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British business faces Brexit penalties, warns forwarder

[ June 3, 2016   //   ]

UK businesses face three possible outcomes if the UK chooses Brexit on 23 June – all of them liable to involve increased paperwork and red tape, says the boss of a Yorkshire freight forwarder.

David Johnson, managing director of Tudor International Freight, based at Rawdon, near Leeds, describes them as the Norway, Switzerland and China scenarios.

Johnson said: “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’s a bill of lading and for road haulage it’s a CMR note, the initials of which are derived from its French title.

“No customs clearance process or duties apply and VAT doesn’t 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.”

All three alternative arrangements that could be implemented following Brexit would involve time or cost increases for goods moving across frontiers, he continued. “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 wouldn’t 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 weren’t eligible for duties. This is an increasingly costly task, given the ever-greater complexity of modern supply chains.”

A second scenario is Switzerland’s arrangement of bilateral trade agreements with the EU, 120 treaties in all. However: “When entering Switzerland, goods exported from the EU still have to undergo customs clearance and are usually subject to VAT and import duties.”

The China scenario would apply if the UK left the EU after the official two-year withdrawal period without agreeing alternative trading arrangements with it, instead implementing World Trade Organisation (WTO) rules.

“The 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 don’t have free trade agreements. In our case, these duties currently range up to the 32% 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.”

According to Johnson the Open Europe organisation estimates that 35% of goods the UK exported to the EU could be subject to import duties of more than 4%under such a system, with sectors such as cars, food and textiles being particularly vulnerable.

Using the workwear example, “if we brought-in £50,000 worth of medical scrubs and gowns from Germany 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 behalf of that company. They would also no longer benefit from being able to delay the VAT due and combine it with domestic payments of the tax.”

Other administrative burdens would apply too. Logistics providers already need a copy of the packing list or commercial invoice and the travel document, but it will also be necessary to submit customs declarations to the UK authorities for goods both leaving and entering the UK.

Johnson insists though that Tudor International Freight “is politically neutral and doesn’t take sides in the referendum debate, so we recognise the potential advantages of Brexit, such as the theoretical greater freedom to do our own trade deals with countries outside the EU.

“However, the consequences of withdrawal for UK businesses could be severe.”

David Johnson, Tudor resized

 

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