3 Questions for Tien-Heng Lim
Regional Directorate for Customs and Excise in Paris
Tien-Heng Lim is a member of the business advisory team for the Regional Directorate for Customs and Excise in Paris. He reviews for us the impact of Brexit and the health crisis on apparel sector business relationships between France and the United Kingdom.
– How does Brexit impact fashion exports?
Brexit signifies the reinstatement of borders and a return to customs regulations between the United Kingdom and the European Union (EU). The exception is the Northern Ireland province, which benefits from a derogation protocol. For the rest of the British Isles, customs formalities have been in effect since January 2021. However, business’s understanding that the Trade and Cooperation Agreement of 24 December may indicate there are no procedures is completely wrong. To be clear, this Agreement changes nothing about the return to customs regulations; and its terms have no influence on reducing customs duties. This means that delivering merchandise requires an export declaration, just like sending goods to non-EU countries such as the United States or Japan. In concrete terms, that entails additional administrative formalities and increased costs compared to the previous situation. I’m afraid that French businesses don’t have a full enough understanding of customs guidelines and will make mistakes handling the post-Brexit situation.
– Could you give examples of repercussions from poor understanding of these new regulations?
I can mention two very concrete situations. For our businesses, the December Agreement applies only to merchandise with EU preferential origin. This concept is key since it determines the payment of customs duties, which are around 12% for importing apparel to British territory. Being in control of this aspect of customs is imperative to avoid inconveniencing British customers. It’s difficult to define it simply. To illustrate my apparel industry reference, I’ll say that only clothing manufactured in EU territory in accordance with the Agreement’s provisions (ex: weaving and manufacturing) can be exported to the United Kingdom without paying customs duties. However, if clothing is made up outside the EU or in France using fabric not originating from the EU or United Kingdom, customs duties will be applied when importing to Britain. This is a real change from the pre-Brexit situation with the free movement of the same goods between France and the United Kingdom without customs formalities.
The other example concerns after-sales service, which is very important in the apparel sector, especially with the growth of e-commerce. With the return of borders, this means that a customer returning merchandise constitutes an export transaction on British soil and an import transaction on the continent. Returning merchandise must be planned for and organised following a customs procedure called the returned-goods system. Without this procedure, reimporting goods onto French soil will be subject to customs duties and VAT. And that can represent important financial charges.
These two cases show why it’s important for businesses to pay attention to customs matters, especially if the United Kingdom accounts for an important part of their sales. So, for some companies the return of borders will have consequences for their logistics. In dealing with the technical nature of these customs regulations, businesses can get free assistance by contacting our administration’s regional network of advisory teams who are ready to help (www.douane.gouv.fr/les-cellules-conseil-aux-entreprises). All discussions with my colleagues or me are, of course, confidential.
– Will the epidemic also have long-term consequences for these business relationships?
At this point, without any perspective, answering that question is problematic. What’s sure is that overall the apparel sector has suffered greatly from the health crisis. Looking specifically at exports from France to the United Kingdom, apparel saw a significant drop of over 21% between 2019 and 2020.* In the very short term, I think that business will continue to be handicapped by the health crisis and effects of Brexit. But these factors will diminish over time. Having advised several French fashion businesses, I have an optimistic outlook on the sector – even if it’s in transition – especially given the strong development of e-commerce. I think that after this difficult period, fashion business with the United Kingdom will rebound. But that’s just my personal point of view!
*Source: lekiosque.finances.gouv.fr