December 30, 2020
New Chapter Begins as British Lawmakers Approve Post-Brexit Deal—Here’s What to Know
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Christmas Eve marked the end of the negotiation period between the EU and the UK. Just when most were convinced that a no-deal Brexit was in the cards, an agreement was reached and signed today: the EU-UK Trade and Cooperation Agreement (TCA). For importers and exporters from both sides, understanding the new system surrounding tariff-free access and rules of origin is vital.
What Changes Should Importers Expect?
The UK has left the EU’s Single Market and Customs Union. One of the key implications is that the UK will no longer benefit from the right of free movement of goods, which has provided British manufacturers and wholesalers with unlimited market access rights across the EU. Below are two critical constant themes that remain the same even with the new FTA:
- Lodging a Customs Declaration: The new agreement will not replace the EU’s Single Market and Customs Union. So, importers shipping into the EU from the UK, or vice versa, will need to lodge an import or export declaration. Those importing into the UK may also use an Entry in Declarant’s Record (EIDR) granted by HMRC, which helps simplify the declaration of goods.
- Checks at the Borders: The UK will no longer benefit from the free movement of cargo. Importers from both sides should expect delays and long waiting times due to increased numbers of new checks at borders.
Claiming Tariff-Free Access: Proof of Origin
Importers bringing goods into the UK from the EU, or vice versa, will need to prove that goods comply with the rules of origin to qualify for preferential tariffs set under the draft EU-UK Trade and Cooperation Agreement. Preparing the required documents beforehand will save money and time.
In many cases, generating and maintaining documentary proof of origin may be more costly than just opting to pay duty. That becomes especially true for products that already have a low or zero duty rate; in that case, it’s worth considering not issuing or using proof of origin.
- Suppliers’ Declarations: Importers and exporters may be asked for documentation that proves the origin of goods for preferential rates. This declaration can be provided at any time, even after goods are delivered. In essence, this declaration would help prove that goods meet the rules of origin laid down in the new deal. A detailed explanation with specific requirements for this declaration can be found here.
- Importer’s Knowledge: EU/UK importers may claim preference based on their knowledge that the goods meet the origin requirements laid out in the EU-UK TCA. It’s crucial that the importer holds evidence proving that the knowledge is correct and accurate—Customs brokers will request written confirmation with each shipment. To see which documents local customs authorities might request, check this resource. Note: Some of these documents may contain commercially sensitive information which suppliers may not want to disclose—to avoid risking duties being applied retrospectively on prior imports.
- Statement on Origin: Statement on origin is completed by the exporter on the originating status of goods. It can be provided on an invoice or any other commercial document—excluding Bill of Lading. When exporting from the EU to the UK, a statement on origin may be issued by any exporter where the value of the consignment is 6000 EUR or less. If the value is higher, EU exporters must hold the registered exporter status and include their Registered Exporter (REX) number and a statement on origin. If exporting from the UK to the EU, the Economic Operators Registration and Identification (EORI) number must always be included in any statement issued to EU customers, regardless of the value.
Limitations of the Tariff- and Quota-Free Market Access
The agreement struck between the EU and UK is being celebrated as one of the most ambitious Free Trade Agreements (FTAs) ever negotiated. Importers will be able to take advantage of duty-free rates when importing products that qualify—and, there will be no limit to the quantity of qualifying duty-free products—providing the rules of origin are met. However, the zero tariffs and zero quotas provision comes with two strict requirements.
(1) HS Classification Dependent on Rules of Origin: Why is this important? The draft FTA provides criteria to determine if products qualify for 0% tariffs. Such criteria may include:
- Change of Tariff Heading - In some cases this relates to manufacturing and processing of goods—and whether the manufacturing results in the need to change the tariff heading of the raw materials or components once it becomes the final product.
- Maximum of Non-Originating Content (NOM) Rule - This rule requires companies to look at the costed bill of materials (BOM) that make up a product to check the corresponding originating status of each individual BOM component. In essence, this rule helps denote the exact percentage of raw materials or components that can be ‘non-originating’ to still obtain tariff preference for the final product under the new FTA.
(2) Insufficient Production and Other General Rules: Rules on minimal processing or insufficient production are perhaps one of the most important aspects of any FTA. Remember: A product is not considered as originating in a contracting party if the production of the item consists of simple packaging, labeling or filling operations; painting or polishing; or preserving operations, such as drying or freezing (and other such minimal processes detailed in the Agreement), even if the above product-specific rules of origin are met.
To learn more about how Flexport can offer guidance surrounding the new EU-UK Trade and Cooperation Agreement, contact a customs and trade advisory expert.