Brexit has been a hot topic for a while now and the focus has been on UK and EU trade movement. However, Swiss – UK trade operations also undergo a transformation due to Brexit. This article aims to give an overview for Swiss production firms and Swiss established multinationals on the impact of Brexit.
While on 1 January 2021, with the Trade and Cooperation Agreement (TCA) between the EU and UK, Brexit became a reality, another agreement came into force on the same day: the Trade Agreement between the UK and Switzerland.
A quick recap of Brexit
In 2016, a referendum was held in the UK regarding the EU membership. The UK electorate voted to leave the EU by a small margin, leading thus to a deep division of the country into two political camps. The following year, the UK notified the European Council of its intention to leave the EU, thus formally triggering the process of leaving the EU in Art. 50 of the Treaty on European Union. From this point forward, many negotiations have been held, deadlines extended and finally a withdrawal agreement has been reached on 17 October 2019 which has entered into force on 1 February 2020 with a transition period until 31 December 2020. This allowed the negotiations on a future trade relationship between the EU and the UK to proceed. A Trade and Cooperation Agreement (TCA) was concluded between the EU and UK just before Christmas last year. Along with the TCA also the Trade Agreement between UK and Switzerland entered into force on 1 January 2021.
Relevant changes for Swiss companies
Swiss companies are often affected in a similar way as their counterparts in the EU. The following topics provide you with a high-level overview from a Global Trade perspective.
- Import & Export: The UK no longer belongs to the EU customs territory, therefore goods moving from the EU to the UK (and vice versa) have to be customs cleared. Additional costs for customs brokerage, longer lead times and additional regulations have to be taken into account. Swiss companies owning stock in an EU warehouse (e.g., in Germany, Netherlands) are also affected by the new EU exporter definition, which no longer allows foreign (non-EU established) entities to act as the exporter.
- IT systems and master data: Adjustments to the current IT systems are necessary to ensure compliance. Depending on the relevant import and export volumes, companies should consider investments into their global trade systems or using a managed service to deal with the additional workload. Master data elements may also have to be updated, e.g., iso alpha code for Northern Ireland (XI).
- EORI number: In order to be able to import goods in the UK, companies need to apply for a GB EORI number, as an EU EORI number is no longer valid in the UK. The same applies for UK companies with customs operations in the EU.
- Customs licenses: Customs licenses may need to be amended or newly applied for, depending on the industry and customs operations in the UK. For example, EU-established chemical companies will have to decide how to deal with products that are covered by REACH, e.g., by appointing an OR (Only Representative).
- Origin: Regarding the origin, many EU exporters may have to re-evaluate their supply chain, as goods originating from the UK no longer qualify as EU origin. Where necessary, changes to the production location and supplier should be considered in order to preserve the EU origin. Bilateral cumulation for raw materials and semi-finished products originating from the UK or Switzerland is possible for transactions between the UK and Switzerland. However, diagonal cumulation with the EU is no longer possible, i.e., Swiss and UK production companies can no longer consider EU materials as originating when determining the preferential origin under the UK-CH free trade agreement. However, diagonal cumulation may still be possible for countries that are part of PEM (Pan-Euro-Med). We recommend analyzing the relevant transactions in detail to ensure that there is no negative impact on the total costs due to additional customs duties.
- New rules of origin: Product specific origin rules for goods under the TCA are different from PEM Rules and other EU FTA rules of origin (e.g. EU – South Africa). Therefore, current rules to determine the origin should be reviewed before concluding that the goods meet the origin criteria under the EU UK TCA (e.g., for some goods, the EU-UK TCA considers both value ‘or’ weight of the non-originating materials; unlike PEM and South Africa, where the rules only consider the value of the non-originating materials).
- Valuation: Customs valuation of goods shipped from UK/EU under the ownership of the same legal entity (e.g., Swiss principal company moving goods between the EU and UK) should be examined. In certain situations, transaction value may not apply, as there is no underlying transaction to support the sale for export.
- Regulatory: The Common Health Entry Document (CHED) and other product-specific licenses may be needed from a regulatory point of view. Furthermore, other non-tariff trade barriers have become more relevant for business with the UK. For example, the new European Medical Devices Regulation (MDR), which will enter into force on 26 May 2021.
The UK leaving the EU single market is more than just about import tariffs. Administrative burdens related to customs clearance as well as non-tariff trade barriers are causing supply chain disruptions with a significant economic impact. The UK is now in a similar situation as Switzerland regarding the trade relationship with the EU. By carefully assessing the impact on the current supply chain, companies can even gain a competitive advantage. EY is supporting businesses in the UK and Switzerland regarding impact assessment (Global Trade Analytics), managed service (EY Trade Solution powered by SAP GTS) and Global Trade Advisory of specific topics.
Related to the topic, we would like to invite you to the upcoming webcast “Future of the UK and Swiss Trade Relations” by Swiss British Chamber of Commerce on 31st March 2021, 13:00 – 14:15 CET. Our colleague Sally Jones, Trade Strategy and Brexit Leader EY UK, together with other great experts, will be discussing this topic further. For more information and registration please click here.