Selin Yavuz, Senior Proposition Manager at Thomson Reuters, outlines the importance of access to the right technological tools for being able to manage modern supply chains.
The Covid-19 pandemic continues to threaten public health and disrupt economies around the world, shifting consumer behaviours, business models and trade flows. Business leaders have been pushing hard to save their companies, protect workers and keep supply chains moving.
Today, even though there is still uncertainty around restrictions throughout 2021, we can say that each industry will continue to be affected in a different way and will need to pursue more innovation in product, service, and technology. And now with Brexit, January brings yet another set of challenges.
It has been over 25 years since we stopped having to file customs declarations for trade between the UK and other EU members. Premier Margaret Thatcher’s vision of a Single Market and Customs Union covering the entire EU became real in 1993. Then the UK voted for “Brexit” in 2016; subsequent negotiations took place between the UK and other EU countries for years. The discussions have been mainly over the “divorce” deal, which sets out exactly how the UK leaves – not what will happen afterwards.
400 million customs declarations and a new UK tariff regime
Recently HMRC’s head told Parliament they estimated that 400 million customs declarations would be required at a cost of roughly £32.50 each. This amounts to more than double the total number of declarations currently needed by all EU countries to trade with other countries. HMRC estimates there are currently around 200 million intra-EU transactions each year, and separate customs declarations are required to export goods from one country and to import them into another.
In May 2020, the UK government published the UK Global Tariff (UKGT) with import duty rates, which will replace the EU’s Common External Tariff rates as of January 1. “For the first time in 50 years we are able to set our own tariff regime that is tailored to the UK economy,” said International Trade Secretary Liz Truss. “Our new Global Tariff will benefit UK consumers and households by cutting red tape and reducing the cost of thousands of everyday products. With this straightforward approach, we are backing UK industry and helping businesses overcome the unprecedented economic challenges posed by the coronavirus.”
The new tariff was developed to ensure that UK businesses benefit from a lower tax regime compared to the existing EU Common External Tariff (EU CET). It also does away with complexities in EU CET by removing tariff variations, rounding tariffs down to standardised percentages, and eliminating tariffs below 2%.
In theory, the UKGT reduces and simplifies tariffs on thousands of goods entering the UK and removes tariffs entirely on certain raw goods and other products deemed beneficial to UK businesses. Nevertheless, the new tariff regime not only raises the cost of certain goods for UK importers but also increases the administrative costs of complying with new rules and classification codes.
Ongoing trade compliance and supply chain concerns
Taken as a whole, the EU is the UK’s largest trading partner, accounting for 43% of all UK exports and 51% of all UK imports in 2019. Consequently, companies with EU-centric supply chains may need to find alternative suppliers or establish new trade routes through different countries. Companies on either side of the English Channel that wish to continue doing business together (or have no other choice) will have to navigate a veritable minefield of ever-changing regulations and logistical challenges.
None of these concerns are new. Ever since Brexit was approved in 2016, it has been the source of an alarming amount of uncertainty, particularly in the business community. Afraid of the consequences, many multinationals – including the likes of Panasonic, Sony, Honda, Dyson, Barclays and HSBC – have already moved their European headquarters out of the UK or taken measures to limit their risk exposure.
To summarise, the impact of Brexit on global trade over the next one to three years is likely to result in:
- Higher prices for many goods and services
- Increased import/export costs
- Higher taxes (cross-border trade, transfer pricing, direct/indirect taxes)
- Border and customs disputes
- Supply chain shortages and disruptions
- Shipping delays or stoppages
- Business resource allocation issues
- Continuous business challenges of all kinds.
It’s worth working out how your business would be impacted, as getting it wrong could potentially result in delays and possibly even fines.
Meeting the Brexit challenge
In fact, there is really only one way for trade compliance professionals to track and manage all the variables involved in the post-Brexit global trade landscape, and that’s through automated software solutions specifically designed and programmed to do most of the data-intensive heavy lifting.
This kind of technological assistance is key because it allows companies to take a proactive, forward-looking approach to trade compliance and supply chain management. Without the proper technological tools, companies can get caught in a reactive spiral that leaves them perpetually unprepared.
Companies that use Thomson Reuters ONESOURCE Global Trade software can:
- Track the origin of goods through multiple channels
- Stay up to date on tariff rates, sanctions, controls, and rules for 210 countries
- Run “what-if” scenarios to identify risks and quantify savings
- Accelerate import/export processes
- Automate customs declarations and other routine tasks
- Track and monitor supply chains in real time
- Calculate trade compliance costs and risks
- Maintain a dashboard of key performance indicators
- Make more informed decisions overall
For companies caught in the crossfire of Brexit, the best defence is comprehensive global trade management software that can take the guesswork out of compliance and give managers the tools they need to plan for the future.
For those who are less familiar with the IT industry, we take Murphy’s Law seriously – “anything that can go wrong will go wrong.” IT professionals require regular backups to be performed, data access links to be redundant, and different communication methods, data, and servers to be replicated in different locations and sometimes different countries. This approach protects software users and, by extension, the IT owners who scramble to fix problems when redundancy is not in place.
Similarly, we should have redundant suppliers in supply and logistics chains. This could mean engaging factories in different countries that make some of the same parts, components or finished products. Alternatively, a company could set up factories in locations that depend on different means of transport, thus mitigating possible obstacles created by problems including strikes, pandemics and revolutions.
Another surprising factor in this crisis is the lack of pre-conceived action plans – not only from companies relying on a single supply chain but also from governments lacking scenario analyses that examine the causes and effects of a major disruption to production and transport. Governments around the world have responded at times in an uncoordinated matter, generally unable to present Plan B – perhaps because Plan A wasn’t really a plan of action.
Even in the best of times, managing a modern supply chain without the right technological tools is next to impossible. The complexities will multiply exponentially as companies are forced to adapt. Furthermore, over the next few years, the UK will continue to negotiate new trade deals all over the world, any one of which could have a dramatic impact on industries and companies trading with and within the UK.
According to Kunio Mikuriya, Secretary General of the World Customs Organization: “Customs’ mandate is to ensure that goods flowing across borders comply with a wide range of regulatory requirements and multilateral trading rules. To fulfil that mandate efficiently, Customs make use of technology in implementing effective controls and in facilitating, enhancing, and accelerating processes for the benefit of governments, traders, and citizens. It is essential for Customs to leverage technology; however, we should bear in mind that technology is only an enabler and that Customs administrations also need to transform their processes. With technological advancements, we are closer to our ultimate objective of creating an environment where government agencies and the private sector operate effectively and share high-quality, reliable data across borders and jurisdictions, thus speeding up and improving processing times.”
Problems arising from Brexit and other trade disruptions can’t be ignored, but they can be managed – with the right technological solutions.
Contact us at firstname.lastname@example.org to learn more or request a free trial.
About the author
Based in London, Selin Yavuz is a Senior Proposition Manager at Thomson Reuters. She is responsible for developing the proposition strategy of Thomson Reuters ONESOURCE Global Trade products. Selin has achieved success with well-established companies such as Barilla and Cargill and has more than 15 years of experience in global trade.