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UK Pharmaceutical Importers and Exporters - Challenges of a 'No-Deal' Brexit

The benefits of leaving the customs union may not be all they are cracked up to be for pharmaceuticals manufacturers

A popular dispute right now is whether the UK should ‘maintain its EU customs union membership in the long-term’ and the question is hindering the progress towards the country avoiding the default outcome of a clumsy no-deal Brexit.

Extended customs union membership, as expressed through the device of the so-called Irish backstop, is an outstanding feature of the draft withdrawal agreement PM Theresa May settled with the EU Commission in November.

 

The Irish Backstop

The backstop would assure us of a guaranteed continuum of Irelands invisible border; by itself, aiding cross-frontier trade, the countries endeavour of peace, and making it difficult for smugglers across Northern Ireland, all achieved by continuing the same customs regime as the republic.

This mechanism would become effective if the EU and UK had not equally consented to a free trade deal which made it unnecessary by the end of the foreseen transition period following our exit, currently set for December 2020. The backstop could only be eradicated with the consent of both the UK and EU. 

In addition, the withdrawal agreement which was rejected by 230 votes in January points the finger at Conservative and Democratic Unionist Party MP's as disputes regarding the mechanism have possibly applied for many years.

Mrs May, as I consider this in late February, is therefore blatantly in pursuit of discussion regarding a legally-binding time limit or unilateral right for the UK to exit the backstop with the EU, to appease these critics.

This is in defiance of the EU having frequently said that negotiations on the withdrawal agreement won't be re-opened and complying with Mrs May’s requests would mean the device no longer being a backstop.

Furthermore, perseverance when calling for a permanent customs union with the EU is a fundamental factor among Labour’s conditions for supporting an amended version of the withdrawal agreement.

The main objection the opposition cite to a potentially durable backstop is the evidence that the customs union membership rules-out the UK's ability from implementing its own free trade deals with countries outside the EU. Many Brexiteers, including many MPs, see this as an opportunity to run an independent trade policy, which they believe will be a benefit to leaving the bloc.

However, there are numerous reasons for doubting whether this notional advantage will live up to the claims made for it and believing Labour’s position is preferable for UK businesses, including pharmaceutical manufacturing companies.

 

UK to Create Free Trade Agreements?

Free trade agreements with other countries usually take years to figure and ratify; an example would be the EU’s agreement with Canada, which came into provisional effect during 2017 after a seven-year discussion. In contrast, the damage to our trading-welfare which will incur through leaving the customs union of the EU, who to the highest degree, is our largest trading partner accounting for nearly 50 per cent of our exports, would begin with immediate effect.

This truth that trade negotiations between nations are usually a lengthy business was underlined in mid-February. Then, it was revealed the government had secured post-Brexit agreements with only seven of the 69 outside countries with which we currently trade under preferential arrangements applying through our EU membership.

The seven nations among which include the Faroe Islands with a population roughly that of Torquay, but not significant as economic giants such as Japan or South Korea, account for just £16bn of the nearly £117bn of British trade with the 69 states. This is in spite of toilsome efforts by the Department for International Trade to anchor yet greater success during the last three years. 

To further this point, the government’s own analysis has approximated that even a post-Brexit UK of which is inclusive of independent free trade deals with the US, China, India, Australia, the gulf and the ASEAN bloc – a highly optimistic inference – would add merely 0.3 to 0.6 per cent to our national wealth; only partly off-setting the economic damage caused by leaving the EU, which official estimates say will remove between 1.4 and 8.1 per cent from our GDP growth per head, over a 15-year period, depending on what form Brexit takes.     

A counterpoint would be to highlight the alternate weaknesses in the anti-customs union case, some of which include that many people alive have little grasp of negotiating UK free trade agreements, as this has been done on our behalf by the EU since the early 1970s when we joined the EU. Other countries will also be acutely aware that we need these deals promptly, which will barely better our chances of securing favourable terms from them.

It should also be noted that, in contrast to the opinion given by some politicians, membership of the EU or its customs union does not curb states from trading advantageously with other countries. An example would be, Germany’s trade-flows with China now surpass its business with fellow EU heavyweight France.

This difference of Parliamentary opinion is a leading factor as to why pharmaceutical manufacturing organisations have neither certainty or time to plan for post-Brexit Britain; especially so as the pressure mounts with less than 40 days until our official withdrawal date on 29 March.

 

Do you currently have pharmaceutical goods at sea?

There is speculation about the items currently at sea, as well as possible pharmaceutical goods, exporting from the UK to countries such as Japan, Australia, New Zealand, China and South Korea, which will not arrive until after 29 March. Currently, no one knows if those goods can even land, and if they can, what tariffs or regulations will apply at the border.

All alternative forms of Brexit to withdrawal agreement ratification, including the UK re-joining the European Economic Area, remain possible, along with the country even retaining its EU membership, perhaps after a new referendum.

Our customs union membership has most certainly helped to create the greatly efficient arrangements, which allow us, at Tudor, to import items from the EU on a UK pharmaceutical manufacturer’s behalf; the only paper-work we need is a print of the packing list or commercial invoice and the travel documentation.

This being a bill of lading for air freight, a waybill for sea consignments and a CMR note – CMR deriving from its French name – for road haulage. No customs clearance processes or duties apply, and no VAT is payable before items can be moved from receiving ports or airports.

Whether this almost ideal system or a system similar will apply after Brexit, however, remains up for debate.

 

If you have any concerns about transporting your pharmaceutical products by sea freight to the EU, please do not hesitate to contact us: 0113 250 1155 or email sales@tudorfreight.com

 

 

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