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16-02-2019

Brexit deadline looms for Asia-bound ships as slow boats to China set sail from the UK

Dozens of cargo ships will set sail on Friday from the United Kingdom on journeys that will see them enter Asian ports after the United Kingdom has left the European Union.

The status of these container ships is causing headaches among officials at the British Consulate General in Hong Kong, the South China Morning Post understands, ahead of the planned Brexit on March 29, with some journeys lasting as long as 48 days.

The officials are concerned that ships could be “stranded at sea” in the case of a no deal Brexit, while legal experts have said that if the UK exits the EU without a deal, some of the cargo could be stuck in customs purgatory.

“Because the UK currently takes advantage of EU relationships, I suspect that in practical terms, customs declarations are being filled in by the handlers before the goods leave the UK,” said David Hansom, a partner at Clyde & Co in London, who leads the law firm’s Brexit advisory.

But these customs documents could become void en route, should the legal status of the goods change post-Brexit.

“That’s the risk. I think there’s a possibility of a need for re-declaration during the voyage, because in a no-deal scenario, there are no rules,” Hansom added.

The situation has sparked frustration as Brexit negotiations have gone on for almost two years, but these ships are setting sail under a cloud of uncertainty.

Many leading Brexit campaigners have championed “WTO terms”, that is, leaving the EU without a trade deal and trading on the tariffs and subsidies set by the World Trade Organisation’s (WTO) 164 members.

This is not close to being agreed, however, given that all WTO members must unanimously agree to the UK trading on official WTO terms.

It is thought that there are a number of objectors, including Argentina, which is reportedly using no-deal Brexit to bolster efforts to reclaim control of the Falkland Islands in the South Atlantic Ocean, which has been under British rule since 1833 apart from a brief Argentinian occupation in 1982.

“There is a large air of uncertainty, unfortunately. It’s unprecedented, we haven’t had a situation in recent memory where such a large country would leave a trade organisation,” said Christopher Chan, head of shipping, offshore and logistics for Hong Kong at Holman Fenwick Willan.

There is hope that in most cases, business will continue as usual.

The British Chamber of Commerce in Hong Kong points out that as a free-port, very few goods arriving in Hong Kong are subject to duty, regardless of their country of origin, with notable exceptions such as alcohol and tobacco.

“As a general rule, Hong Kong pursues a free trade policy and does not generally maintain barriers to trade. That said, there are some licensing requirements for the import and export of goods, but we understand that these are only relevant to meet public health, safety or internal security needs. Again though, these should be unaffected by Brexit,” said James Lindop, a partner at law firm Eversheds Sutherland, which has been offering Brexit advice to British Chamber of Commerce members in Hong Kong.

In the case of Chinese ports, shipping companies have said that because neither the UK nor EU has a trade deal with China, there should be no further disruption to the passage of goods.

“We are continuously analysing the various Brexit scenarios currently in play and any potential impact for cargo shippers. The goods these shippers are currently moving from the UK to Hong Kong, or mainland China, are not subject to any special EU-China trade regime. So we don’t see any particular disruption on these specific trade routes on March 29 for ships which are embarking weeks before this date,” said Giles Broom, a spokesman for MSC Mediterranean Shipping Company.

However, it may not be so smooth elsewhere in the region as there are some nations that have free trade agreements with the EU that the UK does not and it will therefore lose access to these terms post-March 29.

The EU-Japan Economic Partnership Agreement came into force at the start of February, the European Union has had a free-trade agreement with South Korea since 2016, while a deal with Singapore is set to enter force imminently.

An American President Lines ship will sail from London Gateway Port on Saturday, to arrive in Nagoya, Japan on April 3.

A CMA-CGM ship, meanwhile, will set off from London Gateway Port on Saturday to arrive in Kobe, Japan on April 4, while on the same day, an Orient Overseas Container Line (OOCL) ship will leave Teesport to dock in Yokohama on April 2.

In the situation where a tariff is due to be paid, it will be the owner of the goods who must pay, rather than the shipping company, said an official with one shipping company, who did not wish to be named.

“It has the potential to get messy, but we’ve never turned a ship around and I don’t expect us to start now,” they said. “Right now nothing on Brexit is fixed. It is absolutely not clear for anyone what will happen and when.”

A spokesman for Maersk, the world’s biggest shipping company, said: “We are currently preparing for many scenarios and our main objective is to protect our customers’ business and supply chains.”

Stephen Ng, director of trades at OOCL, said: “Without any clarity on the trade and custom policy arrangements from the result of Brexit, OOCL has been continuously reviewing all possible direct and indirect impact to our operations based upon various outcome and scenarios so that we can better prepare for the necessary adjustments.”

Others compared the potential for disruption to the situation that arose as a result of the US-China trade war, when ships loaded with goods that were slapped with tariffs had to change course mid-journey.

“We had a situation where there was a lot of ships with cargoes of soybeans circling outside Chinese waters before going to China, pending an agreement,” said Holman Fenwick Willan partner Chan.

“It’s something that nobody is aware of because no-one has looked into it”.
Source: South China Morning Post

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