We are getting more inquiries from “EU via the UK” parcel shippers who increasingly see the prospect of being dealt a “no deal Brexit.” What happens to the EU destined goods they once cleared and warehoused in the UK? Transitioning from border/ duty free “euro domestic” transit to traditional the World Trade Organization (WTO) rules.
Over 40% of all UK exports are sent to the European Union without duty and customs checks. Transitioning to WTO rules would be a huge change.
American and Canadian companies who used the UK as their launching point to the EU are seeking alternative distribution in France, Germany and the Netherlands. Jet Worldwide assists companies to transition to EU based warehousing and distribution.
With the no-deal Brexit a real possibility, it is important for UK and EU shippers to understand what might come next. Even as e-commerce companies and other international traders are transiting warehousing and distribution to the EU, the UK will remain a key trading partner of the USA, China, Australia and others.
The WTO Explained
The WTO is an international organization of the world’s largest economies that facilitates trade via a standardized set up principles and rules. The principles and rules have been developed through negotiations that include the General Agreement on Trade and Tariffs GATT) and the Uruguay Round (1994). The WTO launched a new round of negotiations (Doha Development Agenda) in 2001.
WTO agreements provide the framework for international trade among the world’s major trading nations. The member countries agree to keep their trade policies within the rules to facilitate trade between nations.
Contact Jet's team for information on EU storage and distribution for American and Canadian companies.
For international trade, WTO Rules the World
WTO members lists their tariffs on imported goods and quotas that they apply to other countries. These are known as their WTO schedules. Goods are classified as using the Harmonized System (H.S. Codes). See our blog on H.S. Code.
Under WTO rules, the rate of import duty is determined by the goods themselves (as classified via harmonized system) the value (see our blog on valuation), and country of origin.
The UK currently trades under WTO rules with their other major trading partners that include the United States, China, Brazil and Australia. The UK has a free agreement with Switzerland, Norway, Iceland, Caribbean Countries and Chile. For all others (including the US, China, Brazil and Australia) WTO rules apply.
Exports to the EU from the UK: WTO tariffs apply
The average EU tariff is less than 3% for non-agricultural products. This seems reasonable but, averages being what they are, some industries will be impacted much more than others. Cars, for example, would be taxed at 10% and agricultural products would be significantly higher (over 30% duty on British dairy products, for example).
American and Canadian companies can no longer warehouse and ship their goods from a UK distribution centre to the EU duty free and are setting up primarily in France, Netherlands and Germany.
Import duty for goods from the EU to the UK: WTO rules apply
The British government has plans to implement a temporary tariff schedule allowing key products to continue to be imported duty free. The government policy makers are attempting to balance the need to minimize price increases to consumers with the need to protect UK producers.
Lower duty from the EU means lower the duty for the world
Complicating things for post Brexit policy makers is the WTO's "most favoured nation" rules. Under WTO rules, lower tariffs for good from the EU would apply to all other WTO countries.
The UK cannot just lower tariffs for the EU as it has to give the same rate to all other WTO members. It has to treat every WTO member around the world with which it does not have a trade deal in the same way. So a lower tariff for goods from the EU would allow other countries to benefit from the same lower rate.
Costs beyond tariffs
The hassle of classifying, entering, record keeping, differing standards, various regulations, reporting etc are very costly. As general tariffs have declined globally, there is a greater recognition of the cost of "non-tariff barriers."
Non-tariff barriers would have the greatest affect on the UK's service sector, which makes up the majority of the UK’s economy.
The US, for example, has multiple agreements with the EU that regulate specific areas of trade. The UK is working hard to replicate these agreement via continuity deals. It has established a deal with Switzerland but others will likely not be completed prior to Brexit.
As logistics professionals minimize their risk by altering their UK centric EU strategy, it is likely that the UK will remain a major trading partner for the US, Canada, Australia and China. The task before UK and EU regulators and negotiators is incredibly complex but having the WTO framework makes an impossible task seem somehow possible.