'Room for negotiation' with UK as businesses struggle in post-Brexit limbo

The importation of second-hand cars and of pharmaceutical supplies from the UK have been particularly impacted since the Brexit agreement came into force on 1 January, BusinessToday has learned.

Cars imported from the UK now face additional customs charges, with the UK outside the EU’s free trade zone.

Special Commissioner for Economic, Financial and Trade Relations with the United Kingdom Dr Mario Vella said that in the case of pharmaceutical supplies, the main issue has nothing to do with Customs but with the availability of English-language packaging and controls specific to medicines.

He said that all EU member states are reporting delays and other issues, and Malta is no exception. As expected the impact of burdensome paperwork, delays and charges is making itself felt.

“A number of enterprises, especially the smaller ones, who deal with the UK had never dealt with non-EU countries before and therefore have no prior experience of customs procedures,” he said.

“Some problems are unavoidable as customs procedures and controls are now necessary, given that the UK is now a third country.”

This imposes the need to submit declarations and certificates of origin, and these necessarily involve an administrative burden, in terms of paperwork and time.

Additionally, customs in transit countries may impose their own controls, adding further to the delay and bureaucracy.

Vella said that there is an ongoing endeavour to minimise burdens on Maltese traders by streamlining procedures but always within the limits of the UK-EU agreement and EU law.

“It is also clear that some companies can benefit from certain Customs procedures applicable to third countries such as inward processing and AEO certification,” Vella said. “In such cases traders are advised to contact Customs directly for their assistance.”

Malta-UK relations

With the strong historical and economical ties between Malta and UK, many local businesses had expressed hope the two countries would be able to reach ad-hoc arrangements on easing the financial and bureaucratic burden on trade.

But bilateral agreements with the UK can only be reached in areas and sectors  not covered by the EU-UK agreement.

“Bilateral relations with the UK are strong and there is clearly scope for enhancing them. Our historic relationship with the UK provides a powerful foundation to build upon going forward,” Vella said.

“In terms of the provisional application of the EU-UK agreement, arrangements can be made bilaterally in any area that falls within the national competence of member states.”

Financial services

Vella said that it was important to note that not all of the EU-UK agreement had come into force so far.

“The section dealing with financial servies is one such section where discussions between the two parties are still ongoing,” Vella said.

With financial services being of utmost importance to Malta - as to most other EU member states - the outcome of the discussions could be crucial.

“For the moment, it’s as though there was a hard Brexit with regards to financial services, since no agreement has as yet been reached,” Vella said. “Developments need to be followed closely.”

Effects of Brexit

It is too early to be certain of the ultimate effect of Brexit, not least because some transitional arrangements remain in effect.

For example, the UK has chosen not to carry out customs checks on imports from the EU for the first six months of this year, and it is not excluded that this arrangement will be extended.

Furthermore, the Brexit situation is compounded by ongoing issues relating to COVID-19, such as reduced land, sea, and air transportation and the impact of this on the import of fuels. It is hard to disentangle the effects of each.

Vella said that although a significant drop in imports from the UK in the run-up to Brexit on January 31st 2020 had been reported, especially during the transitional period – a €1 billion drop was also quoted – 2020 imports declined only moderately when compared to previous years.

2019 was not a ‘normal’ year because of a unique and anomalous spike in the registration of vessels and aircraft, to the tune of over €900 million.

Other sectors were affected by preparatory stockpiling, motivated by the fear of high tariffs in the wake of expectations of a possible no-deal Brexit.

“Furthermore, Maltese exports to the UK have been declining since before the 2016 referendum,” Vella said.

“We should endeavour to seize all opportunities to reverse this downward trajectory.”