In the UK, the shoppers found out that the end of EU free movement in the UK hit their pockets severely. If you were shopping for the end of season sales in France in January 2021 you were quick to find out that shipping costs, import duties and VAT cost you more than perhaps, your purchase.
Currently, UK-EU trade relations are regulated by The EU-UK Trade and Cooperation Agreement.
The fundamentals of free movement of goods in the EU
Free movement of goods is perhaps the most fundamental of EU free movement freedoms:
- free movement of workers,
- right to establishment and free movement of services,
- free movement of capital.
Free movement of goods is the freedom that helped shape the EU and Single market as we understand it today. It took the creative interpretation of the Court of Justice of the European Union to ensure that the free movement of goods materialised.
The basics of the free movement of goods in the European Union
Free movement of goods within the European Union encompasses:
- The customs union – there are no customs, taxes and other levies on goods moving from one EU member state to another;
- Once the goods enter the customs union, they are allowed to travel freely throughout the single customs area, which is EU;
- There are no border checks within the EU that may hinder the free movement goods within the EU;
- The goods are expected to meet certain standards in order to move freely across the EU;
- Additional levies and charges on goods passing through the EU are strictly not allowed as they negate the free movement of goods;
- There can be no quantitative restrictions placed on the goods moving from one EU member state to another;
- No additional requirements may be imposed at the border of EU member states.
Protecting EU goods within the EU and from the overseas
The purpose of the UK, for instance, before it joined the EU was focused on facing international competition and had a very small amount of protectionist measures in place.
The rationale in the EU is to protect the goods originating in the EU from the overseas and within the EU.
To protect the goods originating in the EU from the overseas, a combination of instruments and requirements are introduced, such as:
- Customs duties;
- Excise duties;
- Various certification requirements, especially if the goods are cattle or agricultural produce.
In relation to the goods originating from the EU member states, it is nearly impossible to restrict intra-EU trade as discrimination of similar goods is prohibited. The key definition is similar. Historically, various attempts have been made to restrict intra-EU trade. However, a number of these restrictions have been successfully challenged before the Court of Justice of the European Union.
Brexit – the UK stance
In December 2020, there were hours left before the transitional period was coming to the end, but no agreement laying down the new rules between the UK and the EU were agreed. The negotiations were taking place last minute.
Until the agreement was fleshed out, it was not very clear what the new post-Brexit regime would look like.
The debates were around whether the UK ought to remain in the EU Single market or a customs union. The underlying rationale of the position to deliver Brexit was to enable the UK to enter into its own international agreements as a sovereign nation.
Customs union offers a lot of advantages, such as, no duties and charges to be levied on goods moving from one EU member state to another. However, the underlying element is that if the UK were to remain a part of the EU customs union, it loses its ability and right to set its own external customs tariff in relation to the third countries.
The UK was determined to regain its sovereignty and set its own external customs tariff independent of the EU.
Sadly, this came at the expense of sacrificing the benefits of the customs union that the UK could benefit from if it did forgo its sovereignty in relation to the EU external tariff.
Brexit aftermath – movement of goods between the UK and the EU
The transitional period of free movement of goods between the UK and the EU ended at 11 pm GMT on 31 December 2020.
Goods leaving the UK and entering the EU were met with all the EU measures in place that apply to third countries.
In the UK, the measures were being put in place at 3 stages at the interval of several months.
Here are some of the more important measures.
If you are importing to or exporting from the UK or Northern Ireland, you need to have a valid EORI code issued by the HMRC in the UK. There are two separate codes for the UK and Northern Ireland.
EORI number stands for Economic Operator Registration and Identification number. You need an EORI number even if you are appointing a third party to help you clear the customs.
As you import goods from the EU to the UK, you will need to identify the correct customs code for the goods you are importing.
The UK true to its spirit of free competition and the absence of protectionism chooses to zero rate most of the goods that are imported to the UK. You will need to make sure that you are using the correct customs code upon arrival.
The UK chose to apply a zero VAT rate on goods imported to the UK from the EU. You will need to check for the changes before you import goods to the UK. You are also required to submit a customs declaration.
The implications of losing the EU free movement of goods in the UK
The UK is clearly at a disadvantage of losing its EU free movement of goods. Notwithstanding, long EU membership, the UK became an outsider in an instant.
This brought difficulties to UK businesses who were exporting their goods to the EU. The businesses needed to reassess whether it was worthwhile for their business and to double-check whether the export procedure significantly increased their product costs and cut too deeply into the margins. Some long standing exporters decided it was not worth their while and ceased exporting goods to the EU.
The EU based-businesses appear to benefit from the UK’s choice to zero rate some of its customs tariffs and VAT. However, the newly introduced bureaucratic procedures are cumbersome and it is important to get them right. It is a steep learning curve for everyone involved.
It will be exciting to see how the UK will negotiate the new trade agreements around the globe and how it will increase or decrease its global influence and trade.
Traditionally, it was perceived that the UK lost out significantly by joining the EU as its trading ties were closer to the Commonwealth countries and the UK was penalised for trading more with the Commonwealth countries rather than the EU countries.
If this holds true, then perhaps, the UK has a new chance to conduct its own global trade as a sovereign state and project dominance once again.
Need help in setting up your business operations in the UK, schedule a consultation with me.
Saule Voluckyte, M.A.E.S, LL.B, FAIA
I have been working exclusively with UHNWI in Mayfair, London since January 2008. I built specialist knowledge and expertise required to serve ultra high net worth individuals investing, operating and relocating to the UK or Switzerland.
Within the industry, I am the single adviser who is able to traverse the different areas of expertise and bring a comprehensive approach across: global structuring, UK immigration, international taxation and FOREX to develop their global wealth strategy, while they build, grow and expand their wealth worldwide.
Previous experience as one of the senior advisors for the government, made me a go-to person when delicate and uncomfortable scenarios involving heads of state need to be handled with care and preserve privacy.