Many Businesses Unprepared for Brexit Customs, Compliance Implications, Experts Say

A “skinny deal” to be completed before the United Kingdom crashes out of the European Union on Dec. 31 is seen as unlikely, but experts differ slightly on what that means for business. Robert Hardy, commercial director of Oakland Invicta Ltd., and founder of a Brexit-focused customs consultancy, said that even if there was a “soft Brexit,” all that would do is delay the pain, because presumably the deadline would be pushed out to fill in the details. “Customs paperwork exists in all scenarios. Actually, in a no-deal scenario, there’s less paperwork,” he said, because you don't have to account for rules of origin. “There’s more duty, but I don’t pay the duty, I do the paperwork,” he quipped.

Hardy and Andy Aherne, senior manager for global customs and strategy at Abbott Laboratories, were speaking at a virtual American Association of Exporters and Importers conference Aug. 18. Aherne said there are still trade professionals in the region that think Brexit is never going to happen. He said for companies that have done no preparations, they need to ask themselves: What will change? How much will this cost? What should be done to prepare?

For those who wish to be ready in December, they should be planning validation exercises, and stress testing platforms before “B-Day,” as Hardy called it. Hardy said that while more regulated industries, like Aherne's, are ready for Brexit, many companies are not ready at all, and plan to leave the headaches to their third-party logistics providers.

“I can’t do a customs declaration where you don’t give me the data,” Hardy said. He said he can't determine the value or the origin, and he may need more information than you're giving to select the tariff classification, as well.

Aherne said reporting value and origin are both going to be compliance risks, and classification will be challenging, “because the skill sets are not there.”

The British government is offering flexibility to importers, saying they will have three months after entry to clean up entry declarations. Aherne said that's all well and good, but many companies are not going to want to take the risk of triggering either a customs audit or a value-added tax audit on export, and that some companies' internal policies will not allow for such a loose approach to the data.

In order for a trade deal between the U.K. and the EU to be ratified, it would need to be done in the middle of October, they said. But Hardy said, “I think if there's a will, there’s a way -- this could be an 11th-hour agreement.”

Even trade between the U.K. and other countries will be affected by Brexit. For instance, if your company sells goods under the EU-Canada free trade agreement, or the EU-Japan free trade agreement, if the goods contain both content from the U.K. and other EU members, they may no longer qualify. “Accumulation in FTAs is going to be an important topic,” Aherne said.

Hardy said he's been asked by journalists if there will be lines of trucks backed up in port towns in the southeast of England, and empty shelves in supermarkets in the U.K. He said “yes to the first one and no to the second one.” He said that the EU is not going to delay exports of its products, but exports from the U.K. is a more complicated matter. He said 85% of the exports by truck from England are on trucks that came in from continental Europe, and if they take five times as long to leave as they do to arrive, it can gum up the flow of imports as well.

The U.K. National Health Service has asked medical device and pharmaceutical companies to stockpile six to nine months' worth of goods to prevent any critical shortages during the transition. Aherne said that's easy for some companies, but for sellers of large medical machines, that could be an entire warehouse. The COVID-19 pandemic response has added to the stockpiling burden, he said, and warehouse space is at a premium.

Hardy said that at a previous Brexit deadline, companies were hoping to stockpile frozen and chilled food, but since this deadline is coming at Christmas, there's no space for stockpiling. But one action companies are planning to take may be helpful, he said -- booking entire truck trailers instead of sharing space, so another company's cargo doesn't hold your goods up at the border.