• 09 February 2021
  • Tax

Why has EU trade and customs become so difficult?

Demand for Customs and Trade professionals and Export Controls Managers has soared since Brexit.

 

It is fair to say that the start of 2021 hasn’t exactly been plain sailing for UK businesses exporting to Europe (and vice versa). Whether it is confusion over the new VAT arrangements, unexpected admin fees, expensive health certificates or the weight of the paperwork, few businesses have avoided disruption. 

According to The Observer, the volume of exports going through British ports to the EU fell by a staggering 68% last month compared with January last year.

Meat traders warn that French supermarkets are talking of replacing British suppliers with their Spanish and eastern European peers.

Companies exporting perishable goods are most at risk from the consequences of border delays, but the implications have been felt by businesses of all kinds.

The head of the UK Fashion & Textile Association (UKFT), Adam Mansell, has spoken out on the issues his members face: "If you're in Germany and buying goods from the UK, you as the German customer are the importer bringing goods into the EU.

"You then have a courier company knocking on the door giving you a customs clearance invoice that you need to pay to receive your goods.”

The problem is exacerbated as, typically, about 30% of items bought online are returned (not counting the customers who refuse to pay the doorstep invoice). Mansell claims that with all the new bureaucracy, it is "cheaper for retailers to write off the cost of the returned goods… either abandoning or potentially burning them.”

Appoint an expert?

When the BBC asked the Government about the difficulties being faced by businesses, the advice was to seek the help of a Customs and Trade expert

"Now the UK has left the EU customs union and Single Market, there are new rules and processes businesses will need to follow.

"We have encouraged companies new to dealing with customs declarations to appoint a specialist to deal with import and export declarations on their behalf - and we made more than £80m available to expand the capacity of the customs agents market.

“Most businesses use a specialist such as a Customs Broker, Freight Forwarder or Fast Parcel Operator to deal with this.

Why has it been so difficult? 

The issues faced by businesses can be divided into three categories: changing VAT rules, stringent health certification and administrative red tape. Many companies have been faced with all three!

1 - Admin, customs and fees

According to The Economist: “Customs are part of the problem. Britain and the EU have agreed to tariff-free and quota-free trade but goods crossing the border need forms, which must be correctly filled. 

“Transposing a 6 and 9 in a 15-digit code can lead to hours of delays; mistakes can be made by either the exporting firm or the receiving one. Add in inexperienced border staff and mostly new and untested it systems, and there are multiple potential points of failure.”

At best, the paperwork has been an inconvenience but when it has created goods being held up or rejected, it has been a major headache.

Trading has added complication when rules of origin are considered. Rules of origin are how customs authorities classify where an export has come, which can be tricky is when a supply chain crosses borders. In straightforward cases, UK goods will be deemed as coming under ‘Preferential Rules of Origin’ ie it can be proved that the goods are from the UK. This prevents a country without a trade deal from accessing the EU market through the UK and vice versa.

Generally, exporters (and importers) were anticipating an increase in red tape. What has been a shock to many has been the unexpected charges. 

The Guardian reports that since the end of the Brexit transition period, continental customers must both complete a customs declaration for goods imported from the UK – a procedure generally performed by transporters, for which consumers will be charged, frequently up to €20 per declaration.

The newspaper cites the example of Leon Paul, which designs and manufactures equipment for the Olympic sport of sword fencing, and employs 50 people. The company MD says, “Previously the business of sending orders direct to customers in Europe was very straightforward.”

“As far as I can see, currently, companies like ours in the UK are not going to be able to do ‘end sales’ to customers in the EU any more. Particularly, small orders for anything under £100 will be completely impossible.”

He believes that the new export levies will add up to £160,000 a year for the company. The business faces three charges:

  • An export fee of £4.50 for every parcel shipped to the EU to cover costs of extra administration and form filling that couriers must carry out.
  • A “deferment account fee” of £5 per parcel that covers couriers’ costs of pre-paying import charges in the destination country
  • A “disbursement charge” which is set at different levels in each EU country with a minimum of about €14 per parcel, or calculated as a percentage of the value of the goods, whichever is the higher. This covers the costs of the tax authority in the recipient country inspecting and processing the parcels.

While some businesses are reducing their exports and others face up to complaints from disgruntled customers, others just take a hit to their profitability.

Fal Blake, joint owner of Brighton-based tailors and fashion brand, Gresham Blake told Harvey John about their expensive policy: “We were hearing from customers who received these surprise charges, so we reimbursed them at our expense. It was a hit for us, which wasn’t ideal when added to the loss of business due to the lockdown. 

“But our ethos is the customer is always right.”

2. Quality standards

Now the UK is treated as a ‘third country’, exporters must meet the stringent EU quality controls, when it comes to food, drink and perishables. Such imports to the EU are subject to sanitary and phytosanitary (SPS) procedures to check it meets EU standards.

Many consignments have fallen foul of the SPS procedures, and there is an added risk for smaller exporters. Duncan Buchanan, the Road Haulage Association’s policy director, argues that that the current SPS rules are designed for dealing with containers of frozen lamb from New Zealand rather than for mixed loads of fresh produce.

Many lorries crossing the channel have items from multiple producers; the majority of businesses do not work in the volumes requires to fill a lorry. Multiple goods from multiple firms grouped together all need individual SPS checks, which can take a long time - not ideal when exporting fresh produce. There have been reports of lorries being held up when one package lacks the correct paperwork. Courier companies have been refusing to take small orders in case it holds up transit for bigger customers

Add to this the fact that checks mean cash. The Cheshire Cheese Company featured on the news after it was required to obtain a £180 health certificate on gift orders worth only £25

And this is not to mention fishing. Forget health certificates. Some seafood exports to the EU have been completely banned, such as live bivalve molluscs including cockles, mussels, scallops and oysters. The British fish may be happy, but only because there is less incentive for fishermen to catch them. 

3. VAT

For exporters, the imposition of VAT on products has been turned upside down. 

Now the UK is designated as ‘a third country’, indirect taxes work entirely differently.  

Simplistically, sellers will no longer charge UK VAT, but buyers will have to pay VAT at the point of import (alongside any applicable customs duties). It might seem a simple switch, but after decades of applying VAT on a sale, it has caused confusion and, in some cases, unexpected bills for consumers.

Knowledge is Power    

There has been no doubt that trade between the UK and the EU has been chaotic, and has caused distress for many businesses.

Exit from a single market and customs union was always going to add extra hurdles and costs. But there are always ways to navigate trade rules - if you are adaptable and understand the processes. 

Hiring an expert on trade, customs and taxation can prevent delay, frustration and unnecessary bills. Advocates of leaving the EU have long been predicting a ‘Brexit bounce’. For customs and tax professionals this is certainly true. The rest of us will have to wait in hope.

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Josh Rapaport is a Senior Consultant in the Tax Division at Harvey John.

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