BREXIT Customs Union implications

Following the 23 June UK referendum decision to leave the EU (‘BREXIT’), the UK is to set to leave the EU at some point over the next few years. This will include leaving the EU Customs Union (‘EUCU’), the mechanism for negotiating, charging and collecting import levies on imported goods.

Departure from the EUCU will be one of the most significant changes for UK exporters and importers because of new tariff payment and compliance procedures with the remaining 31 EUCU states. There will also be a requirement for the creation of a significant body of new UK customs legislation. Read about BREXIT EU VAT implications here.

However, during the upcoming BREXIT negotiations, the UK may agree to remain within the EUCU, and join other, non-EU countries such as Turkey.

Below is a summary of the change to the UK’s customs status, plus some background on the EUCU.

All responsibilities for the setting, monitoring and collection of import tariffs on goods entering the EU will revert to the UK. This will require the implementation of extensive UK replacement legislation on customs, and new negotiations with countries around the world on import tariffs and requirements. It is unlikely that there would be a significant change from the EU terms in the medium term.

The UK will retain all revenues from import tariffs (currently revenues must be remitted to the EU, see below).

All sales and purchases of goods with the remaining 27 EU states will become exports and imports, respectively. They will therefore be subject to customs tariffs in both directions, and increased bureaucracy and compliance requirements for UK and remaining EUCU businesses.

The EUCU was created in 1958 to promote the free movement of goods, and abolish tariffs on goods’ movements within the zone. There are currently 32 states in the EUCU. It includes all 28 members of the European Union. It is also made-up of a number on non-union countries, including: Turkey (1995); Monaco (1958); Andorra (1991); San Marino (1991); and the UK’s Channel Islands (1973).

The EUCU is run by the EU, and is governed by an EU Directive and regulations. In this sense it is different from EU VAT, which requires EU member states to implement into their national legislation the EU VAT Directive.

Goods entering the EUCU for the first time are subject to central tariffs negotiated by the EU as a single body on behalf of member states. This includes the EU negotiating on behalf of the member countries at the World Trade Organisation.

No tariffs are due on the movement of goods once they are within the EUCU and cross members’ national borders.

Aside from managing the import tariffs, the EUCU is also responsible for monitoring imports to ensure the full compliance with EU rules on: health and safety; dangerous goods; counterfeit goods; anti-money laundering; cultural heritage protection; and high-risk technologies.

Tariffs are collected by member states on goods that enter the EUCU through their borders. The import payments, now over €20 billion per annum, are due to the EU. Member states retain 25% of this amount to cover their costs of administering the collections. The balance, over €15 billion, makes up over 10% of the EU’s budget.

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