Current state of play
The UK is part of the EU customs union and its single market. The UK's economy depends heavily on international trade in goods. Merchandise trade amounted to 44.7% of its GDP in 2013.
- Because of the customs union, firms in one member state can sell goods to and buy goods from other member states without having to pay customs duties or other charges, irrespective of the country of origin of those goods.
- Businesses in a member state also benefit if their production chain involves other member states, even if they do not export to member states.
- The administration and compliance processes for exporters are much simpler within the EU. For example, UK businesses do not have to declare goods when they ship them to the EU.
- There is a wide range of European legislation aimed at removing non-tariff barriers to trade between member states.
- UK businesses further benefit from the EU’s common trade policy and its system of free trade agreements (FTAs). The FTA system includes dozens of states (eg Albania, Bosnia and Herzegovina, Chile, Colombia, Egypt, Faroe Islands, Iceland, Israel, Korea, Mexico, Morocco, Norway, Peru, South Africa, Switzerland, Turkey).
- UK businesses could profit from agreements that are being negotiated or ratified now, for example with the US (TTIP), Canada (CETA) and Japan.
- Trade policy is an exclusive competence of the EU and therefore the UK is not currently able to negotiate its own free trade agreements with third countries.
What should I be thinking about now?
- Will there be any customs duties or other restrictions on exports to and from the EU that will put UK businesses at a competitive disadvantage in the EU and other markets?
- If the UK and the EU were to agree that their post-Brexit relationship should be based on membership of a free trade area rather than a customs union, how would the need to comply with country of origin rules affect my exports from the UK to the EU or vice versa? (In a free trade area participating countries agree to eliminate tariffs on trade between them in goods “originating” in the free trade area, but retain control over the level of tariff they impose on imports from third countries.)
- As a UK business, could non-tariff barriers restrict my ability to trade with the EU, and is there is risk of such barriers increasing over time if the UK is no longer able to act as an advocate of free trade within the EU?
- Will the UK continue to be protected by European FTAs? Should I relocate my business from the UK to an EU member state to avoid the risk of not (or too late) being able to rely on FTAs?
- As a UK firm, should I set up a subsidiary in an EU member state to produce goods there and reduce the EU customs burden, or to handle customs compliance there?
The answers to many of these questions will depend upon the nature of a post-Brexit UK/EU relationship.