Brexit: A Supply Chain Checklist

We know that there is no shortage of ‘Get ready for Brexit’ checklists out there. But, given the questions that businesses are still asking, we think there’s room for at least one more.
 
We have boiled down the main issues to consider before the end of the Transition Period on 31 December. Most are relevant whether or not there is a deal between the UK and the EU, and it is possible that some aspects of this advice may be changed by a deal.
   
We have not attempted to cover the specific rules that apply to certain sectors - notably agri-food products, automotive, aerospace, chemicals and medicines. Nor does this note cover the many other changes related to Brexit such as data protection, services, IP and movements of people.
 
While we refer generally to the ‘UK’, there will be significant differences with respect to Northern Ireland, which are addressed briefly below.
 
 

1.  Customs Declarations

• have trained in-house staff or a customs agent ready to submit safety/security and import and export declarations. For imports into the UK from the EU, declarations and duty payments can be deferred for most goods for up to six months. But the EU has not said that it will replicate this;
• have the details necessary to complete the declarations e.g. EORI number (a GB EORI for imports into GB, an EU EORI for imports into the EU), VAT registration, tariff codes and valuations of all products (n.b. decisions issued by HMRC such as binding tariff information and binding origin information will not be valid in the EU; it is not yet been decided whether such decisions by EU customs authorities will be valid in the UK);
• be prepared to use postponed VAT accounting for import VAT paid on goods imported from the EU. Imports into the EU from the UK will also be liable for import VAT while exporters must be able to prove that the goods left the UK in order to apply the zero rate of VAT applicable to exports. If a business uses any EU VAT simplifications such as triangulation or self-billing, these will no longer be available where part of the transaction occurs in the UK. Similarly, the European VAT Refund (EVR) system will no longer be available to reclaim VAT expended or refund VAT charged in the UK.
• determine whether export or import licences are required for your goods or specific rules apply e.g. for dual-use goods, waste, live animals and animal products.

 

2.  Customs procedures

• consider whether to use a customs special procedure such as transit, inward or outward processing, temporary admission, authorised use or customs warehousing.

 

3.  Logistics/Potential border delays

• Brexit may also impact the logistics model used by a business. Businesses, including haulage and logistic companies, should be familiar with all documentation that will be required for moving goods between Ireland and Great Britain from the end of the transition period, and should engage immediately with their logistics provider to that end. Hauliers will not be able to board ferries to and from Great Britain from 1 January 2021 unless all documentation has been completed in advance and properly presented.
• check whether your contracts include penalties for late delivery;
• consider mitigation options e.g. increasing inventory, shipping routes avoiding RoRo;
• be prepared for border inspection of live animals, food, animal and plant products.

 

4.  Potential Tariffs

• In case of No Deal with the EU, check what tariffs would be applicable to imports from EU into UK (the new UK Global Tariff) and from UK into EU (EU Common Tariff). While the average tariff is about 3%, for some products it is far higher (e.g. agri-foods 40%+, automotive 10%): consider the potential implications for customers and suppliers.
• For imports into the UK, any tariffs on most goods can be postponed until July. For imports into the EU (subject to any last-minute concessions they may introduce), any tariffs will become payable immediately from 1 January.

 

5.  Excise Goods

• Once the UK becomes a third country at the end of the transition period, excise duty will be incurred when excisable goods such as alcoholic beverages or tobacco are imported into the EU from the UK. As a third country, a Duty Free and VAT Retail Export Scheme may also operate between Ireland and the UK

 

6.  Rules of Origin

• in case of a Deal, anticipate the likely Rules of Origin requirements to be able to qualify for preferential tariffs. Generally,  about half the value of a product must originate in the UK or the EU, or it must have a different tariff classification heading than its components;
• ask your suppliers for proof of where they source their content and provide similar details to your customers. If these exchanges reveal that the Rules of Origin requirements may not be met, consider alternative sourcing options.

 

7.  Trade with non-EU countries

• if the UK is unable to replicate all of the existing EU Free Trade Agreements with non-EU countries, check what tariffs would become applicable to trade with those countries and how this might affect your EU customers who export to these countries (they may have to reduce the proportion of UK content in their products to be able to qualify for duty free access). Deals signed to date include Canada, Norway, South Korea, Israel, Singapore, Switzerland, and Japan but negotiations remain ongoing with e.g. Mexico,  Vietnam and Turkey. The UK has also commenced talks with the US, Australia and New Zealand, which do not yet have agreements with the EU;
• if the UK has a Free Trade Agreement with a non-EU country but No Deal with the EU,  consider the implications for meeting Rules of Origin requirements;
• clarify if the UK has agreed on Mutual Recognition Agreements to replace those of the EU; these provide for conformity assessments conducted in the UK to be recognised in another country and vice-versa. The UK has reached agreements with the US, Australia and New Zealand (as well as countries covered by a Free Trade Agreement).

 

8.  Incoterms, Contracts and Economic Operators  

• be clear who in the supply chain has responsibility for fulfilling customs requirements, including payment of import VAT and any duties;
• be clear on any potential changes of status for you, your customer or your supplier. In particular, who will be the ‘importer’ i.e. the economic operator established in the UK who places an imported product on the UK market? For example, if you are a distributor or retailer in the UK buying goods directly from an EU-based seller, you will become the ‘importer’ and will have to assume specific responsibilities including:
  • goods are labelled with their address and either your details or your EU, EEA or Norther Ireland-based authorised representative’s details (including your company’s name and a contact address or registered trademark)
  • the correct conformity assessment procedures have been carried out and that goods have the correct conformity markings
  • you, as the manufacturer, have drawn up the correct technical documentation and complied with the labelling requirements
  • they maintain a copy of the declaration of conformity for a period of 10 years
  • goods conform with the relevant essential requirements ensuring that any required conformity assessment procedures have been carried out and for keeping copies of the Declaration of Conformity and technical documentation. The same applies in reverse to your customers in the EU;
• Authorised Representatives and Responsible Persons based in the EU will no longer be recognised in GB. They will need to be based in the UK for products being placed on the GB market.
• For certain goods imported into the EU after 16 July 2021 (notably goods sold directly to EU customers online), under the provisions of Regulation (EU) 2019/1020  (Article 4) they may not be placed on the EU market unless an economic operator established in the EU is responsible for specific compliance responsibilities including making the declaration of conformity and technical documentation available to the market surveillance authorities upon request, informing them of any risks and taking action to address any risks, and putting their name, registered trade name or registered trade mark, and contact details, including postal address on the product or on its packaging, or an accompanying document. The operator in question can be either:
  • an importer;
  • an authorised representative with a written mandate designating it to perform the compliance responsibilities on the UK manufacturer's behalf; or
  • a fulfilment service, if neither of the above is in place.

 

9.  Product Regulations

• The European Union (Withdrawal) Act 2018 (EUWA) repeals the European Communities Act 1972 (ECA) effective on “exit day” (31 October 2019). In so doing, it removes the domestic constitutional basis for EU law having effect in the United Kingdom. The basis in international law for EU law having effect on the UK will simultaneously have been extinguished by the operation of Article 50 of the Treaty on European Union. The EUWA also provides for the retention of most of that law, as it stands on exit day, by “converting” or “transposing” it into a freestanding body of domestic law. The intention of this is to provide legal certainty in the period immediately following EU exit, by (in effect) adopting a rulebook and set of institutional arrangements that is initially as close as possible to that which currently exists. This new body of law is called “retained EU law” and will replicate several different sources of EU law as domestic equivalents.
• be clear what regulatory requirements and checks will apply to your goods;
• make changes in labelling. The name, trade mark and address of the importer must be on the product or where not possible because of the size or physical characteristics of the product or because the packaging would need to be opened, on the packaging or/and on the accompanying documentation. In the UK, until 31 December 2022 these details may be included in all circumstances on the accompanying documentation rather than on the product itself;
• for CE marked goods placed on the market in GB, the CE mark must be replaced by a UKCA mark by 1 January 2022. For certain products, it must be replaced from 1 January 2021. Products currently requiring a CE marking will still need it for sale in the EU;
• be clear when these requirements apply. Existing stock (i.e. stock that has been fully manufactured before 1 January 2021) can still be placed on the GB market after 1 January 2021 with existing markings. The same goes for products that have been ‘placed on the UK market’ before that date. But products that are placed on the UK market on or after that date must comply with the new labelling requirements. (‘Placed on the market’ is when an individual product is first supplied for distribution, consumption, or commercial use; this requires an offer or an agreement for the transfer of ownership or possession of the product);
• if your product requires a conformity assessment, ensure it will be valid. For products that must be assessed by third-party bodies, UK certifications will no longer be valid for the EU market (unless the EU agrees to mutual recognition as part of a EU/UK trade agreement). UK traders should either apply for a new certificate issued by an EU notified body or arrange for a transfer of the file and the corresponding certificate from the UK body to an EU body. This applies equally vice-versa. You will not need to change your conformity assessment for exports to the EU if:
  1. you self-declare the conformity of your good against the regulations
  2. any mandatory third-party conformity assessment was carried out by an EU-recognised notified body (whether based in the EU or in a country with which the EU has a mutual recognition agreement)
  3. the certificate of conformity previously held by a UK body has been transferred to an EU-recognised notified body
  4. you voluntarily use a testing body (including UK bodies) to test against European or international standards
• If you transfer your existing certificate to an EU notified body then you will need to update the 4-digit notified body number on your products. You will not need to do this for products already on the market or which were manufactured before the transfer took place. You will eventually need separate certificates for the UK and EU. You should speak to both your existing and new body to make arrangements that mean you will be covered for both markets in the future. If you transfer your certificate to the EU without doing this you may not be able to continue selling your goods in the UK from 1 January 2022 without having your product reassessed. This process may take a long time so you should start now.

 

10.  Northern Ireland

Some aspects remain to be clarified but in general:

• From GB to NI: there will be no export clearance for goods leaving GB but there will be some new administrative processes for goods entering NI from GB, notably import declarations, and all plant and animal products will require export health certificates. An official Trader Support Service will be available at no cost to manage all such processes on behalf of traders. The ‘importer’ of the goods into NI (who may the UK supplier or the current distributor or retailer) will assume the responsibilities for labelling and documentation (as set out above). The CE mark will continue to be used in NI but traders using UK certification bodies will need to use the UK(NI) mark in addition to the CE mark. 
• From NI to GB: subject to confirmation of the details, it now appears that no paperwork will be required;
• Between EU and NI: there will be no customs formalities and no change to current regulatory requirements.  NI will remain aligned with all relevant EU rules relating to manufactured goods. A product manufactured in Northern Ireland and shipped to the EU, and vice-versa, will not be considered to be an imported product for the purpose of labelling and identification of economic operators.

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While some of the new requirements are straightforward, some are complex and may be difficult to interpret for your specific set of circumstances. Our lawyers are experienced in advising on how the rules apply to you and, wherever possible, identifying options that might simplify or ease the requirements for you.