With the end of the transition period on 31 December less than three months away and with no deal in place yet between the UK and the EU, BExA and legal member Kennedys co-hosted a webinar entitled ‘Exporting: Brexit and the World Trade Organisation’ on October 6.
The event considered questions such as what trading on WTO terms mean for businesses; the legal and contractual implications thereof; and the practical steps that businesses can take to address these issues.
In this post-event wrap-up, we bring together some of the key insights from the discussion.
Trading on WTO terms is likely
The eighth round of negotiations on a future partnership between the EU and the UK ended on October 2, with a likely further round expected to take place by the end of the month.
Michael Barnier, the EU’s lead negotiator, has warned that a deal must be agreed by the end of October if it is to be ratified in Brussels before the end of the year.
“It doesn't look like that's going to happen. The EU and the UK are still quite far apart: fisheries, state aid and Northern Ireland remain sticky issues,” said Jessica van der Meer, Barrister at 2 Temple Gardens, in her webinar presentation.
“What that means is that on January 1, 2021, we will wake up in a Britain that is trading on WTO terms.”
WTO trading terms will bring “real consequences”
At the end of the transition period, the UK will begin to operate under its own WTO schedules, which essentially describe the terms a WTO member must provide to other WTO members for traded goods and services, including, for example, the maximum tariffs which each member promises not to exceed in trade with all other members.
In her presentation, van der Meer used practical examples to explain what the implications of trading on these Schedules (as opposed to the present Free Trade Area with the EU) might mean for the import and export of specific goods, such as the import of oranges and the export of automotive parts to the EU.
“It is going to take some time to negotiate any free trade agreements, particularly with the EU. Trying to do that within a year of withdrawing from the EU is quite ambitious. In that time, the UK will fall back on the WTO schedules… but these too will be undergoing negotiations,” she said.
“The UK schedules will determine its imports, and other WTO members schedules will determine the price of UK exports. And that has real consequences, ranging from McLaren to your favourite healthy snack. Effectively, your orange is going to be more expensive come January 1, 2021.”
Businesses need to understand the principles of WTO terms
In her presentation, Sandra Strong, Managing Partner at Strong & Herd LLP, called on businesses to review how WTO rules would impact their trade, not only with the EU, but also more widely.
She explained: “We keep getting people saying that once we have a free trade agreement then we won't need customs entries, and we won't need to consider duties and taxes. Of course, that's not true: even with a free trade agreement, we will still no longer be part of the EU and we will have to have customs declarations when the goods leave the UK to go into the EU, and import declarations will be required to take goods into the EU, and vice versa. If you have suppliers in the EU, they will have to present export declarations for the goods to leave. And we will be having import declarations into the UK.”
Strong also underlined the importance of understanding that most favoured nation (MFN) duty rates are not the exception. “They do apply at imports globally, even when there are free trade agreements in place. What you have to do is to find out when the free trade agreement becomes official, when you can actually use it, and what are the qualifying rules to be able to use it. And then if you are an exporter, send the correct certifications. And if you are an importer receive them.”
She further explained that while there is talk about MFNs or free trade agreements, a lot of companies will continue to work under both systems.
Companies may not be ready for the changes that are to come
During the audience Q&A session, panellists were asked their opinion on whether or not businesses are ready for the changes to exporting and importing that are expected at the start of the new year.
Strong outlined her concern that if a free trade agreement is approved, the biggest issue for some companies that trade within the EU will be that they have never needed to identify origin of goods.
“A lot of companies don't have that information in their systems. And I don't think they're actually collecting it,” she said.
“Although we haven’t seen the terms, we’re assuming that a free trade agreement is going to be based along the line of origin. There's a lot of additional work that really needs to be put together by businesses.”
Posted 13 October 2020