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EU-UK Trade and Cooperation Agreement

Customs considerations

The European Union (“EU”) and the United Kingdom (“UK”) have reached the Trade and Cooperation Agreement, which applies on the provisional basis as of 1 January 2021. Below, we discuss some of the relevant implications of this agreement from the customs perspective, particularly rules of origin.

The Trade and Cooperation Agreement between the EU and the UK (“EU-UK Trade Agreement”,  “Agreement”) provides for full elimination of customs duties, but only for products traded between the EU and the UK that meet the prescribed rules of origin. Products that do not meet these criteria may be subject to import duties, even if these products were in free circulation before they were shipped from the EU to the UK or vice versa. In any case, since the end of the Brexit Transition period means that what previously was a single territory for customs purposes, are now two separate customs territories divided by a border. This means import and export formalities must be performed on both sides of that border.

To somewhat ease the administrative burden on traders, the EU-UK trade Agreement provides  for a cooperation between the EU and the UK in customs matters. Particularly notable is the mutual recognition programme of the Authorized Economic Operator authorization.

With respect to conducting trade of goods under the preferential terms of the EU-UK Agreement, it is hardly possible to overstate the importance of the preferential rules of origin contained in the Agreement. Given the importance of this topic for businesses, below we delve into some of the most important considerations for traders that fall under the scope of this agreement.

1. Consider standard (MFN) customs duty rates applied by the EU and the UK on your products

Most developed trading nations apply relatively low tariffs. It is possible that your products are already subject to 0% standard (MFN) customs duty rate when imported into the EU or the UK. Is this the case? Then, your goods shipped between the EU and the UK may already be imported without the payment of import duties and you will not have to meet the requirements of the preferential rules of origin contained in the EU-UK Trade Agreement. However, you will still be required to perform import and/or export formalities when shipping your goods from the EU to the UK or vice versa.

2. Determine the possible preferential origin of your goods based on the origin rules contained in the EU-UK Trade Agreement

In order to claim  a zero customs duty rate for an EU or UK imported product based on the EU-UK Trade Agreement, it is required to prove that the involved product originates in the EU or the UK from preferential origin perspective. Claiming a preferential duty rate is a commercial decision and it does not need to be made immediately. If your supply chain is currently not yet ready to meet all the requirements of those rules, goods can be imported into the EU or the UK based on non-preferential/standard (MFN) customs duty rate with the possibility of claiming the preferential zero rate under EU-UK Trade Agreement within the three years as of the moment of import.

General step 1:  Consider the types of products you are going to import/export as well as the applicable customs tariff classification codes and check the rules of preferential origin in the EU-UK Trade Agreement. Do you trade in such products as for example fresh fruit, vegetables, live animals, extractable natural resources? Determine whether such products are extracted, harvested or grown in the EU or the UK in order to be considered ‘wholly obtained’ and thus originating for the purposes of EU-UK Trade Agreement.

General step 2: If you trade in manufactured / processed products, you would need to determine whether they have been sufficiently transformed in the EU or the UK. Before looking into the product-specific rules, you need to check whether the type of processing your products undergo is not the type of minimal operations that would be insufficient to confer origin in any event. In the EU-UK Trade Agreement, such minimal operations are listed in Article ORIG.7 (e.g. “simple assembly””). Note that this list applies only to non-originating materials, meaning that if materials already originating from the EU or the UK are used in the production, the processing will generally be considered to go beyond the minimal operations.

General step 3: If the type of processing or manufacturing taking place in the EU or the UK goes beyond the “minimal operations”, the product needs to meet the requirements contained in the “Products Specific Rules of Origin” contained in ANNEX ORIG-2. Those rules stipulate what kind of transformation must happen to the non-originating materials used in the manufacture of the exported product in order for that product to be eligible for the zero customs rate under the EU-UK Trade Agreement. It is important that the specific rules of origin are read together with the introductory notes contained in ANNEX ORIG-1. Furthermore, note that origin quotas and alternatives to certain product-specific rules of origin (ANNEX ORIG-2A), and transitional product-specific rules for electric accumulators and electrified vehicles (ANNEX ORIG-2B) are included.

Depending on the type of the product, several criteria, either alone, in combination, or as alternatives, could be used in the product specific preferential origin rules. Those include:

  • manufacture from the wholly obtained materials;
  • change in tariff classification, which can be at the 2-digid (CC), 4-digit (CTH) or 6-digit (CTSH) level;
  • a specific processing operation; and/or
  • the limit on the value of non-originating materials.

It is important to determine the correct tariff classification code of the product concerned and verify the specific origin rule that applies to it. 

3. Assess the appropriate proof of origin

Once it has been determined that the product in question meets the applicable preferential rule of origin under the EU-UK Trade Agreement, you need to consider how a claim of preferential origin could be made upon its importation into the EU or the UK. The EU-UK Trade Agreement allows traders to claim preferential origin on the basis of statements on origin or the importer’s knowledge. In both cases, the claim of preferential origin needs to be based the information and records supporting the claimed origin. Thus, to be in a position to successfully claim preferential origin, traders are advised to take into account their entire supply chains/manufacturing processes. Consider, for example:

  • Where the materials used in the manufacture of the product in the EU or the UK come from. Your suppliers may need to provide you or your producer with updated supplier’s declarations confirming the origin of those materials;
  • Who in your supply chain has the knowledge of the manufacturing process that the product has undergone and can make a statement on origin;
  • Who, under your contractual obligations, is responsible for clearing goods through customs. This person will generally be responsible for claiming and substantiating the origin of goods.

To make statements on origin upon importation in the UK, EU exporters are generally required to be registered in the REX system. However, for consignments with the value of less than EUR 6,000, the REX-registration is not required. Upon importation into the EU, UK exporters need to need to submit a statement on origin referring to their UK EORI numbers. 

An alternative to a statement on origin is claiming preference on the basis of importer’s knowledge. Since in this case it is the importer that is making a claim of origin using their own knowledge, the exporter does not need to make any official statements on the originating status of the goods.  The exporter or producer may, however, need to provide information supporting the origin of the product to the importer. 

4. Check other relevant provisions

It is important to bear in mind that in case of processing and manufacturing this must, in principle, take place within in the territory of either the EU or the UK in order for the processed or manufactured product to obtain a preferential origin. There are exceptions however for returned goods. 

Furthermore, even though the Agreement allows for products to be shipped to third countries, exhibited or stored there, the products can keep their preferential origin status for the purpose of this Agreement only if they have not been altered in that third country. Customs authorities may require proof of this.

Full bilateral cumulation applies under EU-UK Trade Agreement. This means that both materials originating in the UK and processing that took place in the UK in the manufacture of a product in the EU can be counted towards EU origin when the obtained product is exported to the UK. This also applies vice versa. 

There is no prohibition on the drawback or exemption of customs duties under the agreement. This means, for example, that inward processing schemes, allowing the importation of non-originating materials from outside of the EU or the UK with a relief of import duties, could be used to manufacture products in the EU or the UK that can benefit from this Agreement, without the loss of the eligibility of those products for the preferential rate under the Agreement or the retroactive loss of the preferential duty rate applied on importation of these products in the EU or the UK. These schemes are to be reviewed after 2 years from the entry into force of the Agreement.

The EU-UK Trade Agreement allows keeping originating and non-originating fungible materials or fungible products not physically segregated during storage, provided that accounting segregation is applied. This may be subject to a customs authorisation. 

5. Establish origin process and administration

Last but not least, we would like to mention the importance of an appropriate origin process and administration in order to prove the preferential origin of traded goods. In this regard it is important to take into account that the recordkeeping requirements/periods can be different in the parties to the Agreement and moreover vary across EU Member States. This is important in case of audits/verifications performed by the competent customs authorities.

How we can help

If you have any questions about the customs impact of the EU-UK Trade Agreement on your business, or would like to receive specific advise on complying with the origin requirements, do not hesitate to contact us.

Deloitte’s Global Trade Advisory specialists are part of a global network of professionals who provide specialised assistance in global trade matters. We offer services on all customs related matters, including tariff classification, origin determination, customs valuation and customs compliance.

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