What Does Article 50 Mean for International Trade?

Guest post by Gemma Davies

On Tuesday the 28th of March, 2017, British Prime Minister Theresa May signed article 50 of the Lisbon Treaty, triggering the UK’s formal exit from the European Union after Britain’s landmark vote to leave the EU.

The get out clause, penned in 2009 to give member states the opportunity to exit the union if they wished, is a mere five paragraphs long yet could fundamentally alter the UK’s access to the single market.

On its signing, Brussels officials informed the government they would have to exit by the 29th of March 2019, regardless of whether trade deals had been reached.

The rather acrimonious parting, which has been referred to as a ‘divorce’ by the press, affected the value of the pound and has shaken the international business sector.

The Impact for International Shipping

This turbulent state of politics has created uncertainty for international businesses, including the shipping companies that work with them to deliver goods and services all over the world. While the status quo for haulers currently remains unchanged, after the 29th March 2019 when the UK takes back its border control, there is likely to be increased red tape.

After that date, British goods entering EU countries will be subject to import declaration. This means that businesses will have to declare any goods on arrival in the country to customs and pay import tax and import VAT.

One way for individuals or companies to pay these fees is to use a carrier and have them act as a ‘middle man’ and pay these fees as part of their overall charge to the customer. Costs of international shipping might then become more expensive for the British business unless competitive trade deals between the UK and other countries are reached within the next two years.

If Theresa May remains in power, she has stated that Britain will not remain in the single market and so will have to reach its own preferential trade agreements with individual countries and try to get the best deal possible.

Increase in Inspections

Another possibility after exit from the EU is the increased likelihood of physical inspections of goods traveling between countries. This may affect delivery times for the consumer, affect profits for the haulage or shipping company and incur costs ranging from just over £50 to 1.5k, heightening the need for good insurance.

Additional paperwork might also be required. Norway, for example, is not an EU member state but has preferential trade agreements in place to reduce its import and export costs. Turkey too, chose to remain outside the European Union and so it has its own trade agreements on terms that are agreeable to Turkey.

It is Mrs May’s hope that a custom’s union arrangement could be made with the EU in which European countries don’t impose tariffs on each other and there is one standard tariff for countries outside Europe. However, such a deal has not yet been reached and if a deal can’t be reached, then the UK will exit the EU without one. This is not as disastrous as it sounds – it just means the UK would follow World Trade Organization rules, but these have more red tape than the free movement that is currently allowed for goods.

Call for Co-Operation

The UK Chamber of Shipping Chief Executive Guy Platten warned that getting a free trade agreement may be difficult, and he was concerned that the UK may have harsh terms placed on them as a ‘punishment’ for leaving the EU – trading restrictions that would put other countries off leaving the EU themselves.

However, the Road Haulage Association, speaking on behalf of long distance truck drivers, urged for co-operation between the UK, EU authorities and those in international goods transportation to work together and find a way to protect UK borders while allowing free trade.

As the shipping industry adds approximately 12 billion euros every year to the UK economy and provides hundreds of thousands of jobs to UK citizens, it is not reasonable or likely to suggest that UK and EU trade deals would cease. Considering the revenue and employment that the shipping sector has brought, a new way of doing business will simply have to be found to ensure continuing prosperity for all.