Diversity and Inclusion - best laid plans
Out-Law News | 14 Mar 2019 | 9:29 am | 4 min. read
The new tariffs will otherwise apply to goods entering the UK from anywhere else in the world. Goods crossing the Irish border will not face any new customs checks or controls either.
The UK government confirmed the position in new guidance it issued on Wednesday which sets out the measures it will take to avoid a 'hard border' on the island of Ireland in the event the UK leaves the EU without a withdrawal agreement in place. The UK is scheduled to leave the EU on 29 March 2019 and, to-date, no withdrawal agreement has been ratified.
In its guidance the government conceded that businesses based in Northern Ireland may be placed at a competitive disadvantage compared to Irish companies. However, it insisted that waiving the tariffs and avoiding new customs checks and controls are "the only steps the UK government can unilaterally take to deliver on our absolute commitment to avoid a hard border in the event of no deal".
The government has outlined some new measures affecting imports into Northern Ireland, which it said are necessary to comply with "international legal obligations", but none of the changes will "require checks at the border", it said. Goods arriving in Northern Ireland from Ireland would still be subject to VAT and excise duties in the event of a 'no deal'.
The proposals prompted debate over whether the UK's plans to treat goods entering the UK via Northern Ireland from Ireland differently from goods entering the UK from elsewhere in the world would adhere to World Trade Organisation (WTO) rules.
Richard Dickman of Pinsent Masons, the law firm behind Out-Law.com, said: "Arguably, exempting Ireland-NI exports from the new tariffs would not breach the Most Favoured Nation (MFN) principle enshrined in WTO rules because it would apply to any goods transiting from Ireland to NI, not just Irish/EU goods. However, for non-EU goods to be able to take advantage of this, they would need to be able to pass through Ireland without being subject to EU tariffs, and may in any event be subject to any anti-avoidance measures the UK elects to implement."
"Unless those goods comply with the strict transit rules for goods passing through the EU without being subject to tariffs, you could say that Irish/EU goods are getting preferential treatment. However, the debate between international trade experts has also explored exemptions to the MFN principles, which could potentially include a justification on security grounds, and which may serve to legitimise preferential treatment by the UK. It is clear, though, that there are a range of differing opinions on this complex issue," he said.
While the government has confirmed that no tariffs will be applied to any goods being imported to Northern Ireland from Ireland, it has set the proposed rate of tariffs for all other goods entering the UK in the event of a 'no deal' Brexit where no other trade agreements have been put in place. Legislation is needed before the new rates would apply.
HM Revenue & Customs (HMRC) has explained why the UK's existing import duties would not be able to remain the same in a 'no deal' Brexit scenario.
"In a no deal scenario, the aim of this package is to mitigate some of the economic impacts to the UK from increased costs of imports from the EU for businesses and consumers," the government said. "Broadly, the classification of goods will remain the same, to provide continuity to businesses who currently interact with this system in order to minimise disruption. However, we recognise that in the event of no deal there is no status quo option for our import duty policy."
"The Most Favoured Nation (MFN) principle of the World Trade Organisation (WTO) requires that all WTO-member trading partners be charged the same import duties. Limited exceptions are allowed, for example, for countries with whom there is a Free Trade Agreement, other Regional Trading Arrangements such as Customs Unions or special access for developing countries. This means that the UK would, under MFN rules, be required to apply the same rates of duty on a good from the EU as from any other nation with which it does not have a preferential arrangement in place," it said.
The government said the import tariffs would only be of a temporary nature, initially in place for 12 months.
Approximately 87% of UK imports by value would not be subject to the new tariff, but they would apply to "goods where the potential adjustment costs for businesses or developing countries are expected to be high, relative to any negative impacts on consumer prices", the government said.
Clothes, sugar, steel, sheep meat and finished vehicles being imported into the UK would be among those affected by the new tariffs.
Nicole Livesey, expert in manufacturing at Pinsent Masons, said the potential new ‘no-deal tariffs’ could "prove disruptive across the manufacturing industry".
"With the large, global and integrated nature of manufacturers’ supply chains, they need to look now at how they are operating to understand the impact that these new tariffs could have – both in terms of cost and operational procedures," Livesey said.
"This import tariff on finished cars helps protect British car manufacturers as it will increase the cost of imported vehicles. However, for exports to the EU, tariffs remain at the rate set by the EU’s common external tariff. It remains the case that for all products, including zero-rated products, additional paperwork is required which could potentially mean border delays," she said.
"If manufacturers are facing increased costs and administrative burden then it may mean that they focus on strengthening the UK supply chain but, in reality, there is little time to make any significant difference in the short-term," Livesey said.
HMRC recently warned that UK businesses that have only ever traded inside the EU will need to register for an Economic Operator and Registration Identification (EORI) number, otherwise they will be unable to continue trading in the EU market in the event of a 'no deal' Brexit. It said it typically takes up to three days to get an EORI number but that it could take longer if there are high volumes of applications.
Having an EORI number allows a business to trade goods into or out of the UK, submit declarations using software or have an agent to make declarations on its behalf. It also allows a business to apply to be authorised for certain customs simplifications and procedures.
Businesses that import goods into the UK from the EU using roll on, roll off locations were also advised by HMRC to register for new Transitional Simplified Procedures (TSP). TSP will allow businesses to import without having to make a full customs declaration at the border, and postpone paying any import duties. However, for imports using other locations, and for exports, standard customs declarations will apply.
Diversity and Inclusion - best laid plans