Future Partnership Paper and Proposed Transition
The UK Government has set out in its Future Partnership paper, the proposed implementation period allowing businesses and people to adjust to the new customs relationship. This could involve a continued close association with the EU Customs Union or a new and time-limited customs union between the UK and the EU Customs Union.
The UK government has decided to seek an implementation/transitional period. This will be based on a shared external tariff and without custom processes and duties between UK and EU. The length of the period needs further consideration and will be linked to the speed at which the implementation of new arrangements could take place.
This would be based in the latter case on a shared external tariff and without customs processes and duties between the UK and EU The length of the period needs further consideration and would be linked to the speed at which implementation of a new arrangement could take place.
The UK has set out in its Future Partnership paper, proposals for highly streamlined customs arrangement between the UK and EU While introducing customs formalities for UK/ EU trade. It will seek to make the trade as frictionless as possible, avoid a hard border in Ireland and establish an independent international trade policy.
The Customs Bill provides for the implementation of the tax elements. Additional legislation may be required to implement the new customs partnership option with the EU if negotiated.
While the UK government hopes and expects to achieve a negotiated agreement with the EU, the Customs Bill also provides for a scenario where there is a non-negotiated agreement.
Proposal No.1 Highly Streamed Customs Arrangement
The two broad approaches to customs relationship with the EU are as follows.
A highly streamlined custom arrangement which while introducing customs formalities (above) in UK trade with the EU, seeks to minimise them. The UK government wishes to explore these options with the EU.
In particular, the UK government is seeking to simplify requirements by
- negotiating a continued waiver of the requirement to submit an entry and exit summary declarations for goods between UK and EU
- remaining a member of the Common Transit Convention which simplifies border crossing for goods in transit.
- negotiating mutual recognition of economic operators.
- bilateral implementation of technology-based solutions
- roll on roll off ports consisting of pre-arrival notification of consignments on a port IT system linked to customs declarations and vehicle registration numbers so as to facilitate free movement of traffic.
The government would seek customs cooperation, mutual assistance, and data sharing replicating the existing EU level of corporation and reduced revenue compliance and security risks through targeting of inspections.
The government will look to reduce time and costs for complying with customs administrative requirements. It will explore the viability of unilateral measures, particularly in respect of imports. This would include simplification such as self-assessment for traders to calculate their own customs duty and aggregate their customs declarations, speed up authorisation processes through increased automation, simplified procedures subject to compatibility with international obligations. The Customs Bill seeks to allow the government to implement these facilitations in so far they relate to the collection of customs duty.
Proposal No. 2 New Customs Partnership
The second model is a new customs partnership with the EU This is put forward as an innovative approach which could support UK /EU trade outside the customs union while removing that need for customs processes at the border.
The UK proposes to explore acting in partnership with the EU to operate a regime for imports that aligns precisely with the EU’s external borders for goods that will be consumed in the EU market, even if they are part of a supply chain in the UK first. The UK would apply the same tariffs as the EU and provide the same treatment for rules of origin for those goods that arrive in the UK but are destined for the EU
By mirroring the EU’s customs approach at the external border, the UK would seek to ensure that all goods arising entering the EU through the UK have the correct EU duties paid. This would facilitate the removal of customs process between the UK and EU. The UK would be in a position to apply its own tariff and trade policies to UK exports and imports from other countries destined for the UK. It would appear that the arrangement would require equivalent cooperation from all parts of the EU if it were to be implemented. The model would require further domestic legislation.
Legislation to Facilitate Proposal and Other Scenarios
The UK introduced a number of bills into Parliament in November 2017, with a view to facilitating post-Brexit customs and trade arrangements.
The UK’s White Paper in October 2017 in relation to customs VAT and Excise regimes, sets out the government’s plans for legislation for the future regimes that will support intra-European trade. The UK confirmed its desire for custom arrangements with the EU that facilitate the freeest and most frictionless trade in good possible and which avoids a hard border and any physical border infrastructure on the Island of Ireland.
It indicated that as it takes time to negotiate and build new trading relationships and adjust to different customs, VAT and excise system, that it makes sense to secure an implementation period which would allow businesses both in the UK and EU time to adjust to Brexit in a smooth and orderly way.
New Customs and Border Regime
The Customs Bill creates a new customs, VAT and excise regime mirroring the EU law governing the customs union. The UK government hopes that a positive deal can be reached. The legislation covers the UK leaving the EU without a negotiated outcome on customs, VAT and excise arrangements.
The Customs Bill provides for a new UK tariff. It includes powers to set customs duties, quotas preferences and additional tariff related provisions. It provides for unilateral preferences for developing countries. It provides for UK trade remedies and disputes post Brexit. It allows for trade remedy measures, including anti-dumping duties, anti-subsidy duties and safeguard measures which may be applicable after an investigation.
It provides for additional border duties as part of the official controls in relation to
- matters affecting safety and security, including the trans-border movement of cash, tackling counterfeit good, detecting firearms, drugs, and explosives, the disclosure of information to other government departments for other legitimate purposes,
- animal, public health, plant health controls.
The Customs Bill does not propose any particular outcome for UK/ EU negotiations. It is almost entirely based on the EU Customs Code.
Customs Duty and VAT
The Bill allows the UK government to create a stand-alone customs regime including power
- to charge duty on good including those imported from the EU
- to classify goods,
- set rates of duty,
- specify quotas,
- determine additional territories forming part of the customs union with the UK,
- varying or suspending duties at import
- providing for collection and retention of information.
The legislation allows for VAT and excise systems to continue to function regardless of the outcome of negotiations. It includes powers for the government
- to give effect to arrangements with the EU in relation to supplies and movements in place on Brexit day
- to allow supplies and movements of good and services to continue as freely as possible thereafter.
- flexibility to deal with VAT on the movement of goods between the UK and EU
- flexibility to allow HMRC to adopt IT systems including the excise movement and control system for UK internal excise duties suspended movements,
- flexibility on information sharing obligations to give effect to any new agreement for the continued exchange of information with the EU states.
NI and Other Customs Issues
The Customs Bill provides power for the UK to implement tax-related elements of the highly streamlined customs arrangement and the implementation of a new customs partnership, reflecting the details of an agreement with the EU. The Bill gives the government powers needed in a scenario where the UK leaves the EU without a negotiated agreement or arrangement.
The Customs Bill provides powers to implement negotiated solutions for good carried by passengers as small parcels. The objective is to ensure that people travelling between the UK and EU can continue to act as they do pre-Brexit It would allow Royal Mail and fast track operators continue to operate efficiently.
The UK proposes two solutions in relation to the Northern Ireland border. This would involve further special facilitation unique to the Northern Ireland land border. There would be a cross-border trade exemption for most movements of good by small traders operating in the local economy that are not significant in international trade.
For non-eligible businesses, there would be enhanced trusted trader arrangements are proposed including simplified customs procedures, reduced declaration requirements and periodic payment of duty.
No Deal Scenario
The Customs Bill provides for the contingency of a no agreement Brexit. Under this scenario, the Bill allows for the establishment of standalone UK custom regime from day one including setting tariffs and quotas. The UK would apply the same customs duty to every country which it does not have a deal subject to a preference for developing countries. The level of duty would be decided by the government before the UK leaves the EU.
Currently, 30 percent of imported good in value terms are subject to the common external tariff. The arrangements would mean that traders within the UK who trade only the EU will be subject to customs declarations and checks for the first time. They will need to be registered and provided with an economic operators registration and identification system number.
Imported goods will be liable to customs duty and import VAT. Certain good will require import and export licenses. Traders exporting to the EU would have to submit an export declaration. The UK government is seeking to find ways to mitigate the impacts of such scenario. Facilitations would include requirements that consignments by pre-notified to customs.
Goods imported or exported to the EU through the air, sea roll on roll off or containerised maritime traffic will require customs clearance. The procedures at airports and marine ports which handle both EU and non-EU trade would be adapted to external trade. Declarations will be required for the limited amount of rail consignment traffic between the UK and the EU through the Channel Tunnel.
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