What Swiss Companies Have to Take into Account Regarding Customs and Export Control?

Brexit, Swiss Companies, Customs and Export Control

I. Introduction to Brexit

At present, relations between Switzerland and the United Kingdom are largely based on the bilateral agreements with the European Union (EU), which will no longer apply to the United Kingdom following its exit from the EU (possibly after a transitional period). In its relationship with the United Kingdom, Switzerland intends to safeguard and, if necessary, extend existing mutual rights and obligations following the United Kingdom's withdrawal from the EU.

The exit agreement negotiated between the United Kingdom and the EU provides for a transitional period that would last from March 29, 2019 to at least December 31, 2020 ("deal scenario"). During this transitional period, the United Kingdom would remain part of the European internal market and customs union. The provisions of the bilateral agreements between Switzerland and the EU would therefore continue to apply to relations between Switzerland and the United Kingdom, i.e. nothing would change compared to the current situation.

Since it remains uncertain whether the negotiated withdrawal agreement between the United Kingdom and the EU will be ratified, it is possible that the transition phase will not come into effect and the United Kingdom will leave the EU in a "disorderly" manner ("no-deal"; "hard Brexit"). Switzerland signed a trade agreement with the United Kingdom on February 11, 2019. This text lays the foundations for future economic and trade relations between the two countries, both in the event of the United Kingdom's disorderly withdrawal from the EU (“no deal”) and in the event of the United Kingdom's orderly withdrawal from the EU ("Deal") at the end of the transition period.

II. Current Status

The relationship between Switzerland and the United Kingdom will change after a hard Brexit. The United Kingdom was originally due to leave the EU on March 29, 2019. The EU offered the UK to postpone Brexit until May 22, 2019 provided that the House of Commons agrees to the withdrawal agreement. Otherwise, the extension would only be applied until April 12, 2019.

Should the United Kingdom leave the EU in a disorderly manner ("no deal"; "hard Brexit"), the bilateral trade agreement between Switzerland and the United Kingdom will be applied provisionally as of the date of the exit.

III. Impact on Customs Duties

For economic players, the most important agreements are the Free Trade Agreement between Switzerland and the EU, the Agreement on Customs Facilitation and Customs Security (CFCS), and the Convention on a Common Transit Procedure (CCTP).

Free Trade Agreement between Switzerland and the EU (SR 0.632.401.3):

If no agreement is reached between the United Kingdom and the EU ("no-deal"), the Free Trade Agreement between Switzerland and the EU will no longer apply to the United Kingdom as of the date of withdrawal. The trade agreement signed by Switzerland and the United Kingdom provides for the bilateral continuation of the mutual rights and obligations laid down in the Free Trade Agreement between Switzerland and the EU as of the date of exit. The provisions of the Free Trade Agreement between Switzerland and the EU (including Protocol No. 2 on Trade in Processed Agricultural Products) will therefore be incorporated into a bilateral agreement between Switzerland and the United Kingdom.

Preferential Approaches for Imports: As of the date of withdrawal, the preferential approaches within the Swiss-United Kingdom Trade Agreement, which, with a few exceptions, correspond to those of the Swiss-EU Free Trade Agreement and the Swiss-EU Agricultural Agreement, are adjusted to the date of application in the Tares electronic customs tariff.

Rules of Origin: In general, the rules of origin of the Regional Convention on Pan-European-Mediterranean Preferential Rules of Origin (PEM Convention; SR 0.946.31) are adopted. The scope shall cover products falling within Chapters 1 to 97 of the Customs Tariff.

However, due to the fact that the EU and the other parties to the PEM Convention would be considered third countries in a "no-deal" scenario with regards to the relationship between Switzerland and the United Kingdom, additional changes would result.

Cumulation: For raw materials originating in the EU, Swiss firms may cumulate EU origin for exports to the UK or UK firms for exports to Switzerland, provided that a Free Trade Agreement or an Agreement on Mutual Administrative Assistance in the area of customs matters exists between the UK and the EU. This regulation shall be applied during a transitional period of three years. It must be assumed that, in the case of a "no-deal", at least temporarily corresponding agreements will not exist and that, consequently, raw materials originating in the EU can, at least temporarily, not be cumulated. In order to cumulate exports to the United Kingdom or Switzerland with primary materials from other Contracting Parties to the PEM Convention, a free trade agreement must exist between Switzerland or the United Kingdom and the respective contracting parties. However, for exports to the EU and to the other parties to the PEM Convention, cumulation with originating materials from the United Kingdom will only be possible if all parties involved have free trade agreements providing for identical rules of origin with corresponding possibilities of cumulation.

Direct Shipment: In contrast to the direct shipment rule of the PEM Convention, shipments can be split in a third country (e.g. in the EU). Swiss companies that store originating goods in distribution centres in the EU or in another third country must ensure that these originating goods are stored duty unpaid if they are later to be transported to the UK.

Transitional provisions: The date of import (in Switzerland this is the date on which the customs debt is incurred) determines which agreement provides the basis for the provision of preference. For goods that leave the exporting country before the departure date (the Free Trade Agreement between Switzerland and the EU also applies to the United Kingdom), but are only imported after the departure date, the trade agreement between Switzerland and the United Kingdom is subject to the Trade Agreement between Switzerland and the United Kingdom.

Agreement on Customs Facilitation and Security (ACFS, SR 0.631.242.05)

Should no agreement be reached between the United Kingdom and the EU, the following concrete changes would result for Swiss companies:

  • As long as the United Kingdom and the EU do not conclude an agreement analogous to ACFS, the United Kingdom would leave the common security area between Switzerland, Norway and the EU and would be considered a third country.
  • Like shipments to other third countries, transports by land and by air from Switzerland to the United Kingdom would have to be declared in advance to the Federal Customs Administration (FCA) before crossing the border, in compliance with the provisions of the ACFS. Any security checks would take place before the goods are brought into Switzerland (advance notification of security e-dec export and advance notification of security export and transit in NCTS).
  • For transports by land from the United Kingdom to Switzerland, the EU would, same as for shipments from other third countries into the EU, require notification of entry in advance and carry out any security checks prior to the entry. Since the goods are then already in the common security area, no further customs security measures would have to be taken when they are imported into Switzerland.
  • Transports by air from the United Kingdom to Switzerland, would, same as shipments from other third countries, have to be declared in advance to the FCA before crossing the border and be in accordance with the provisions of the ACFS. Any security checks would take place after the arrival of the goods in Switzerland. In any case, further security checks would not be necessary if these goods were subsequently forwarded from an airport in Switzerland to the EU.
  • Whether the United Kingdom would also apply customs security measures to the import and export of goods remains to be seen. If this were the case, shipments would also have to be declared in advance in the United Kingdom prior to crossing the border.

Convention on a Common Transit Procedure (CCTP)

The United Kingdom of Great Britain and Northern Ireland (UK) accedes to the Convention on a Common Transit Procedure (CCTP) as an independent contracting party. The accession takes effect as soon as the United Kingdom leaves the European Union (EU). Thus, the shipment procedures may likewise be continued with the United Kingdom after Brexit.

It should be considered, however, that with regard to the overall guarantees, the guarantors formally warrant that the existing guarantees are also valid for the United Kingdom as a contracting party and that a correct transit office for the United Kingdom is indicated in order to avoid delays / problems at border crossings with the United Kingdom.

IV. Effects on Export Monitoring

The United Kingdom's withdrawal from the EU has also brought about changes in the area of export-monitoring. In contrast to many other areas, however, necessary legal preparatory measures were taken as a precautionary measure in the area of export control.

A. Relationship United Kingdom - EU

The United Kingdom will implement the European Dual-Use Regulation into national law at the time of Brexit. The foundation for this is laid within the European Union (Withdrawal) Act 2018. After Brexit, the United Kingdom will be able to perform adjustments to national legislation with regard to the "Trade etc. in Dual-Use Items Firearms and Torture etc. Goods (Amendment) (EU Exit) Regulations 2019”. There likely will be a drift away from the EU regime in the medium term. Already in the "Sanctions and Anti-Money Laundering Act 2018", a new national element deviating from the international and EU standard has been included in United Kingdom law, namely the listing of persons or organisations by a description (“designation by description”).

In preparation for a "no-deal" scenario, the United Kingdom published a new Open General Export License" (OGEL) on February 1, 2019 (https://bit.ly/2NFWN7j), which allows the export of dual-use goods from the United Kingdom to the EU without a costly license application. Prerequisite is a registration in the license system SPIRE with the corresponding documentation for transaction auditing. The new OGEL would come into force at 11pm on the day of departure.

The EU, on the other hand, has already submitted a proposal for the adaptation of Council Regulation 428/2009. Accordingly, in a "no-deal" scenario, the United Kingdom is included in the EU001, the list of "safe" third countries to which exports of most dual-use goods with only low compliance requirements are possible.

B. Relationship United Kingdom-Switzerland

For Swiss exporters, the withdrawal of the United Kingdom from the EU leads to few changes within the area of export monitoring. The export of dual-use goods to the United Kingdom has always required a licence. The United Kingdom is already explicitly listed in Annex 7 of the Goods Control Regulation and is therefore one of the countries covered by a general export licence under Article 12(1). Adjustments for exports from Switzerland to the United Kingdom after a Brexit are therefore not necessary within this scope. Furthermore, in regard to transactions to which individual license-requests apply, practically nothing changes.

The United Kingdom, on the other hand, initially incorporates the EU export monitoring regime into national law. Switzerland is currently listed on the safe countries list of the EU 001 general export licences and can therefore continue to benefit from a simplified export with low compliance requirements, probably as UK001. Here, too, the Brexit may result in only marginal changes to the designation and the corresponding declaration and documentation.

C. Operational Effects on Export Monitoring

Although the necessary regulatory adjustments in the area of export monitoring have already been planned, in practice there will probably be delays, especially in the registration and authorisation of exports from the United Kingdom, as the authorities will have to process a large number of new registrations and licence applications. Operational delays are also expected in the declaration and clearance of dual-use consignments at UK customs for both import and export.

V. Effects on Trading Relations

The various legal uncertainties that arise from a "no-deal", in particular from a customs perspective, also affect trade relations between trading partners in the respective countries.

Not only due to a lack of legal foundations, but also due to a lack of infrastructure, the administrative burden, costs and delays associated with imports into the United Kingdom in particular are likely to increase. From the point of view of a Swiss trading company, the risks of importing the goods into the United Kingdom or exporting the goods from the United Kingdom should, as far as possible, be transferred to the trading partner domiciled in the United Kingdom. For export to the United Kingdom, for example, it is advisable to agree to the application of Incoterms FCA and for import from the United Kingdom, Incoterms CPT.

Commercial contracts, supply contracts and distribution contracts shall be adapted to the new circumstances caused by Brexit. This applies in particular regarding delivery times and Service Level Agreements (SLAs), but also with regard to the responsibilities of the parties. The Brexit should not in itself qualify, at least under English law, as an event giving either party the right to terminate a contract ("frustrating event"). The English High Court, in its decision of February 20, 2019 regarding a property lease agreement, held that the Brexit was not an adequate event to terminate the lease extraordinarily (Canary Wharf (BP4) T1 Ltd & Ors v European Medicines Agency [2019] EWHC 335 (Ch)). Of course, this decision cannot be applied 1:1 to all contractual relationships and also not to Swiss law. Ultimately, the content and circumstances of each individual contract are decisive (definition of "important reason", definition of "force majeure", effect of Brexit on the services to be provided under a contract, etc.). Irrespective of the possibility of terminating contracts, contracts may be adjusted bilaterally. In practice, this approach is the most important, especially since both contracting parties are likely to be affected by Brexit in some form or another on a regular basis.

April 2019 | Authors: Raphael Brunner, Karl Fässler, Peter Henschel

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