Brexit Transition Period Ends Later This Year... What Are the Checkpoints for Companies Operating Locally?

[Asia Economy Reporter Hwang Yoon-joo] With the Brexit transition period confirmed to end on December 31, 2020, there are calls to prepare for the shift in trade relations between the United Kingdom and the European Union (EU).

Brexit refers to the UK's withdrawal from the EU, which took place on January 31, 2020, and the transition period lasts until the end of this year. During the transition period, both sides agreed to maintain the current relationship while negotiating future relations on trade agreements, security, diplomacy, and movement.

According to the report titled "Brexit Transition Period with 5 Months Left, Checkpoints for Our Companies?" released on the 27th by the Korea International Trade Association's International Trade and Commerce Research Institute, the UK and EU leaders agreed in a June video conference not to extend the Brexit transition period and to finalize future relations negotiations by December 31, 2020. As a result, from January 1, 2021, the UK will be excluded from the countries covered by the Korea-EU Free Trade Agreement (FTA).

The report stated, "Fortunately, the Korea-UK FTA (officially signed on August 22, 2020) will take effect immediately after the Korea-EU FTA ends, so preferential tariffs at the Korea-EU FTA level will continue to apply to trade between Korea and the UK," but also warned, "As the UK and EU shift to an extraterritorial trade relationship, our companies need to exercise caution."

First, products exported to the UK via the EU or to the EU via the UK violate the direct shipment principle and will not qualify for FTA preferential tariffs. Therefore, even if the same product is exported simultaneously to the EU and the UK, it must be packaged and shipped separately by region. However, under the Korea-UK FTA, the scope of preferential tariff recognition will be temporarily expanded for three years to include exports via the EU, so exports via the EU are expected to be possible in the future according to detailed guidelines.

The report further pointed out, "Since all traded goods between the UK and EU must undergo extraterritorial customs procedures, the volume of extraterritorial customs clearance will surge, which may affect the customs clearance schedule for Korean products," and added, "It is still undecided whether the UK will apply the 28 steel product safeguards included in the EU's trade remedy measures as is, and many changes related to regulations and certifications are expected, so continuous monitoring of guidelines from the EU Commission and the UK government is necessary."

Kim Jung-gyun, senior researcher at the Korea International Trade Association, emphasized, "During the future negotiations between the UK and EU, disagreements over key issues such as fair competition clauses and fishing rights may lead to a 'No deal' scenario with no agreement by the end of the transition period, so companies with production facilities in the EU need to be especially cautious," and added, "Even if negotiations are concluded, locally produced products may not be recognized as EU-origin, so it is important to check the input ratio of non-EU parts, including Korean parts, in advance and consider switching to EU parts if necessary."

This content was produced with the assistance of AI translation services.