Frequently asked questions on Brexit

Date : 06 March 2019

The following questions have been raised during IGD webinars and are summarised here for a wider audience.

The information provided is accurate, to the best of our knowledge, as of 5th March. However, circumstances change quickly, new information is emerging daily and we are not able to verify every source. Readers are advised to seek advice from specialists before making any critical business decisions.

Tariffs 

1. Do you have any insight on how the UK will set its tariff rates? 

Introducing a new tariff system is a complex matter with major repercussions for consumers and companies. If a withdrawal agreement is reached then the UK will not need to do this until the transition period is complete. Without a deal, it will need to announce tariffs ahead of the leave date on 29th March. 

The latest official statement from government on tariffs is: “We are currently considering all options for how to balance our interests effectively in the event of no-deal before making a final decision in the interests of UK industry and consumers.” 

We can be confident that the UK would not set tariffs above the EU level because that would trigger disputes with other nations. It is therefore a question of which, if any, tariffs will be reduced. This is a topic of lively debate within government.

Any initial announcement could then be refined with further changes over time.

2. Recently we have heard that the UK will not charge import tariffs on most food types for a temporary period. Have you heard this? 

WTO rules insist that countries must apply tariffs equally to all countries, except where a trade deal is in place. Therefore, without a withdrawal agreement, the UK could not give special treatment to EU countries. If it waived tariffs for the EU, it would also have to apply this to all other countries.

This would benefit consumers but also open the doors to low cost imports worldwide, delivering a sudden shock for domestic producers at a vulnerable time. It would also remove bargaining leverage for future trade negotiations. We would therefore be surprised to see the government take this approach.

We do know for sure that government will prioritise flow at the borders in the adjustment period. This is reflected in HMRC’s Transitional Simplified Procedures which will, at least for a limited period, allow registered companies, importing via Roll On Roll Off transport, to settle their tariff bill after the goods have been imported.

3. How do EU tariff rates differ from WTO?

The WTO doesn’t set tariffs for its members. Its role is to set rules that underpin world trade and to adjudicate on any disputes. 

It is also the place where countries lodge their tariff rates. So any references to WTO tariffs usually refer to the tariffs recorded there each year by member countries. These apply as the default rate for trade with countries where no negotiated deal exists.

The UK and EU are already members of the WTO and the EU’s tariff is consistent with WTO rules.

Information on tariff rates can be downloaded from the WTO website.

Borders

4. Is the UK custom system and admin ready for a hard border? If not, is there any point for the industry to get itself ready?

HMRC, the Border Agency and others responsible for this are working to be as ready as possible. Assuming we do introduce new borders, only time will tell how effective the preparations have been.

If we do leave the EU at the end of March without a deal, it’s unlikely that everything intended to be done will be ready in time and working completely smoothly (such as all the new systems) but there may be workarounds.

HMRC has announced Transitional Simplified Procedures, by which registered businesses could transport goods from the EU into the UK without making a full customs declaration at the border and postpone paying import duties until the month after import. Currently, this is only set to apply to Roll On, Roll Off transportation. 

It’s best to assume there will some delays but, irrespective of this, the better prepared industry can be, the easier it will be to keep goods flowing, even if there are some problems and delays.

5. Is there any guidance on how long the delays at border control could be?

Government scenario planning is based on certain (confidential) assumptions about traffic flows, primarily through Dover/Calais and via Eurostar. However, queuing is a mathematically complex subject which is difficult to model with accuracy. Other assumptions about traffic are plausible. The flow may vary considerably from day to day and differ for imports versus exports.

Delays will depend, in part, on the readiness of other countries and the behaviour of companies, hauliers and the travelling public. For example, how many will cancel, postpone or re-route journeys? What proportion will have sufficient documentation to clear customs?

The most optimistic scenario is for only very minor delays. At the other end of the scale, tailbacks lasting several hours are conceivable.

6. What plans does government have to minimise disruption at ports?

Step one is to encourage companies to prepare for the new procedures. That will minimise the number of vehicles failing border checks and causing congestion.

Step two is a light touch and efficient process at the borders, hence the Transitional Simplified Procedures announced by HMRC.

Step three is to encourage some routing away from Dover/Calais and Eurostar (expected to be the main bottlenecks) if this proves necessary. Government has booked some capacity on other ferry routes, which they will allocate mainly to urgent medical supplies. They are asking companies to consider converting from Roll On, Roll Off freight to alternatives such as container transport (which flows through different ports such as Thames Gateway) where this is possible.

Step four would be to respond quickly and pragmatically to any problems that arise on the ground.

7. Are there procedures for accelerated port and customs clearance for short life products, e.g. NFC fruit juice?

Unfortunately, the infrastructure isn’t available to sort and prioritise vehicles. By far the biggest delay is likely to be queuing for transport at the ports, so a slightly faster customs clearance is unlikely to make a big difference anyway.

8. What happened to the Smart Border 2.0 research for the NI-Ireland border?

Technology-based solutions may increasingly help to smooth flow across borders worldwide, but this is not seen as a viable, immediate solution for the Irish border. If the UK enters into a withdrawal agreement and a transition period, the use of technology at the Irish border will get close attention again as part of a potential longer-term solution.

Import/Export Procedures

9. If we are using a third party customs broker for customs declarations can I also get the customs training grant? 

The grant is intended to help businesses prepare for new customs arrangements via new training, new IT or both. The grant is available to those doing customs admin in-house and also to intermediaries such as customs agents. However, claiming the grant for in house investment whilst also planning to use a customs agent might not be permitted. Contact PWC for advice.

10. Who uses ICS? Would I need to enrol if using a third party customs broker?

It would depend on the services offered by your broker. ICS is not a customs system like CDS, it is used to track shipments for security and safety purposes. Your customs broker may be able to do this for you, but you should check.

11. I heard that CDS is not going to be in place before 29th March. Can you confirm?

Our understanding is that CDS is already in-place and functional, but is being rolled out gradually - hence the decision to retain CHIEF for the time being. 

12. What is your insight on veterinary certification? Will this be required on D1ND (Day 1, No Deal)?

We think it is likely that POAO from EU sources will be accepted into the UK without certification, at least for a limited period. However, do check for a definitive view from government on this. The latest guidance is available here: Link

In the reverse direction, unless we hear otherwise from the EU, veterinary certification will be required for exports to the EU. 

13. Will there be new phytosanitary checks on plant products entering the UK?

The UK government has confirmed that it views the majority of plants and plant products entering from the EU as low-risk and that these will be able to enter freely.

However, products currently managed under the EU plant passport regime would be subject to new import controls, outlined here.

14. If you are using an agent does this mean you don't have to enrol with ICS, CDS etc?

Many border admin activities can be completed on behalf of a company by another company designated by them. For example, a haulage company can lodge documents on behalf of the company that owns the goods. If in doubt, consult your service provider - but don’t leave it to chance.

15. How many of IGD’s ten preparation priorities would be covered by an agent?

This depends on the agents and the services they offer, so it is worth checking exactly what they are willing and able to do. It is also worth checking their readiness for Brexit, because agents are likely to come under unprecedented pressure of work.

16. Would a Food and Drink FMCG consultancy dealing with EU companies need an EORI number? 

EORI numbers are required for exporting goods. We would assume that a consultancy is selling services, but there may also be some goods within the portfolio, so consult with your accountants to be certain.

17. Can you clarify SME definition for grants? Is it the same turnover assets and employees?

An SME is defined as having fewer than 250 employees AND turnover of less than 50m Euros per year.

18. What are your views of proposals for the UK to pursue so-called 'dynamic alignment' with EU rules for c9 months in a 'no deal' Brexit?

The existing Withdrawal Deal requires continuing alignment with EU rules for Northern Ireland as part of the backstop arrangements until a permanent solution to the Irish border is agreed.

If we leave without a withdrawal deal then the UK could make an offer to stay aligned to EU regulations for a specified period to avert the need for changes at the border.

This might be viewed by some as ‘Brexit In Name Only’ but could offer valuable breathing space. We cannot count on the EU’s agreement to this however and we are not sure of the legal process required to apply a blanket waiver for EU regulations.

19. Can you see any benefit from switching our supply to the Chinese market from the UK to elsewhere in Europe?

The EU doesn’t have a special trade agreement with China and so Brexit shouldn’t make a difference here. This may change in future, if the EU beats the UK to agreeing a deal with China.

Labelling

20. How would you prepare for packaging changes, for those products supplied to the EU?

The first step is to ensure that UK produced products are no longer described as from the EU and for any EU emblems to be removed, including the EU organic logo.  

For pre-packed food, sold into the EU, you will need to provide an EU address on your label, e.g. for a registered office of your business or for an importing business. 

For products of animal origin (POAO), you will need to replace the EU oval health and identification marks with new UK health and identification marks, available here

You may need to use over-stickers if you are not able to change your packaging in time.

For the latest government advice on labelling changes, follow this link

21. How long do we believe we have as a grace period before the need to change packaging (import and export) on POAO products?

This is what the latest information (at time of writing) from government says: 

“The UK government is aiming where possible to allow a transition period for labelling changes in relation to goods produced or imported and placed on the UK market after exit day. Wherever a transition period is not possible, Defra will encourage pragmatic enforcement within the UK. These proposals are subject to agreement with Devolved Administrations and Parliamentary process.

“If you export food products to the EU, you should get advice from your EU importing contact on the EU’s labelling requirements. The UK has no control over enforcement outside of the UK. The EU and other non-EU countries may require changes to be in place from exit day to export to their markets.”

More detailed advice is available here

Data transfer

22. Will it still be possible to transfer data freely between the EU and UK after a No Deal Brexit?

In a No Deal Brexit, the UK would automatically become a ‘third country’ under European data protection law (GDPR). It would still be legal for European companies to receive data from the UK but they would not be allowed to send data to the UK, until the UK’s data safeguards have been approved by the EU (known as an ‘adequacy decision’). 

This restriction would not apply to transfers within a company provided the divisions are registered as a single legal entity. If in doubt, seek legal advice on this.

Companies could inadvertently contravene the rules if they store data in the cloud. The legal risk would however rest on the sender of the data (within the EU) rather than the receiver (within the UK).

Further information is available here.

Pallets

23. Will pallets need to be heat treated after a No Deal Brexit?

For disease prevention reasons, the EU insists that all wooden pallets arriving from ‘third party’ countries must be heat treated of fumigated. In a No Deal Brexit the UK would automatically become a third party, subject to this regulation.

At the time of writing, there has been no waiver of this rule for the UK and we should therefore assume that it will apply. There are no changes planned for pallets circulating within the UK or arriving from the EU.

Stock building

24. Are there any indications that shoppers are starting to stockpile food?

Our research shows that a small minority of shoppers are stockpiling food in preparation for Brexit. In February 2019, only 4% of shoppers said they were doing this. 

Of course, the numbers could change, and at short notice. We’ll continue to follow this closely. 

25. Are the supermarkets holding or planning to hold stock on the continent?

Some stock is being held in mainland Europe of UK-supplied goods for eventual sale in the EU. This also applies to Ireland, which, of all EU members, is most reliant on supplies from the UK. 

For sale to UK consumers, stock building is of course primarily occurring in the UK to protect against problems at the borders. Much of this has been publicly reported.

If UK storage capacity is full, there may be a case for building some additional stock elsewhere in Europe, but we haven’t heard any reports of this yet.

Timetable

26. When is the latest that companies should set as a deadline to do these ten preparation priorities

For most companies, work is likely to continue right up to the 29th March deadline (and beyond). If you don’t have a master plan already, construct one today, making sure all our key points are covered, unless any don’t apply to your business. Think carefully about the right sequencing for your business.

Also see our No Deal Checklist for other activities that didn’t make our top ten.

27. In the case of a hard Brexit, does this mean that on the 29th of March there will be changes immediately or will there be a period of adaptation?

No deal would mean no withdrawal agreement or transition period. There will be an immediate change in legal status and a series of changes should follow automatically from that. This is because WTO rules require all trading partners to be treated equally unless a trade deal is in place.

The UK government (and probably governments in Europe too) will seek to be pragmatic where it has legal room for manoeuvre. For instance, the UK government will probably not introduce new food safety inspections on EU shipments in the initial weeks (while continuing to inspect imports from elsewhere) and justify this legally on risk-based criteria. However, that defence would not work indefinitely and some testing would need to be phased in.

With goodwill, there might also be some temporary agreements between the UK and EU that helps to phase in some other changes, for instance by mutually recognising certifying authorities for a limited period.

However, in areas where we don’t yet have clear direction from UK and EU governments, we recommend planning on the assumption of sudden and complete changes from day 1 (a ‘worst case’ scenario).

28. Do you believe Brexit will be delayed?

This does appear likely although we cannot be sure.

If we finalise a withdrawal agreement, it will probably require additional parliamentary time to push through the enabling legislation. Both parties would probably agree an extension to the Brexit deadline for this.

If the withdrawal deal has not been ratified by the UK Parliament by mid-March then a vote will be taken to request an extension from the EU.

The European Court of Justice has ruled that the UK can revoke Article 50 unilaterally, yet it would need the permission of all EU countries to extend the deadline.

Workforce

29. How many EU citizens working in the UK are likely to choose to return home?

Net migration from the EU to the UK has been falling since the referendum date, although we have still seen more people arrive than leave and migration remains at the levels seen between 2008-12.

Given the publicity that has already surrounded Brexit, we wouldn’t expect the leave data to trigger an immediate big surge in departures unless the mood in the UK suddenly became more hostile. However, it will become more difficult to replenish the workforce with EU nationals after that date and companies could face a recruitment squeeze.

Longer term

30. In the event of a no deal Brexit, would retailers that have a higher proportion of British sourced products be in a relatively strong position?

Yes, domestic sourcing would almost certainly be an advantage if new trade barriers are erected with Europe. However, if these sources are not contractually secured then competing retailers could tempt them away by offering better terms. 

For some products, such as lamb and shellfish, there could be a surplus of domestic supply if new EU tariffs or other barriers make these products less competitive. In aggregate though, there will be insufficient food produced in the UK to meet domestic demand so imports will still be required.

31. Are there any benefits to Brexit for the UK? This could be from any perspective: economy, retail, politics etc

The most obvious beneficiaries would be UK producers facing European competitors suddenly affected by tariffs in the UK market. Over time, that could trigger significant expansion, for instance in UK dairy production. Clearly the other side of the coin would be potential lost export sales, such as for sheep meat.

The UK could optimise regulations, tariffs, farming and fishing policies more precisely to its own needs (depending on the type of Brexit reached and future trade arrangements with the EU). For instance, import tariffs designed to protect southern European citrus growers would no longer make sense for the UK. Consumers would also benefit from any tariff reductions.

32. Are you aware of any specific contingency measures for food and drink businesses in government plans for post 'no deal' Brexit stimulation of the economy?

No, we haven’t been involved in any discussions of this nature. 

If there are post Brexit stimulation measures we would expect these to be applied in the main across the whole economy, rather than targeted at specific sectors. However, it is possible that those sectors particularly hit by new tariffs or other export barriers to the EU might receive some additional support.