What the Brexit Deal Means for the Diamond Trade
The UK's departure from the European Union has altered the way British diamond businesses trade with important centers such as Antwerp, as well as with markets around the world. The impact stretches from new Kimberley Process procedures to updated rules on value-added tax (VAT).
These changes went into effect when the UK left the EU customs union and single market on December 31, 2020. The UK seceded from the EU some 11 months earlier, on January 31, in a process known as Brexit, and reached a trade deal with the bloc a matter of days before the end of that transition period. The agreement governs how the two parties will trade with each other following the breakup.
Two experts — one from a fashion policy group, the other from the London Diamond Bourse (LDB) — clarify which parts of the deal should make the industry happy, and what’s created cause for concern.
The UK joined the Kimberley Process (KP) as an independent participant on January 1, 2021, having previously been a member through its status as an EU country. As a result, all rough-diamond exports from the UK to the EU will need KP certification from the UK’s diamond office. This was possible thanks to an agreement the parties reached in November 2019, without which the UK would have been unable to export rough.
Still, “it will be much more difficult bringing rough into the EU than before,” noted Alan Cohen, president of the LDB. “UK dealers in rough would have to go through the same procedure as any non-EU dealer,” adding time to the process, he explained.
This is especially relevant given the importance of Antwerp for the diamond industry, as well as its proximity to the UK.
The EU agreed to allow “zero-tariff, zero-quota” trading with the UK — a decision that received a strong welcome from British exporters and importers.
The country’s diamond sector will now trade with the Continent in the same way that it deals with non-EU countries such as the US, Israel and India, Cohen pointed out. The UK does not currently charge import duty on diamonds arriving from overseas, though many other countries do, he added.
However, confusion has arisen among retailers because of a clause stating that only goods that “originate” in the EU or the UK qualify for the tariff-free treatment. If the UK company imported material from elsewhere and re-exported a final product, it is unclear precisely how much processing needs to have taken place on British soil for the beneficial terms to kick in. This has not been resolved, with more than 100 UK retail executives holding a call with government officials last week to discuss the issue, the Financial Times reported Thursday.
Cohen expects this won’t affect diamonds, as they already have a zero-tariff rate in the both the UK and the EU.
One thing for sure is that the extra time spent calculating rates and filling out paperwork will cost businesses money.
The UK government has withdrawn its concession allowing tax-free shopping for non-EU visitors, effective January 1, 2021. This is a major sticking point for luxury retailers.
“The withdrawal of the VAT Retail Export Scheme remains a key concern for the [fashion] sector, [which] sincerely believes that the decision will undermine the industry’s attractiveness to an international audience,” said Heather Lafferty, policy researcher at Fashion Roundtable, a think tank for the fashion industry.
Since the UK announced the move in September 2020, France has lowered its threshold for international shoppers to be able to claim back VAT, while Ireland extended its own scheme to cover the UK, “making the UK the least competitive market in Europe for internationally shoppers,” Lafferty argued.
On the plus side, a new rule went into effect on January 1 allowing UK businesses importing goods from anywhere in the world to account for the VAT on their quarterly VAT return, instead of paying it at the point of entry and reclaiming it later, according to Sage Group, a provider of accounting technology. This helps companies’ cash flows, as the payment counts as an input and an output on the same VAT return. This program, known as postponed VAT, will help companies that import diamonds, Cohen commented.