UK EU traders face three potential outcomes from a Brexit vote
Managing Director | Tudor International Freight
British businesses trading with EU countries face three possible outcomes if the UK chooses to withdraw – the so-called Brexit option – in the referendum on 23 June.
These alternatives can be dubbed the Norway, Switzerland and China scenarios.
Easy and cheap
Moving goods across borders within the EU is easy and cheap at present. When we import dental uniforms and medical scrubs from Germany for a workwear company, as we do regularly, for example, the only documentation we need is a copy of the packing list or commercial invoice and the travel document.
For air freight this is a waybill, for sea consignments it is a bill of lading and for road haulage it is a CMR note, the initials of which are derived from its French title.
No customs clearance process or duties apply and VAT does not have to be handed over before the goods can be moved from the receiving port or airport. This system is the same, whatever the goods being imported.
However, all three alternative arrangements that could be implemented following a Brexit would involve time or cost increases when moving goods across frontiers.
Free trade agreement
Probably the most straightforward and favourable trading model is that adopted by Norway, which, as a member of the European Economic Area (EEA), has a free trade agreement with the EU.
A Norway-style arrangement would not involve UK companies paying duties or taxes when moving goods across borders. However, they would need to produce documents proving where the goods originated, to confirm that they were not eligible for duties. This is an increasingly costly task, given the ever-greater complexity of modern supply chains.
The second regime would result from the UK making a series of bilateral trade agreements with the EU, similar to the 120 treaties the union has with Switzerland.
However, when entering Switzerland, goods exported from the EU, for example, still have to undergo customs clearance and are usually subject to VAT and import duties.
The China scenario would take effect if the UK left the EU after the official two-year withdrawal period without agreeing alternative trading arrangements with it, such as the Norwegian or Swiss models. This would mean implementing the rules of the World Trade Organisation (WTO).
This system would involve us and our former EU partners granting each other access to their markets and charging the same import duties they levy on other WTO members with whom they do not have free trade agreements.
In our case, these duties currently range up to the 32 per cent levied on wine. The 53 free trade agreements we currently have with other countries as a member of the EU would lapse if we left.
The organisation Open Europe has estimated that 35 per cent of goods the UK exports to the EU could be subject to import duties of more than four per cent under such a system, with sectors such as cars, food and textiles being particularly vulnerable to this significant competitive handicap.
Cost and administration burdens
If we brought in £50,000 worth of medical scrubs and gowns from Germany, for the workwear business mentioned earlier, under the WTO system, we would, at the UK point-of-entry, have to pay £10,000 as VAT and approximately £5,000 as import duties, on its behalf. That company would also no longer benefit from being able to delay the VAT due and combine it with domestic payments of the tax.
Additional administrative burdens would apply under the WTO system too. A logistics provider such as ourselves would need a copy of the packing list or commercial invoice and the travel document, as per the present system. But it would also be necessary to submit customs declarations to the UK authorities for goods both leaving and entering the UK.
I would stress that Tudor International Freight is politically neutral and does not take sides in the referendum debate, so we recognise the potential advantages of Brexit, such as the greater theoretical freedom to do our own trade deals with countries outside the EU.
However, as I have outlined, the consequences of withdrawal for UK businesses could be severe.
Posted on: June 12th 2016