Brexit: The Impact on Customs Operations and Export Controls for Swiss Companies

Brexit, Swiss Companies, Customs and Export Control

Introduction

On January 31, 2020, the UK left the EU. However, a country leaving the EU is not a simple business transaction which may be executed on the “closing date”. On October 17, 2019, the UK and the EU therefore entered into the so-called Withdrawal Agreement. This Agreement has the goal to define the process and circumstances of Brexit.

The Withdrawal Agreement entered into force on February 1, 2020, which means that at midnight of January 31, 2020, the UK left the EU. However, from a trade perspective not much changed on February 1, 2020 as the UK and the EU agreed on a transition period until the end of 2020. The transition period ensured the continued application of EU law in and to the UK simply without the UK’s participation in EU institutions and governance structures. The transition period includes that the UK remained in the EU Internal Single Market, kept on being a party to the EU Customs Union and led to the full applicability of the EU sanction regime on UK exports. The Withdrawal Agreement includes a clause permitting the extension of the transition period for up to one or two years. However, such extension would have had to be agreed on between the EU and the UK before July 1, 2020, which did not happen.

 

Current Status

As of January 1, 2021, the UK will therefore be considered as a non-EU country from a trade perspective. The Withdrawal Agreement did not include any bilateral terms to be applied between the parties but simply included an undertaking of both sides to negotiate and conclude bilateral agreements including trade agreement. The UK and the EU are still busy negotiating. The UK is not only in a tight spot with the EU but needs to enter into new trade agreements with all countries which it had up to date covered by trade agreements between the EU and respective countries.

As possibly one of the first countries following the Brexit decision, Switzerland signed a bilateral trade agreement with the UK on February 11, 2019. This trade agreement was approved by Swiss parliament in March 2020 and will come into force with the end of the transition period on January 1, 2021.

 

New Switzerland-UK Trade Agreement

Looking at the existing agreements between Switzerland and the EU as far as relevant for trade, it may be concluded that eight agreements need to be transferred to the Swiss-UK relationship in order to leave as few gaps as possible in the trade area. This was the intent of the Swiss-UK Trade Agreement. It should replicate the bulk of existing economic and trade agreements between Switzerland and the EU.

The Swiss-UK Trade Agreement therefore covers the following existing Agreements:

  • the Free Trade Agreement of 1972,
  • the Agreement on Certain Agricultural and Fishery Products of 1972,
  • the Agreement on Certain Aspects of Government Procurement of 1999,
  • the Agreement on the Generalized System of Preferences of 2000 and
  • the Anti-Fraud Agreement of 2004.

But the UK Swiss Trade Agreement does so far not include matters that require harmonisation or recognition of equivalence of rules with the EU. This are mainly agreements on agricultural and industrial goods where Switzerland implements the EU rules and regulations:

  • the Agreement on Mutual Recognition of Technical Barriers to Trade (MRA) of 1999,
  • the Agreement on Agriculture of 1999,
  • the Agreement on Processed Agricultural Products of 2005 and
  • the Agreement on Customs Facilitation and Security of 2009.

As these four agreements require harmonization or mutual recognition of regulations between the EU and the UK, they cannot be replicated in their entirety with the UK until the relationship between the EU and the UK will have been clarified.

 

Effects for Swiss Companies as of January 1, 2021

Switzerland has a border to the EU, so every exporting Swiss company is familiar with customs hand has respective procedures in place. These will simply have to be adapted to the new situation of the UK being a non-EU country. This is not necessarily the case for EU companies. There might be quite a substantial amount of companies who exclusively traded within the EU single market. They need to implement customs procedures, should they intend to continue to do business with UK partners.

What is to be considered as of January 1, 2021 from a Swiss perspective:

  • Exporting software needs to be adjusted in order to separate the country code GB from the EU and define this country code as non-EU country.
  • The UK will neither be party to the Joint Security Area nor to ICS2, therefore security information on dangerous goods, war material or dual use will need to be reported before import.
  • Export-invoices will have to mention the UK-EORI-number (Export Operators Registration and Identification Number) of the UK importer and – if applicable – the Deferment Account Number (corresponding to the Swiss ZAZ account).
  • There will not be a mutual acceptance of Authorised Economic Operators of Switzerland and the UK as the AEO Agreement between the EU and Switzerland will no longer be applicable - so no AEO procedures are possible for the time being.

What must be considered form a preferential treatment perspective?

  • The preferential origin rules are defined in the UK Swiss Trade Agreement.
  • List rules (processing rules; “Listenregeln”) correspond to the rules defined in Appendix I Annex II of the PEM Convention.
  • No declaration of origin on a customs invoice will be acceptable (AEO)-
  • Cumulation with input material with preferential origin in the UK or Switzerland respectively is possible.
  • EU input material is for the time being not to be included in preferential origin calculations.
  • Goods of EU origin do not entitle to preferential treatment in Swiss EU trade.
  • The rules regarding proof of origin remain unchanged. However, again, EU Origin is not relevant anymore.

As of today, neither the EU nor Switzerland has implemented sanctions on the UK. With regards to Export Controls and Sanctions, nothing changes in view of exports to the UK.

The customs law team of MME Legal | Tax | Compliance is happy to assist you with any questions you may have in connection with Brexit and customs as well as export controls.

December 2020 | Authors: Raphael Brunner, Peter Henschel, Karl Fässler, Christine Gschwend

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