THE past 47 years of EEC/EU membership, including 28 years within the EU single market and customs union, have certainly transformed export and import trade between the UK and the EU. Within this ‘domestic market’ framework, highly integrated and time-definite manufacturing supply chains have evolved across a wide range of industries.
Trade talks are now under way, and these will ultimately determine the nature of the UK’s future trading relationship with the EU. The stakes are high. It’s probably not too much of a surprise to most observers that some important differences have already emerged between the two sides. Nonetheless, these differences do serve to focus the mind on the inevitable reality of tariff and non-tariff barriers being introduced at the end of the transition period, which will have a significant impact on UK/EU trade.
Non-tariff barriers include the administrative and financial implications of customs clearance. Even in the event of a free trade agreement being reached, with a wide application of zero rates of customs duty on imports, it will still be necessary for customs processes to be completed. A duty rate of zero per cent is still a duty rate, and needs to be declared, processed and documented, as part of an import customs entry which will also include the accounting requirements for import VAT. Export customs declarations, for goods going to the EU, will also be required, as will safety and security declarations. Trading with the EU will move from a domestic to an international context, with all the associated implications.
In the event of there being no free trade agreement, it really does seem now that there will be no extension of the transition period, and that UK/EU trade will default to World Trade Organisation (WTO) terms from 1 January 2021. In such a scenario, many categories of products will become subject to customs duty. For some types of trade, including but not limited to food and agricultural products, these duty rates will be very high and, in many cases, will have a material impact on commercial viability.
Of course, there are plenty of UK manufacturing companies which do not have significant exports to the EU, but many do rely on production components and/or raw materials of EU origin. Such items might not be procured directly from the EU, but via an intermediary or wholesaler, possibly from UK stocks. Nonetheless, to varying degrees depending on the exact nature of the business concerned, the inbound manufacturing supply chain is very likely to be impacted in some way – financially, administratively, or both.
At least the sudden cliff-edge ‘no-deal’ scenarios, which became all too familiar over the past couple of years, are now somewhat outdated. There is more time for business to prepare. However, the impacts on manufacturing supply chains for many UK companies, and for their customers and suppliers in the EU, could be severe. A timely ‘EU supply chain health check’ is therefore a very good idea.
Nick Lowe is the owner and Director of Strategy Advantage Ltd, a Towcester-based consulting company focused on B2B market research and supply chain management. To find out more, call 01327 317635 or 07764 241747, email or visit www.strategy-advantage.co.uk