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What’s new in international trade?

Brexit – How this will affect UK exporters and importers?

The in/out EU referendum result will bring many new challenges for businesses across the UK in the coming years. In this short article, Export Training Services will confirm its position with regards to the training and advice given on import and export regulations, some of which are EU based in jurisdiction. This article will endeavour to determine our position from a short, medium and long-term perspective. Furthermore, as the situation is very fluid and can change quickly over the coming months, customers of Export Training Services who wish to ensure that they are aware of any changes regarding technical training on import/export matters, should refresh this page on a regular basis for the latest position.

Short Term …. Leading up to April 2017.

The UK will still remain a full member of the EU, up until the time that it decides to invoke Article 50 of the EU regulations relating to membership (Lisbon Treaty). During this time, all legislation relating to import/export activities will remain predominately the same as before. The UCC legislation that underpins procedures like IP/OP and Warehousing will still be inforce and traders who deal with both EU and non-EU markets will see no changes to these and other Customs regimes (apart from what has been already planned). Therefore, all training and advice given to traders up until April 2017 will be based on pre-referendum procedures and legislation and technical aspects of the training courses and advice given will remain the same. If you are an importer and/or exporter who wishes to commission Export Training Services for more strategic and long-term advice on import/export matters however, you should refer to the long-term part of this article.

Medium Term …. Once the UK activates Article 50.

At this time, the situation will become more complex. Activating Article 50 does not mean that the Customs, import and export legislation that the UK operate within will change instantly. Indeed, Article 50 should be viewed as the start of proceedings to leave the EU and not the finishing line. It may take the UK several months but more likely years to both agree on a new Customs framework and to adopt the new regulations within our legislation at Westminster. Therefore, Export Training Services do not envisage a substantial change to the technical content of our courses nor to the short to medium term advice we give to exporters and importers alike. Indeed, it is very conceivable that the UK might “mirror” some of the current EU legislation in order maintain some sense of consistency. In saying this, Export Training Services sincerely hope that the UK Government department set-up by the Prime Minister, who is tasked with these delicate EU negotiations, will take the opportunity to simplify some of the legislation in the areas of imports and exports. It would be shame to miss that opportunity. For planning through to April 2018 then, with the exception for long-term strategic Customs advice and planning, the situation will be as before with a main focus on the UCC framework that the EU adopted on the 1st May 2016.

Long Term …. Post the UK and EU agreeing to the new laws and the passing of these through the UK parliament.

Crystal ball time! It is very difficult for anyone to predict what the import and export regulations will be like post the UK actually leaving the EU. Preferential and Free Trade agreements might be very different. Will exporters have to make a Customs Declaration for EU movements? How will UK importers Customs clear an import from the EU … at the port or by some other “self-regulated means”? There are many questions similar to these that will need answering but no one can start the process of answering these or providing training and advice on procedures until they are both agreed by the UK and EU and adopted by the UK parliament. Our best estimation of this actually happening is April 2019 at the earliest. However, it may be the case that organisations like Export Training Services will have some idea of the direction, scope and some of the technical details of the new regimes well before this time. It is planned that Export Training Services will begin to look at the technical content of our training courses throughout 2018 with the aim at being in the forefront of any training and advice given to UK exporters/importers on the new procedures.

As some of our clients and readers will know, Export Training Services has been running training courses and giving international trade advice for over 25 years. Indeed, Mark Burgess one of the senior partners at Export Training Services, worked with a UK Government department (Sitpro) of the time, on some of the major Customs changes that the UK had to implement in both 1988 and 1992. So, we feel that we are very well placed to respond to the changes that lie ahead for UK exporters and importers and we will be committed to assist the trade in the challenges that lie ahead of us. Our customers can be rest assured that they will receive continued support and assistance from Export Training Services throughout this turbulent time.

Union Customs Code (UCC) - 1st May 2016

The EU has, in recent years, been working towards some changes to the Community Customs Code. First, we had the Modernising Customs Code (MCC) project. This mainly focused on Customs IT systems and solutions for a more paperless trading environment. However, in order to fully implement the MCC changes the EU has had to redraft some of the more fundamental Customs issues, namely UCC. The implementation date for the UCC changes will be 1st May 2016.

So how will these changes impact on exporters and importers? What steps should a trader take in order to gain some benefit from these changes or, perhaps, to ensure that they are ready for any increase in costs (Duty). There have been many articles in the international trade press and notice boards over the past few months on this topic. Some are very informative and some rather alarmist. Here is a short precise of some of the real practical issues that we will see arising from the proposed UCC changes:

Binding Tariff Information - BTI

A BTI ruling issued by a Customs authority within the EU brings legal certainty to the commodity code number (CCN) used on an export or import declaration. Under the UCC a BTI ruling will be valid for 3 years and not the current 6 years. In addition, a BTI ruling will be binding on the trader and not just the Customs authorities. Traders will have to consider the need to register their rulings in all the EU countries in which they do import and export activities and not "cherry pick" whether they use the BTI or not.

Authorised Economic Operator - AEO Status

Any company/person that has import or export activities in and out of the EU is known by the Customs authorities as an "economic trader". There are two types of "trader" from a Customs perspective:

  1. An ordinary "Economic Operator" company with a medium to high risk score with the authorities - They will have an EORI number (Economic Operator Registration Identifier).
  2. An Authorised Economic Operator (AEO Status) company with a low risk score with the Customs authorities, allowing them to enjoy Customs dispensations and to move goods in and out of the EU with minimum intervention in terms of audits and physical goods checks.

The AEO Status is at the core of the UCC changes. The Customs authorities see this as the fulcrum of their plans for the future. In a way, this is self-regulation for the trader of their import and export activities and Customs profiling traders in terms of risk assessment.

Practically, AEO Status will be essential for any company who uses one of the many Customs regimes that provide an economic benefit to the trader. Any authorisation for Inward Processing (IP) or Customs Warehousing will be based on the AEO standards criteria. Should a trader not meet these requirements, then authorisation to use these regimes may not be granted. In addition, the Customs authorities will require EORI (non-AEO accredited traders) to put up a bank guarantee to support the Duty exposure under the proposed changes.

AEO is becoming extremely important in the world of international trade. Other countries like the USA, Norway, China, South Korea and Japan have all got AEO equivalent schemes. Any trader that has a significant import and export volume should consider AEO authorisation and the benefits that this will bring.

For more information on AEO here is an official EU website: http://ec.europa.eu/taxation_customs/customs/policy_issues/customs_security/aeo/index_en.htm

Customs Valuation

Export Training Services can see two practical issues relating to Customs valuation. Both relate to the importation of goods into the EU.

a) First Sale for Export Rule

Under the present Customs valuation rules, the main rule for most import transactions is called the "transaction value" (method valuation number 1). This is the price paid or payable for the goods at the time they arrive into the EU (landed value). There are some other principles to this rule, in particular the price paid must be as if the goods were purchased by a third party company and not an associated company (arms-length transaction).

However, many sales transactions are "chain transactions"; the goods can be sold and resold whilst the goods are actually on the water. As an example, a company in Japan could sell the goods on FOB terms to someone in China who in turn, sells the goods onto the company within the EU. The proposed UCC changes allow the importer to use the first sale transaction value whereas, at present, they would have to use the last sales transaction value (as this would be the one relevant to the goods arrival into the EU).

This change could mean some significant Duty savings for importing companies across the EU and importers should look at their supply chain contracts in order to assess how this might impact on their Duty payments post UCC.

b) Royalties/Licence Fees

If the First Sale for Export Rule gives some Duty benefits, then it is only right that the Customs authorities should take this away with this one! In short, Royalty payments are more likely to be Dutiable under the UCC changes. It is currently quite easy for importers to remove the need to include the Royalty payment amount as part of the Customs value of the goods on import as there are a number of stipulations that have to be present to make the Royalty payment Dutiable. In particular, if the importer can substantiate that the Royalty payment is not "paid as a condition of the sale" then this means that Royalty costs can be excluded from the Customs value.

The current position also allows Royalty or Licence Fees for the right to use a trademark to be INCLUDED in the Customs value if:

  1. The fee relates to goods which are resold in the same state or which are subject to minor processing after the date of import
  2. The goods are sold under the affixed trademark
  3. The importer is not free to source the same goods from other unrelated suppliers

So, with a list of provisos that determine whether the Royalty or Licence fee for a trademark use to be dutiable, it can be easy for importers to ensure that their agreements to pay a licence fee does not include the above, thereby making the payment outside the scope of the Customs value. The UCC changes will affect this position and will make it more likely that an importer will have to pay Duty on these types of payments.

The correct Customs valuation for imported goods is an area that all importers should review before the 1st May 2016 deadline. Legal advice on the wording and coverage of Royalty and Licence fee payments and the First Sale for Export rule should be sort to ensure compliance for the UCC changes.

Customs regimes that provide and economic benefit

In this section we are referring to procedures like Inward Processing (IPR) and Customs Warehousing. UCC provides a new framework for how these types of regimes will operate. These regimes will be placed into four main categories:

  • Transit (TI movements, NCTS traders)
  • Storage (Warehousing and ERTS traders)
  • Processing (IP and OPR traders)
  • Specific Use (End Use relief)

We have already noted that to gain authorisation for one of the Processing regimes the trader will have to be AEO status or prove that their procedures are commensurate to an AEO trader. Other changes include the removal of IPR Drawback as a regime, and the merging of Processing under Customs Control (PCC) with Inward Processing Relief (IPR) to form one new regime called IP (Inward Processing).

In addition to the above, IP traders will be required to establish a bank guarantee to secure the Duty liability if the company applying for IP is not AEO Status authorised.

Preferences/Origin Declarations

This change will take place after the UCC implementation, the schedule date is the start of 2017. Some exporters and importers are probably aware that preference can be claimed without a preference certificate being present upon importation. The supplier/exporter needs to apply to the Customs authorities for the Approved Preference Exporter (APE) status and then a declaration on the Commercial Invoice replaces the preference form. This is not new and has been operating with many countries as an optional procedure. However, the trade agreement with South Korea and the EU which started in 2011, defined the future. Under this trade agreement the APE status is mandatory to claim the preference if the goods value is above a certain low value threshold.

The EU see this as the future for regimes like GSP (Generalised System of Preferences) and the other preferential trade agreements that use preference certificates like EUR Movement Certificates. Importers need to ensure that their suppliers are aware of this change and have plans to become "approved". Exporters of goods from the EU will need to ensure that they have the correct processes and procedures in place to apply for the APE number for future trade agreements.

Preferential and Free Trade Agreements (FTA's)

In recent years the EU has been very active in establishing FTA's with many non-EU countries. The most recent (and probably most significant because of its scope) being the one signed with South Korea that came into force in July 2011. This trade agreement has set the tone for things to come as it is fundamentally a "paperless" one (above certain values). Here are a few of the other 9 FTA's on the horizon:

  • Canada (the 11th largest trading partner to the EU)
  • Malaysia (started discussions in 2010) and Vietnam (launched in 2012)
  • Georgia, Armenia and Moldova
  • Mercosur (several South American countries)
  • Japan
  • United States of America (the big one!)
  • India
  • Peru and Colombia
  • Egypt, Morocco, Jordan and Tunisia (an up-grade to the current trading agreement)

More details can be found on the EU Market Access Database website: http://madb.europa.eu.

Export Training Services launch a new "Health-Check" service

International trade is dynamic, with changes happening frequently. In addition, a company's trading patterns and business can change substantially over a relatively short period of time. An example of this is a company who once manufactured goods in the UK/EU and now look to sub-contract this manufacturing function elsewhere, like China or India. This creates a massive change to the business. Companies become importers and distributors overnight. They have changes in their costs, the origin of their products and to the procedures required to be fully HMRC compliant.

Furthermore, on the exporting side of the international trade scene, European companies appear to be looking more towards BRIC type markets (Brazil, Russia, India & China) for their growth. The EU has been in recession and any development in sales might be in more deep-sea markets. The export skills required to deal effectively with these markets are very different from those used when dealing with EU customers/countries. Companies may need to take stock of where they are and to ascertain whether their procedures/knowledge levels/systems and cost structures are as robust as they should be.

These are just some of the reasons that Export Training Services developed its "Health-Check" service. The service normally involves a one or two-day site visit, where we conduct a "gap analysis" This will highlight where the business is in terms of export/import procedures, compliance, knowledge levels and systems in relation to where we would expect see a "best practice" company. Consideration will always be made on the size, volume, available resources and type of the business audited, as any recommendations made will need to be commensurate to the business as it stands. Export Training Services will then make some recommendations on how you can "bridge the gap" to be truly best practice in the administration of your international business.

The "gap analysis" can include a management report (normally 14-18 page report) or instead of this formal report, some companies believe a more cost-effective solution is to run a de-brief meeting at the conclusion of the visit, instead of the report. During this time the hosting company can make notes and discuss our findings and recommendations.

Export Training Services has provided this service to many companies over the past 24 years as an additional service to supplement the training part of our business. In 2015 Export Training Services will be looking to develop this as a core activity within the business with a dedicated resource to meet this requirement.

New ISBP Publication - International Standard Banking Practice

The International Chamber of Commerce (ICC) has a new version of ISBP which was published in 2013. This "compliment" to UCP 600 is a key publication for any Letter of Credit specialist who really wishes to clarify when a discrepancy is actually a discrepancy under a Letter of Credit presentation. It is a very useful tool in an exporter/importers armoury when dealing with this complex set of procedures:

ISBN: 978-92-842-0188-4
ICC Publication Number 745E


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