"One of the main discussions over the last few weeks is around what sort of trade deal the UK will have with the rest of Europe. The PM has announced that we will come out of the Single market and the Custom Union so we can agree our own Free Trade Deals with other countries. If as mentioned by politicians we have a Free trade Deal with Europe this could be very complicated for business and of little benefit.
Free Trade Agreements (FTA’s) allow the customer in the receiving country to pay less import duty. E.g. the UK/EU has an FTA with Mexico. However, to benefit from an FTA World Trade Organisation (WTO) rules are used around Origin of goods which means where the goods were ‘manufactured’.
Without going into too much detail here this can be very complex i.e. if the goods were manufactured in the Far East they will not meet the FTA rules. But a bigger problem will be for manufacturers who source materials from all over the world who will need to use using complex calculations to establish whether the good qualify for preference and not only that but they will need to keep their records up to date for potential audit purposes.
This brings into thought a number of complex issues for companies in the future;
- At the moment A UK company shipping to Mexico may be more competitive due to the reduction in Duty from the current FTA, which we have access to through our EU membership – the goods don’t have to be manufactured in the UK they could be manufactured anywhere in Europe
- If just using Mexico as an example (this could be any country that the EU currently has a FTA with) the UK Company may not be able to take advantage of this as the goods will probably have to have been made in the UK – how do you prove that?
- A much bigger issue however, is: If the UK does agree an FTA with EU 27 member states it may only be able to take advantage of this by proving Origin in the UK? How difficult might this be – more paperwork and bureaucracy which could be costly? It might just be easier to offer a discount to the customer so that any duty payable offsets this?
Obviously at this stage we do not know what the Government will agree to with EU there might be something that politicians have in mind which eliminates all the above issues – but based on existing FTA around preference and origin this might not be that beneficial to UK business trading with EU states. It might just be easier to trade without using it!"
David Hooper
Independent Freight Solutions
