What Could a Hard Brexit Mean for Cross-Border Ecommerce?

Overview

Brexit was a long time coming, but now the new FTA is in place, how does it affect UK and EU cross-border ecommerce retailers?

At the end of 2020, a trade deal was struck and the UK officially exited the Withdrawal Agreement on the 31 December. While the UK was part of the EU, companies could buy and sell goods1 across EU borders without paying duties and taxes and there were no limits on the amount of things that could be traded.

Since the deal was agreed, retailers trading online into and f rom the UK have faced new challenges, particularly in relation to compliance and the impacts of new paperwork requirements, and associated costs – not to mention potential delays as brands scramble to understand the new trading requirements.

To help brands understand the new requirements, here are the fundamental changes that apply to UK retailers exporting to the EU and EU retailers exporting to the UK, according to ESW’s Trade Compliance experts.

Brexit and its effect on UK GDP

Predictions show that the potential effects on the UK’s GDP will see a negative effect in all cases f rom positive prediction to negative.

FORECASTED SHORT-TERM EFFECTS OF BREXIT ON REAL GDP IN THE UNITED KINGDOM (UK) IN 2018‒2023 (IMPACT ON REAL GDP)

Sources: www.statista.com/statistics/567983/effect-of-brexit-on-gdp-in-the-uk

Trade between the UK and the EU

AREAS OF GREATEST CONCERNS FOR UK RETAILBUSINESSES IN THE EVENT OF A NO-DEAL BREXITIN MARCH 2018 (SHARE OF RESPONDENTS)

Sources: www.statista.com/statistics/970391/uk-retailers-greatest-con-cern-areas-no-deal-brexit

The major area to consider for brands and retailers, whether based in the UK or selling into the UK, is that there are additional checks on goods coming f rom the UK into the EU and vice versa – where there weren’t previously.

Customs checks have substantially increased on both sides, with knock-on delays to the movement of goods into and out of the UK – particularly to or f rom the EU. It seems likely that a full customs declaration will be necessary at the point of entry, which will create a bottleneck at all points of entry such as airports and ports going into both EU and UK.

A number of new registrations and types of paperwork are required to clear goods into and out of the UK.

Duties and Taxes

WHAT’S CHANGED FOR UK RETAILERS EXPORTING FROM THE UK INTO THE EU?

As of 1st January 2021, a duty threshold of €150 applies to any shipments into the EU. This means that duty is applicable for all orders above that amount. For goods to avail of no duty, they need to be of UK origin (country of origin) qualify based on the country of origin regulations (different products have different qualifying rules) number of the exporter in the UK.

While there is currently a €22 VAT threshold for orders, this will be eliminated on 1st July 2021 for goods moving f rom the UK to the EU and VAT will be applicable on all shipments, regardless of value.

Following the agreement, customs and import/export declarations are now required for exchanges between the UK and the EU although qualifying goods can avoid duty based on Country of Origin (COO) regulations2. UK retailers shipping to the EU must now obtain an Economic Operators Registration and Identification (EORI)3 number which is an identification number used in all customs procedures when exchanging information with Customs administrations. It is expected that retailers will also need a Registered Exporters System (REX)4 when shipping goods f rom the UK into the EU, although this has not been confirmed. The REX system4 is ‘a system of certification of origin of goods based on a principle of self-certification’.

THE ORIGIN OF GOODS IS DECLARED BY ECONOMIC OPERATORS THEMSELVES BY MEANS OF SO-CALLED STATEMENTS ON ORIGIN. TO BE ENTITLED TO MAKE OUT A STATEMENT ON ORIGIN, AN ECONOMIC OPERATOR HAS TO BE REGISTERED IN A DATABASE BY HIS COMPETENT AUTHORITIES. THE ECONOMIC OPERATOR BECOMES A “REGISTERED EXPORTER”.

Northern Ireland has a specific status and may require customs clearance depending on the final or perceived destination of the goods. Products which fall under CITES (Convention on International Trade in Endangered Species of Wild Fauna and Flora) now require a certificate as part of the documentation accompanying shipped goods when they cross a customs border.

WHAT’S CHANGED FOR EU RETAILERS EXPORTING FROM THE EU INTO THE UK?

Orders exported f rom the EU into the UK will have duty applied to any shipments over £135 f rom 1st January 2021. The previous VAT threshold of £15 has been eliminated and VAT is now applicable on all shipments, regardless of value.

As above, customs import and export declarations are now required for exchanges. The deal also allows for qualifying goods to avoid duty based on Country of Origin (COO) regulations (Origin must be EU). Individual shipments over €6000 f rom the EU into the UK will need a Registered Exporters System (REX), and to include the REX number on the customs declaration form.

Retailers must self-certify the COO of goods as the EUR1 is no longer accepted as proof of origin5. As with UK retailers exporting to the EU, Northern Ireland has a specific status and may require customs clearance depending on the final or perceived destination of the goods. Products which fall under CITES (Convention on International Trade in Endangered Species of Wild Fauna and Flora) now require a certificate as part of the documentation accompanying shipped goods when they cross a customs border.

Logistics and Supply Chain

All trade into and out of the UK is facing some form of delayed processing time, as customs checks that weren’t previously required are implemented. New paperwork is required to process shipments in and out of the UK leading to additional times delays.

Certifications

From 1st January the UKCA mark will replace the EU certification CE mark for goods sold in the UK. The CE Mark will continue to be required for goods sold in Northern Ireland. There will be a one year transition period from 1st January 2021 for most CE marked goods during which the mark will continue to be accepted as an alternative to the UKCA mark for goods sold in the UK.

Some goods (such as certain medical devices) will have an extended transition period up to 2023. For all other goods the UKCA mark will be mandatory at the end of 2021.6

Trade between the US and the UK

There is no existing FTA between the US and the EU, which means that there are already customs checks and paperwork requirements in place, whether in the UK or another EU country. This means that the general process should remain the same for US retailers selling into the UK, however there may be additional requirements from a declaration and clearance perspective.

The only change may be if the UK decides that they want to apply different regulations, duties or taxes than what the EU has with the US, in which case there will be different paperwork, which may be more onerous – but in absolute terms the process will be as it was before Brexit.

IMPACT OF BREXIT FOR RETAILERS TRADING BETWEEN UK, EU AND REST OF THE WORLD (ROW)

*Specific agreement which is not an FTA whereby all the countries in the agreement avail of the same duty rate at importation.
*EORI – Economic Operators’ Registration and Identification

Using the UK as a port of entry to the EU

London Heathrow has historically been one of the main ports of entry into Europe, with goods continuing their onward journey to EU destinations by road without further customs checks. Now, in order to avoid doubling the amount of customs checks required (first into the UK, then into Europe) retailers will most likely redirect shipping routes to land directly to the EU.

Goods bound for the UK f rom the EU and the rest of the world will, in order to not double customs checks, also need to be shipped or flown directly to UK ports of entry such as London Heathrow.

Conclusion

Brexit has impacted imports in and out of the UK, with shipping and logistics delays seen f rom the first day. Currently the British government has delayed import controls7 until 30 June 2021 but checks are then expected to take place at more than 30 designated border and control posts where goods, plants and animals entering f rom the EU by sea, rail or air can be inspected. For countries like the US and Australia, there should be limited impact as they will continue to trade with the UK much like before – albeit with some potential changes to duties and taxes. However, there is a strong possibility of delays due to the bottleneck that will be created by newly imposed customs checks.

ESW believes the impact on our clients will be minimal due to our existing technology to calculate for duties and taxes and our existing European shipping hubs which will minimize any possible supply chain disruption.