Since the Brexit movement succeeded in the UK, there have been rumblings that the UK could find a new trading niche with NAFTA. That long-shot idea seems more of a possibility as the UK struggles to strike a post-Brexit trade deal with the European Union.

Amid concerns that Britain, the world’s fifth largest economy, could be left without a trade bloc when it’s released from the EU in March 2019, the UK’s administration is reportedly taking a serious look at the ramifications of joining NAFTA.

The UK’s Telegraph reported in mid-October that a UK-NAFTA deal could be in the works. Since then, the idea of a trans-Atlantic trade partnership between the UK and North America has earned both praise and criticism. On one hand, a partnership with NAFTA could ease Britain’s transition away from the EU. On the other hand;

A partnership with NAFTA — its own fate uncertain under the Trump administration — could prove a difficult transition for British companies looking to export to Canada, the United States and Mexico.

The UK and NAFTA: An easy transition?

If there’s one great advantage to the UK finding a post-Brexit home with NAFTA, it would be that the UK would be moving from one large trading bloc to another. While NAFTA reigns as the world’s largest trading bloc, in terms of GDP, the EU isn’t far behind.

The combined GDP of NAFTA member countries are more than $22 trillion, while the combined GDP of the EU member countries is just under $21 trillion. That means the UK, which currently sends half of its imports to EU member countries, could find valuable new trading partners on the other side of the Atlantic.

With NAFTA, British officials also could find trade partners who are eager to form ties with the post-Brexit UK.

While British officials have struggled to advance a new trade deal with the EU — some officials say there’s only a 50% chance a deal will be struck with the EU — politicians in North America have expressed a willingness to accept Britain into the fold.

In the United States, President Donald Trump has long said he would be first to strike a trade deal with the UK after the passing of Brexit. Canadian Prime Minister Justin Trudeau has also expressed his desire to form a free trade deal between Canada and the independent UK.

The difficulties with a UK-NAFTA partnership

Signing Britain on to NAFTA might not prove the quick solution to post-Brexit trade for the UK, however. First and foremost, the future of NAFTA itself is largely uncertain.

Trump campaigned on dissolving the 25-year-old trading bloc as part of his “America First” policies. While he seems to have softened his language on NAFTA — expressing a willingness to rework the deal with Canada and Mexico rather than outright canceling the deal — it remains to be seen what the future will bring for the trade deal. That makes relying on NAFTA as the cornerstone of trading future for the UK could prove perilous.

Joining NAFTA also would bring about serious change for UK-based exporters. While the EU had its own set of strict guidelines, companies would have to adapt to NAFTA standards. That would mean using more products and supplies from NAFTA trading partners and knowing how to fight off potential disputes under NAFTA’s governing policies. It remains to be seen how many UK companies would be willing to adapt and how many would relocate to continue to operate under EU rules.

The future of Britain and NAFTA

The rumors about Britain’s potential joining with NAFTA underscore the uncertainty surrounding trade deals in a post-Brexit world.

With a trade deal between the EU and the UK on the ropes, British officials have declined to comment on a potential joining of NAFTA, other than to say they are exploring all possibilities for free-trade deals.

Meanwhile, those with a stake in international trade are still waiting to see how NAFTA could morph under the Trump administration.

The post Could the UK really join NAFTA? appeared first on Trade Ready.

The GATT and WTO

Barriers to trade, including tariffs and quotas, are challenging for international businesses, as they can adversely affect international trade and economic stability as a whole.

Before the end of the Second World War, several government delegates met at the Bretton Woods Conference in the U.S. to, among many goals, establish an International Trade Organization (ITO) in order to promote economic recovery and stabilize world trade after the war ended. But the U.S. Congress refused to approve participation and the attempt to formally establish an ITO subsequently failed.

The attempt to formalize an ITO was not without accomplishment. Its legacy document, the General Agreement on Tariffs and Trade (GATT), was a 1947 document agreed to by all parties, including the United States, which aimed to reduce trade barriers (especially tariffs).

The GATT provided both trade rules and a forum for members to discuss and address trade issues. It also established some basic rules to direct international trade, following several years of gathering members (rounds) for negotiations.

Three major rules were established:

• Tariffs and the Binding Concessions rule: If a WTO member lowers a tariff, it is considered “bound” and the country is prohibited from subsequently raising the tariff. The bound tariff applies to all WTO members.
• The Most-Favoured-Nation rule: The MFN principles prohibit discrimination among like products regardless of their origin and the rules relating to the importation or exportation of goods or payments on the basis of their origin or destination.
• The National Treatment rule: “The requirement, set forth most prominently in GATT Article III, that members treat imported goods no less favourably than domestically-produced like products once the imports have passed customs”. (See Raj Bhala, Dictionary of International Trade Law).

While the GATT made significant progress in the reduction of tariffs, other trade agreements (multi-lateral and bi-lateral) and national protectionism began to emerge as significant barriers to trade. In April of 1994 in Marrakesh, Morocco, more than 100 countries agreed to form a World Trade Organization (WTO) and the WTO came into effect in January, 1995.

According to its website, the WTO is:

• A place where member governments go to try to sort out the trade problems they face with each other
• A set of rules, contracts and agreements binding governments to keep their trade policies within agreed limits
• A harmonious way to settle trade differences through neutral procedures based on an agreed legal foundation The WTO is the only international organization responsible for the rules pertaining to trade between nations for goods, services, intellectual property, dispute settlement, and monitoring members’ trade policies.

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Negative impact of trade barriers: the Great Depression

One of the most disastrous examples of the negative impact of trade barriers are the U.S. protectionist measures (quotas, high tariffs) taken in an attempt to mitigate the effects of the Great Depression.

The hope was to acquire revenue from tariffs and to increase the demand for goods produced domestically.

The response of industrialized nations to the crisis of the depression was to impose barriers on trade imports. This periodically paralysed international trade.

There are however, a number of additional organizations working to make international trade freer:

UNIDROIT

The International Institute for the Unification of Private Law (UNIDROIT) is an independent intergovernmental organization that studies “needs and methods for modernising and harmonising private and, in particular, commercial law as between States and groups of States”. 

UNCITRAL

The United Nations Commission on International Trade Law (UNCITRAL) was established by the UN General Assembly in 1966 to play an active role to overcome the “disparities in national laws governing international trade created obstacles to the flow of trade”.

ICC

The International Chamber of Commerce (ICC) is an organization that has worked to harmonize private international law. This Paris-based industry group is also playing a major role as an arbitration institution.

Although the ICC works in tandem with the UN, it is not a governmental organization. Rather, it is a group made up of specially appointed business executives that form a council. National committees of business industry executives volunteer their time to ensure their nations’ business perspectives are heard. As well to help formulate ICC policies and agendas.

In addition, with regards to instruments that will help promote uniformity and transparency in international trade, the ICC creates and makes recommendations to industries and intergovernmental organizations. For example, by codifying the following, the ICC has been influential in harmonizing international contract terms as well as arbitration practices:

• Incoterms: Universally accepted contract terms governing international transportation
• Uniform Customs and Practice for Documentary Credit (UCP 600): Defines terms and credit rules for documentary credits on demands and guarantees predominately used by banks all over the world

Hague Conference on Private International Law

The Hague Conference on Private International Law is a global intergovernmental organization. They are working towards the harmonization of private international laws states have adopted. This will address individuals and corporations connected to more than one state. Representing all continents, it is a melting pot of different legal traditions that develops and services multilateral legal instruments, which respond to global needs.

European Union

Established in 1993, the European Union (EU) is a political community with 28 member states comprising a single economic market. This reduces the barriers and obstacles when moving goods, services and investments within the community. Through a standardized system of laws and a single currency (Euro), EU citizens can freely live, work, study and do business throughout the EU. As well as enjoy a wide choice of competitively priced goods and services.

OHADA

Established in 1993, the Organization for the Harmonization of Business Law in Africa, known by its French acronym OHADA, is working toward instituting more secure legal and judicial measures. As well as establishing a modern and uniform business law in order to attract investors to African states.

CDIP

The World Intellectual Property Organization (WIPO) is a UN agency whose mandate is to develop an international intellectual property (IP) system to ensure creativity and innovation to foster economic development while safeguarding public interest. In September of 2007 it announced the establishment of the Committee on Development and Intellectual Property (CDIP).

The CDIP was established to “develop a work-program for implementation of recommendations adopted in relation to the WIPO Development Agenda. The CDIP is also mandated to monitor, assess, discuss and report on the implementation of all recommendations”.

International law works to improve global business potential by enabling more open borders, modernized customary exchanges and reduced trade barriers around the world.

For entrepreneurs, this in turn can mean opportunities for market and labour growth and specialization, infrastructure research and development, jobs, and global, economic and social stature.

The post The role of international organizations in international business law appeared first on Trade Ready.

As the dust settles following the UK’s vote to leave the European Union, politicians, financial institutions and businesses alike are trying to figure out how the UK will find a new path to free trade with the rest of Europe.

Experts point out that the UK could find relatively easy access to the European single market through the small European Free Trade Association (EFTA), but even that path to free trade could come with some difficulties.

What is the European Free Trade Association (EFTA)?

The EFTA is a trade organization that was founded in 1960 by 7 countries, including the UK. The association was formed as an alternative to the European Economic Community (EEC), the predecessor to the EU. The UK abandoned the association in 1973 to join the EEC.

Today, the EFTA consists of only four remaining countries: Norway, Switzerland, Iceland and Liechtenstein, all of which enjoy single-market access to EU countries through the bloc. EFTA member countries pay into EU programs, and must follow EU regulations under the terms of the European Economic Area Agreement, which governs the EFTA. However, EFTA countries do not have any vote when it comes to EU programs or policies.

Norway, existing FTAs present roadblocks to Britain

While Brexit supporters have looked at the EFTA as a possible solution to providing Britain with single-market access to Europe, entering the EFTA could pose a significant challenge.

To join the EFTA, the UK would require a vote of approval from the four exiting EFTA countries, and each of the four countries has the power to block British entry with a veto. Norway, the EFTA’s current economic power, has threatened to exercise its veto power. Norwegian officials have said that the UK could upset the economic balance within the trade bloc, as the UK’s economy is larger than the economies of any of the countries within the bloc.

It’s not certain that it would be a good idea to let a big country into this organization. It would shift the balance, which is not necessarily in       Norway’s interests. – Elisabeth Vik Aspaker, Norway’s minister of EU and EEA affairs 

Norway has not shut down the possibility of the UK entering the EFTA entirely, however. While some Norwegian officials have worried about the loss of Norway’s power within the trade bloc if the UK gains entry, other Norwegian officials have speculated that the country and the EFTA would benefit from the economic strength the UK would bring to the group. Norwegian officials are reportedly in talks with Brexit Minister David Davis on the possibility of UK entry into the EFTA.

Another major concern with the UK’s entry into the trade bloc is how that entry would impact other EFTA trade deals. The EFTA has free-trade deals covering 38 countries, including Canada, Mexico, Colombia, Peru, Hong Kong, Korea and Turkey. There is speculation that the addition of the UK to the EFTA would require renegotiation of the bloc’s existing 27 free trade agreements.

Britain’s economy needs single-market access

The UK sends 44 percent of its exported goods and 39 percent of its exported services to EU member countries, making access to the European market a crucial part of its trade economy. That means that in the wake of the Brexit vote, the UK has a lot to lose economically.

Following the vote, the country’s Purchasing Managers’ Index — a measure of manufacturing output and a key economic indicator — suffered its largest one-month drop since 2009, when the global recession was at its worst. A survey by two British human resources firms said one in six British companies were considering relocation to other EU countries as a result of the Brexit.

A report released earlier this month by the Institute for Fiscal Studies (IFS) projected that the UK would lose 4 percent of its GDP by 2030 as a result of leaving the European Single Market.

The IFS report emphasized the importance of membership into the EU’s free market through the EFTA, as membership into the market achieves more than access through a trade deal. With membership, tariffs, licenses and other barriers to trade are removed in a way that trade deals alone can’t accomplish.

Single-market membership could lessen the impact of the Brexit on the British economy. With that in mind, Britain’s new Prime Minister, Theresa May, has pledged to formulate a Brexit plan that allows the UK to remain a part of Europe’s single market.

Other options to access EU aren’t ideal

For the UK, the EFTA provides the quickest route to accessing the EU’s single market. Britain is expected to officially make its appeal to leave the EU early next year. Once they do, the UK and the EU have two years to execute an exit plan, though that deadline could be extended if both groups agree upon an extension.

The only other route the UK could seek to formulate access to the EU is to strike an independent trade deal with the trading bloc, something that would likely take much longer than the two-year Brexit timeframe.

The post Could the EFTA be Britian’s route to access European trade? appeared first on Trade Ready.

Brexit – the term is now familiar to anyone who turns on a news channel or surfs the internet. Britain’s divisive decision to exit the EU has raised a firestorm of speculation and spawned endless articles. So why should you read yet another? There are some things about the results of the Leave/Remain referendum that may surprise you.

1. No-one really knows what’s going to happen now

As the first nation to decide to exit the EU, Britain would also be the first of the trade bloc’s original 28 states to invoke Article 50 of the Lisbon Treaty, the mechanism by which a country could leave the union. UK Prime Minister David Cameron had stated he would be required to notify the European Council and initiate the process of leaving the EU if the country voted Leave. However, he has yet to do so, now stating that the move should be up to his successor, the next PM.

Since the move is unprecedented, speculation is rampant, but the truth is that nobody quite knows what to expect in the aftermath. Brendan McManus, CITP|FIBP, former Trade Officer with UK Trade and Investment, sums it up nicely:

Much remains to be seen regarding how the UK’s separation from the EU will progress, and what the new relationship will look like.  There is too much ambiguity, at this point.

For importers and exporters trading with the UK, the possible outcomes could have serious impacts on their businesses. Two issues of major concern are the future of trade deals with the nation and trade financing.

“The outcome of the Brexit vote has numerous implications, the full extent of which are unclear even to those who championed the “Leave” option, not least in reshaping the dynamics of trade within the EU and with partners of the United Kingdom. The consequences will range from renegotiation of trade deals and regulations to currency volatility, and likely impacts on sovereign credit ratings, at least in the medium term. All of this will directly affect investment flows as well as access to and cost of financing, including trade financing,” says Alexander Malaket, CITP|FIBP, President, OPUS Advisory Services International Inc.

2. The Brexit may never actually happen

You read that right. Many are arguing that the UK referendum is not legally binding in the country’s Parliament. How can this be? Within the final provisions of Article 50 of the Lisbon Treaty it states:

Any member state may decide to withdraw from the Union in accordance with its own constitutional requirements.

Many are interpreting that to mean that in order to invoke Article 50 and begin the Leave process, it first has to be approved via an act of Parliament. The text in the agreement is ambiguous and untested. There is no predetermined way for a member of the EU to decide to leave the trade bloc, the matter is left up to each individual member state. A prominent UK law firm is currently working to make sure Parliament has its say in the matter.

In fact, it’s possible that Britain may never invoke Article 50. Some even argue it would be political suicide for the PM’s successor to do so. The volatile reaction to Brexit – including stock market fluctuation, the devaluation of the GBP, the threatened secession of Scotland and Northern Ireland, and the tough economic times ahead – amounts to a pretty rough go for the country’s next leader.

Another factor making headlines is the need for the EU to make bold moves to discourage other members from making their own exits from the union. This could include taking punitive measures against the UK to make an example of the nation and show the value of remaining within the trade bloc.

3. Could the UK Brexit without invoking Article 50?

Pro-Brexit groups have argued that the UK could use the Leave vote as leverage to renegotiate for more favourable terms with the EU. That would involve Article 48 of the Lisbon Treaty instead of Article 50. Article 48 allows EU treaties to be revised by member states, but it remains unlikely that the other 27 nations would allow this to occur. Members of the European Council would have to agree, by a majority, to consider any amendments proposed.

Another option is that Britain could repeal the 1972 European Communities Act to withdraw from the EU through a sort of loophole. This seems a more feasible alternative to Article 48, but would still ultimately place the UK in a poor position on the world stage.

In the end, it’s possible that Parliament will come to the conclusion that invoking Article 50 and initiating the Leave process would go against national interest.

Setting aside the what-if’s and wild speculation, how will Brexit affect those trading goods and services with the UK?

4. Fear not – trade finance is resilient and adaptable

Though there is concern about what might happen a few years down the road, once Britain has fully separated from the EU and formed new trade deals, many agree trade finance flows won’t be affected in the short (or even medium) term.

The GBP has recently been downgraded by Standard and Poor, which may impact the cost of funds for UK importers, general pricing and corporate risk. However, other nations have faced similar downgrades, most notably the U.S. in 2011, yet trade financing is not difficult to obtain in that market.

“Britain was not part of the Eurozone and maintained its own currency, the Great British Pound, and thus facilitates some of the economic elements of the separation. Companies which plan to continue to trade with the UK will still exchange GBP and their operating currencies during their international trading activities.  A currently lower GBP makes it cheaper to source British goods and services, thus providing a good time for British exports and foreign direct investment into the UK,” states McManus.

“The GBP is a strong currency, and I speculate that once markets settle from initial Brexit news, the GBP will appreciate to its true value.  The UK has well-diversified global trading partners and opportunities. However, specific to Europe, I imagine that the UK wishes to continue to trade with the EU and existing trade partners in its new capacity, and vice versa.  It remains to be seen what degree of trade openness, and which trading models there will be in Europe (from tariffs to retaining free trade),” he continues.

Malaket agrees:

“Ultimately, the UK is an important economy and trading nation, and the business of trade finance is highly resilient, well accustomed to adapting to shocks and times of crisis.”

To the extent that businesses remain interested in pursuing trade opportunities, trade finance and supply chain finance will be available to support those flows, through banks and private sector providers, export credit agencies, and where necessary, international institutions. The net result will be about a recalibration of the market, rather than an absolute shift in the availability of trade financing.

Though so many things are still up in the air in the aftermath of the UK’s decision to exit the European Union, the region will undoubtedly remain a profitable market for importers and exporters everywhere.

The post 4 things that may surprise you about Brexit – and the future of trade finance appeared first on Trade Ready.

The United States stands to benefit in trade from the growth of Asian economies such as Vietnam and Korea, British bank HSBC said in a report in late May.

The report forecasts trade relationships, as well as exports and imports, up to the year 2030.

U.S. trade is expected to benefit strongly from an uptick in growth in China, Vietnam, India, and other countries in Asia. As these countries grow, demand for specific products – which include industrial machinery and transport equipment – are expected to increase.

U.S. exports shift focus to Asia

The bank predicts the U.S. dollar will continue to be strong in the near term.

This hurts the U.S.’ short-term trade balance, as it means that American products will continue to be more expensive.

However, HSBC expects the U.S. dollar to become weaker due to the country’s mounting trade and fiscal deficits, which should make American products more competitive for growing and established economies alike.

The rosy outlook for U.S. exports among developing economies is a shift from the U.S.’ traditional trade focus; previously, U.S. exports targeted developed economies, such as those in the European Union and Japan.

Industrial machinery and transportation equipment is expected to remain the U.S.’ top export, and is slated to form 40% of all American exports by 2030. Petroleum products, scientific devices, chemicals and goods in the information and communication technologies – which includes computers – are also expected to play significant roles in future U.S. exports.

Increasing demand for U.S. products in growing Asian markets

Canada will remain the top destination for U.S. exports, the bank predicts, despite lagging growth due to lower oil prices.

But the largest growing markets for American products will be China, Vietnam, Malaysia and India, with each of these countries’ demands for U.S. products growing by a projected 9% per year.

Korea will also see an increase in demand for U.S. products, as will Mexico and Brazil, as these are among the global economies which are growing most rapidly, HSBC noted.

American exports of electronics are expected to grow by 9% per year between 2015 and 2030, thanks to growing demand for the products worldwide, as well as increased investment in the high-tech sector in the U.S.

However, though U.S. imports of electronics are expected to grow at a slightly lower rate – 8% in that period – the increased size of the imported electronic goods will mean that the U.S. will still have a trade deficit in this sector.

As for U.S. imports, the focus will be on industrial machinery, transportation equipment and information and communications technology-related goods, which are expected to comprise up to 50% of all imported goods until 2030. Accounting for another 15% of total import growth will be petroleum products and clothing.

China and Vietnam expected to be the fastest growing exporters to the U.S.

Radical changes in top exporters to the U.S. are not expected; China and Canada are expected to vie for the top spot until 2030, with China leading Asian economies for U.S. imports.

China and Vietnam are anticipated to be the fastest growing exporters to the U.S., with rates of 9% each year.

India’s exports to the U.S. are expected to grow by 8% each year, while exports from Mexico are anticipated to increase by 7% each year. Within the top five exporters to the U.S., India is expected to overtake Germany for fifth place by 2030.

The U.S. at present is a largely closed economy, the bank acknowledges. But there are several steps that the country can take to be more open to trade.

These include continuing to develop a high-skilled labor force, promote research and development, and continue negotiating new trade agreements, such as the Trans Pacific Partnership and other regional and bilateral trade agreements.

Do you agree with the projected forecasts? Will deals like the TPP come through and improve the U.S. economy?

The post Report predicts major boom in U.S. trade from growing Asian economies appeared first on Trade Ready.

This may spell trouble for ongoing negotiations to secure one of the biggest trade deals in history—the free trade agreement between the European Union and the United States.

How could the TTIP help economic growth?

Global trade and economic growth have still not completely recovered since the 2009 financial crisis. The World Bank predicts that import demand will drop 19 percent below its predicted level for 2015, and that medium-term global trade growth will rise to just five percent, still short of the seven percent per year average from the thirty years before the financial crisis.

The Transatlantic Trade and Investment Partnership (TTIP), however, is forecasted to help start to reverse those trends.

If signed, it is expected to increase the EU’s economy by $152 billion, while the U.S. economy would grow by U.S.$110 billion.

In a global trading system in which high-income countries like the U.S. and EU nations account for 65 percent of total global imports, the deal holds a lot of potential for international trade to make a rebound.

Several issues holding the TTIP back

Nevertheless, in mid-January, EU Trade Commissioner Cecilia Malmstrom called for further study on one of the more contentious aspects of the deal, which may slow down the return to negotiations by as much as six months.

The controversial provision in question concerns the Investor-State Dispute Settlement, which would allow companies investing in foreign countries to sue those countries’ governments should changes in local environmental or health laws impact their profits.

The clause is tremendously unpopular in the EU. Opposition groups in the EU are also unhappy with negotiations they characterize as non-transparent, and believe that it will result in an agreement that will erode governments’ capacity to independently make policy decisions.

Meanwhile, some Americans are concerned that U.S. companies will lose their advantage in bidding for U.S. government contracts (the TTIP, when signed, would require equal opportunity for foreign and domestic firms to compete).

Why is growth through trade so important?

While the fears are based on a desire to protect their own economies or legal practices, statistics prove that trade growth is becoming more dependent on general economic growth, due to a range of elements such as the maturing of global value chains, lowered spending in investment, and an increase in government spending.

For example, global GDP is expected to grow by 3 percent (down from an earlier projection of 3.4 percent) in 2015. The World Trade Organization had similarly cut its own expectations for 2015 global trade growth in September 2014, lowering its estimate from a 5.3 percent growth rate to 4 percent. Trade is therefore expected to grow only 1 percent more than global GDP, compared to original forecasts of 1.9 percent more, nearly double the current figure.

This cut only deepens the dependency of rising trade numbers on economic growth, and further demonstrates the need for new trade agreements to increase global trade growth independent of global GDP growth. Trade growth must be nurtured through deals like the TTIP to ensure it continues to occur independently.

What lies ahead for the TTIP

There are concerns that the slowdown of the EU economy, particularly in Germany and in France, may put the trade talks on hiatus, with EU countries being less willing to open up their economies to additional competition from across the pond at the expense of domestic firms’ profits.

Trade specialists on both sides of the negotiations are trying to close the deal before this becomes a major obstacle to the creation of this massive trading bloc.

The two sides have already gone through seven rounds of negotiations since the process began in early 2013, with the next round of negotiations had been expected to begin at the start of February at EU headquarters in Brussels.

How do you think all this is going to unfold? Will protectionism hamper global trade growth?

The post Will World Bank forecasts for ‘disappointing’ global trade growth stall TTIP negotiations? appeared first on Trade Ready.

Business has gone global. That’s hardly news anymore. But for the first time in history, the world marketplace is open all day, every day, unrestricted by distance, technological barriers or country of origin. But as with any business venture, entering the arena of global trade and investment presents both opportunities and challenges. The solution? … do your homework … be prepared.

Doing business in the EU– four basic questions

This of course applies to many areas of international trade and investment, one of which is becoming familiar with a region’s taxation regulations. A somewhat simple solution that relates to the European Union (EU) can be summarized in four basic questions:

1.  Do you need to set up a branch office or a separate legal entity in Europe when importing/selling there?
   Answer: No, this is not required but at the same time it also could be beneficial.
2. Does importing and distributing in Europe result in a corporate income tax liability in a European country?
   Answer: Again, this is not necessarily the case and we’ll look at this further later on.
3. Can a Canadian company import/customs-clear products into Europe?
   Answer: The simple answer is yes.
4. And finally, will Value Added Tax (VAT) be due/payable when importing into the EU?
   Answer: Not always, but it can in certain situations.

The European Union and trade legislation 

The European Union (EU) has 27 independent Member States. An important part of the EU legislation is in the form of “Directives”, which means that the Member States have to create their own national legislation, for example relating to VAT. Customs and trade legislation (including duty rates and quota regimes) are managed through EU Regulations, which are directly applicable and binding in the Member States. Corporate income tax is mainly regulated by the countries themselves.

Main customs principles in the EU

From a customs duty perspective, it makes no difference whether goods are imported via the Netherlands, Belgium or any other EU country. However, interpreting customs legislation can differ between countries. But after clearing customs in one EU country, you can distribute your goods to other EU locations without any customs interference, which is known as “free circulation within the EU”. So, in general, it is recommended to centralize import and customs compliance, and to seek out expert advice to ensure compliance.

Business Services Value Chains (BSVCs)

Certain countries, such as Belgium and the Netherlands have sophisticated “Business Services Value Chains”. BSVCs aren’t about doing business, but rather about setting up and operating a business. They are aimed at simplifying and facilitating goods imports and taxation. Key components of BSVCs are air, land and seaports, logistics hubs, legal, accounting and employment advisory services, government services and available labour pools.

Approach of the Member States’ customs authorities

Apart from the legislation, the attitude and focus of local customs and other authorities are also key for companies.

As well, all EU Member States apply the same classification legislation and duty rates. However, the interpretation of these rates can sometimes differ. For example, there are high customs duty-rates in the food and fish industry.

A further issue deals with supply chain security and Authorized Economic Operator (AEO) status. Without AEO certification, customs simplifications are not possible.

Basically there are three types of AEOs:

1. customs simplifications;
2. security and safety;
3. and a combination of the two, customs simplifications/security and safety.

EU VAT – VAT at import

In most countries, the VAT at import becomes due when goods are declared for importation at customs. You can reclaim this VAT-at-import payment, but the actual refund can take several months. However, various EU Member States have implemented regimes to avoid the VAT import payment. Avoiding these payments is a very important selling tool to attract international business.

VAT onward distribution and export

After customs clearance, no VAT is due when goods are sold and shipped to another EU Member State or a non-EU destination (the VAT zero rate applies). When a foreign company sells goods to a company within the country of customs clearance, in some countries, no VAT should be charged. There are also no VAT charges when selling to non-EU destinations.

In sum, the onward sale/distribution of goods from the country of customs clearance does not normally have to result in VAT payments.

Conclusions and ideas

When doing business in Europe, tax, trade, customs and VAT are key topics both from a planning and potential risk point of view. It is important to ensure compliance, as non-compliance could result in assessments, fines and criminal sanctions. Finally, to lower the tax, customs duty and VAT burden, careful planning and some (limited) investments are recommended.

Do you think that you will seek out expert advice when it comes to taxation, customs, VAT regulations and practices in the EU? Do you have anything to add to the above?

The post How taxation, customs and VAT regulations in the EU can impact your export business appeared first on Trade Ready.