Brexit – What does it imply for the trade of goods?

The majority of the voters chose to exit the EU in the referendum and the UK has decided to leave the EU. Brexit is a fact. This development, of course, will have far-reaching consequences, perhaps even yet unimagined consequences, both for the country and for the rest of the world. For Swedish companies trading with the UK, the outcome of the referendum can, due to amongst other things new import and export regulations, prove to be of major significance.

At this moment, we still do not know when the Brexit will, in fact, take place but it is entirely clear that the UK cannot leave the EU without a sufficiently long period of preparation. This is due, not the least, to all of the EU regulations in the form of Directives and/or ordinances, which will no longer apply in the UK. Instead, the country’s own legislation must be updated, supplemented, expanded and, in certain cases, also re-written before the country is, in this context, independent. Consequently, the UK will remain within the EU during a period of time and will continue to follow the rules in effect within the EU.

An example of EU legislation, which will no longer apply, is the import and export regulations covering all trading in goods in or outside the EU. When the Brexit has been executed, the UK will find itself outside the EU and the free movement of goods to and from the UK will be but a memory.

As stated above, Brexit will not be implemented with an immediate effect, rather we face a period of uncertainty and major change until the UK has de facto left the EU. One of the corner stones in the free movement of goods is that customs are not charged on the trade in goods within the EU. In contrast, customs (and other levies and/or fees) are, usually, charged on goods imported from countries outside the EU. In addition, the goods are to be declared for customs purposes and the customs authorities have the right to check all shipments. Swedish companies have not needed to pay customs on trade with the UK during a long period of time – something that can now be changed.

Today, the UK has no own import and export regulations, but applies the EU’s common rules for the import and export of goods, classification of goods, customs values, customs tariffs and origin, etc. In other words, when the UK exits from the EU, it must cope with creating its entirely new, own customs regulations, with its own tariff rates specifying the applicable customs tariffs for all types of goods. It must also establish its own rules for where, when and how importation and exportation can and is allowed to take place.

The greatest factor of uncertainty is perhaps what the cost of importing goods to the UK will be (effects on the currency and import customs rates), as well which simplifications the UK will choose to introduce for importers and exporters. The UK can take its own route via negotiations on a separate free trade agreement with the EU in order to minimize the possible effects of a withdrawal on trade, but it is a bit too early to speculate as to if, when and how such an agreement will be established. One of the major gains with such an agreement could be that customs tariffs on imports or exports between the UK and EU could be zero or very low. Another route could be that the UK, similar to Lichtenstein, Island and Norway, enters into the EEA agreement (a free trade agreement between the EU and these countries).

In other words, it is important that all companies trading with the UK follow developments in order to be able to analyse the consequences Brexit has on their operations, both in terms of trading in goods but also, of course, as regards other aspects. Follow Tax matters for future analyses of the other tax effects of Brexit.