because, the longer this standoff drags on, the markets and suppliers that closed overnight to U.S. producers may take years to re-open. Tariffs are destructive taxes that sow only fear and confusion, where free trade fosters job creation and gives American consumers more choices at affordable prices to stretch paychecks further.”

Additionally, Freedom Partners reported on information released by the Census Bureau back in February that stated an additional $2.7 billion was spent in tariffs by business in November compared to the $375 million spent in November 2017.

“Tariffs Hurt the Heartland, a nationwide campaign against recent tariffs on American businesses, farmers and consumers, today released new data that shows American businesses paid an additional $2.7 billion in tariffs in November 2018 — the most recent month data is available from the U.S. Census Bureau due to the government shutdown. This figure reflects the additional tariffs levied because of the administration’s actions and represents a $2.7 billion tax increase and a massive year-over-year increase from $375 million in tariffs on the same products in November 2017.” (Press Release, “New Data Shows Trump Administration Tariffs Cost U.S. Businesses $2.7 Billion In A Single Month, Exports of American Products Targeted For Retaliation Plummet 37 Percent,” Tariffs Hurt The Heartland, 2/14/19).

Other executives, such as Brown-Forman Corporation CEO, Lawson Whiting add that international sales are feeling the impacts from tariffs from the EU’s retaliation:

“Brown-Forman owns Jack Daniel’s, Woodford Reserve and numerous other spirits brands. While most of its products are made in the U.S., most of its sales (about 60 percent) are made in international markets. And the cost of tariffs on American whiskey implemented by the European Union in retaliation for new U.S. tariffs were a drag on earnings. A key part of Brown-Forman’s global strategy is to focus on building a market for its super-premium brands, such as Gentleman Jack and Woodford Reserve,” (David Mann, “Brown-Forman Shares Sink After Earnings Release,” Louisville Business First, 3/6/19).

Source: Freedom Partners

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.

Brexit: BIFA Responds to UK Parliament’s Deal Rejection

The most recent response from Director General of the British International Freight Association (BIFA), Robert Keen, makes a clear indication  the decision made  by the UK Parliament to reject a deal must be acknowledged and prepared for to keep importers and exporters in a good place for the sake of UK’s visible trade, come March 29.

“The decision taken by Parliament is historic and needs to be acknowledged.  With just a couple of months to go before the exit date, the rejection of the deal leads BIFA to recommend that our members, which are the companies that handle the processing of most of the UK’s visible trade, to prepare on the basis that there will be a hard Brexit,” commented Robert Keen. “Speculating about any other outcome is inadvisable until UK Government provides us with clear guidelines. A hard deal may well be very disruptive and damaging for the UK economy as a whole, but freight forwarders – many of whom are Authorised Economic Operator (AEO) accredited – will play a key role in tidying up the mess left by the politicians by ensuring UK importers and exporters can continue trading without undue disruption with the rest of Europe after March 29.”

The theme is proactivity and planning next steps as the deadline approaches. Implementing trade strategies earlier than later significantly reduces the risk of trade barriers making an appearance after the fact, while preparing the region for a major shift.

“BIFA has always stated its belief that a disorderly Brexit would be the worse outcome, as it is likely to increase trade barriers and impose significant restrictions on the exchange of goods between the EU and the UK.

“Whilst BIFA’s executive management has engaged with various government departments over the last two years in regards to issues that affect the movement of visible trade post March 29th, 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,” Keen said. “BIFA will be renewing our appeals to the responsible bodies in London and Brussels to do the utmost to prevent this scenario. As far as we are concerned, our members are focused on ensuring the ongoing efficient flow of freight for our customers.”

Hew concludes:

“One thing is certain, our members are ready, willing and able, to clear up the mess that has been left by politicians.”

 

Source: Impress Communications 

Economic Partnership Agreement Confirmed for EU & Japan

The EU-Japan Economic Partnership Agreement and the EU-Japan Strategic Partnership Agreement were approved earlier this month, highlighting for the first time details surrounding the Paris climate agreement and covering over one third of the global GDP, according to a release announcing the agreement confirmation. The agreements are part of the overall goal of creating an open trading zone as well as fostering a faster and simplified trade environment in the EU region. The agreement is scheduled to take effect February 1, 2019.

Japan is a country with which we already work very closely. Following today’s votes, our partnership will become even stronger. Japan is an important partner for the EU in multilateral fora. Our new agreement will help us cooperate even more closely in many areas and increase people-to-people contacts,” said High Representative Federica Mogherini.

Products impacted by the agreement include Gouda/Cheddar cheese as well as wine exports, which will see the elimination of duties. Other products such as cosmetics, chemicals, textiles and clothing will also see the removal of tariffs in the competitive EU regions.

“Almost five centuries after Europeans established the first trade ties with Japan, the entry into force of the EU-Japan Economic Partnership Agreement will bring our trade, political and strategic relationship to a whole new level,” President of the European Commission Jean-Claude Juncker said. “I praise the European Parliament for today’s vote that reinforces Europe’s unequivocal message: together with close partners and friends like Japan we will continue to defend open, win-win and rules-based trade. And more than words or intentions, this agreement will deliver significant and tangible benefits for companies and citizens in Europe and Japan.”

 

Source: EIN Presswire 

NOT A LOT FOR FREIGHT FORWARDERS IN YESTERDAY’S UK BUDGET, SAYS UK TRADE ASSOCIATION

The trade association for UK freight forwarding companies and logistics service providers says that whilst it welcomes some of the announcements in yesterday’s UK Budget, it feels that the issues covered are all overshadowed by the ongoing uncertainty over the shape that the UK’s exit from the EU is going to take.

Robert Keen, Director General of the British International Freight Association (BIFA) says, “Whilst the investment in road transport infrastructure might make a difference to our members, we should not forget that back in November 2015, the Government announced that funding would be provided for the largest road investment programme since the 1970s.

“I am not sure that the country’s network of A roads and motorways has become any less congested since that announcement.

“BIFA has said repeatedly that it is imperative that new road building and road reconstruction projects are not only implemented, but developed in such a way as to maximise their functionality to the BIFA members, which as freight forwarders, use them to move Britain’s visible domestic and international trade.

“Hopefully this talk of infrastructure investment will cease to be just talk and we will see some spades in the ground.

“Our members will also welcome the news that the freeze in fuel duty would remain, but would have preferred to see an outright cut, the introduction of an essential user rebate and some form of fuel duty stabilisation mechanism.”

Notwithstanding any of the above, BIFA is concerned by Chancellor Phillip Hammond’s assertion that the spending commitments outlined in yesterday budget statement would not be affected in the event of a no-deal, hard Brexit.

Keen adds: “If that is the case, why would Mr Hammond feel the need to also state that his Spring statement might need to be upgraded to a new hard-Brexit budget?

“Speaking on behalf of BIFA’s members, which facilitate much of the movement of the UK’s visible exports and imports, we believe that any new tariffs and delays that could result from a no-deal Brexit would make today’s announcements unsustainable.”

“Our business sector is an accurate barometer of the nation’s trading performance, and wants to see a Brexit deal as closely aligned with the EU Customs Union as possible.

“Our members remain concerned about the potential impact on infrastructure plans, labour shortages and border delays of a no-deal Brexit, and want to see much more progress with the agreement on several key processes if a frictionless border is to be achieved.

“Our members want to see the government achieve an agreement on trade and customs as an urgent priority. That will be of much greater importance to the work of our members than anything announced in yesterday’s budget.”

Source: https://www.bifa.org/news/articles/2018/oct/not-a-lot-for-freight-forwarders-in-yesterday-s-uk-budget-says-uk-trade-association