A leading freight forwarding and logistics supplier has said British businesses trading with EU countries face three possible outcomes if the UK chooses Brexit on 23 June.
David Johnson, managing director of Tudor International Freight, based at Rawdon, near Leeds, said these could be dubbed the Norway, Switzerland and China scenarios.
Mr Johnson said: “Moving goods across borders within the EU is easy and cheap at present. When we import dental uniforms and medical scrubs from Germany for a workwear company, as we do regularly, for example, the only documentation we need is a copy of the packing list or commercial invoice and the travel document. For air freight this is a waybill, for sea consignments it’s a bill of lading and for road haulage it’s a CMR note, the initials of which are derived from its French title.
“No customs clearance process or duties apply and VAT doesn’t have to be handed over before the goods can be moved from the receiving port or airport. This system is the same, whatever the goods being imported.”
He said all three alternative arrangements that could be implemented following a Brexit would involve time or cost increases when moving goods across frontiers.
Mr Johnson said: “Probably the most straightforward and favourable trading model is that adopted by Norway, which, as a member of the European Economic Area (EEA), has a free trade agreement with the EU.
“A Norway-style arrangement wouldn’t involve UK companies paying duties or taxes when moving goods across borders. However, they would need to produce documents proving where the goods originated, to confirm that they weren’t eligible for duties. This is an increasingly costly task, given the ever-greater complexity of modern supply chains.”
Mr Johnson said the second regime would result from the UK making a series of bilateral trade agreements with the EU, similar to the 120 treaties the union had with Switzerland.
He added, however: “When entering Switzerland, goods exported from the EU, for example, still have to undergo customs clearance and are usually subject to VAT and import duties.”
Turning to the China scenario, Mr Johnson said this would take effect if the UK left the EU after the official two-year withdrawal period without agreeing alternative trading arrangements with it, such as the Norwegian or Swiss models. This would mean implementing the rules of the World Trade Organisation (WTO).
He said: “The system would involve us and our former EU partners granting each other access to their markets and charging the same import duties they levy on other WTO members with whom they don’t have free trade agreements. In our case, these duties currently range up to the 32 per cent levied on wine. The 53 free trade agreements we currently have with other countries as a member of the EU would lapse if we left.”
Mr Johnson said the organisation Open Europe had estimated that 35 per cent of goods the UK exported to the EU could be subject to import duties of more than four per cent under such a system, with sectors such as cars, food and textiles being particularly vulnerable to this significant competitive handicap.
Using the example of the workwear business mentioned earlier, he said: “If we brought-in £50,000 worth of medical scrubs and gowns from Germany under the WTO system, we would, at the UK point-of-entry, have to pay £10,000 as VAT and approximately £5,000 as import duties on behalf of that company. They would also no longer benefit from being able to delay the VAT due and combine it with domestic payments of the tax.”
Mr Johnson added that additional administrative burdens would apply too. A logistics provider such as Tudor would need a copy of the packing list or commercial invoice and the travel document, as per the present system. But it will also be necessary to submit customs declarations to the UK authorities for goods both leaving and entering the UK.
He said: “Tudor International Freight is politically neutral and doesn’t take sides in the referendum debate, so we recognise the potential advantages of Brexit, such as the theoretical greater freedom to do our own trade deals with countries outside the EU.
“However, as I’ve outlined, the consequences of withdrawal for UK businesses could be severe.”