Aug 16

Brexit2.jpgOn June, 23rd British people voted for Brexit and, consequently, decided to leave the European Union (EU). This will have a major impact on the trade relations between the United Kingdom (UK) and the EU: the UK will no more be a Member State, with all duties and privileges linked to this status, and will become a third country for the EU. Depending on the different scenarios, EU economic operators might need to pay customs duties upon importation in the EU and in the UK. However, the exact impact of the withdrawal of UK from the EU cannot be predicted at the moment.

On January 1st, 1993 all EU Member States, including the UK, opened their borders and a single internal market was created. Goods could be transported from one country to another without fulfilling any customs formalities. On June 23rd British people voted for a Brexit, which means that the UK will leave the EU.

One of the possible outcomes of this referendum is that the UK might trigger the procedure foreseen by Article 50 of Treaty on European Union, allowing the EU to voluntarily withdraw from the EU. The moment when the Brexit will actually take place is not known yet. It may take up to two years or longer before the UK and the EU can find an agreement on a "secession agreement". During this period EU laws and treaty obligations will still be applicable in the UK.

The exact impact and all implications of Brexit are hard to predict, however it is clear now already that the impact will be enormous, also from a customs point of view. The UK will need to draft its own customs legislation, develop its own customs procedures, determine import duties and negotiate its own Free Trade Agreements (FTAs). It is highly probable that the UK will develop a new customs legislation based on the Union Customs Code (UCC) which has entered into force on May, 1st 2016. This will not be surprising as the UK has contributed to develop the UCC together with the other EU member States. Therefore the knowledge acquired with the implementation of the UCC will facilitate for the UK the development of its customs procedures. One of the largest challenges will be the determination of the relationship between the UK and the EU.

There is a lot of speculation on what will happen next. There are a few scenarios considered by analysts which could occur, in terms of relations between the EU and the UK.

  • First and also most desirable is that the UK would join the European Free Trade Association (EFTA), such as Iceland, Liechtenstein, Norway and Switzerland did. Hence, by means of this FTA the UK would be able to keep trade relations with these partners. At the same time the UK would join the European Economic Area (EEA), whose members are Iceland, Liechtenstein, Norway and the EU. Thanks to this second preferential agreement the UK would be able to keep continuity in bilateral trade relations with the EU by means of preferential trade. The downside of this option is that the EEA member States are required to transpose the EU acquis into national legislation, and this is exactly one of the reasons why the UK wants to leave the EU.
  • A second scenario is that the UK and EU would agree upon a bilateral agreement where arrangements on import duties would be made. This agreement would have a free trade component in line with the agreement negotiated with the partners of the Euro-Mediterranean process or the Eastern Partners.
  • The third possibility to consider is a customs union between UK and the EU. In this case, there would be no import duties within the territory and common external tariffs would be imposed. One example for this agreement could be the current customs union with Turkey or Andorra.
  • At last the UK can opt for non-preferential trade and would receive 'Most Favoured Nation' (MFN) treatment. In this case, there would be no preferential treatment anymore which is not desirable because of the high rate of import duties in the EU for certain products (agricultural products, shoes, clothing, etc.).   

We can conclude that, as a result of the Brexit, a lot of changes and negotiations are to be expected. However, this process will take some years, which means that in the meantime the EU laws and treaty obligations continue to have effect. How the Brexit will evolve and what the impact will be is at this stage unpredictable.

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