- The UK left the Single Market and Customs Union at 11pm on 31 December 2020
- At that point a Customs border (hard border) was established between the UK and the EU, excepting Northern Ireland whose arrangements between the EU and Great Britain are dealt with in the Northern Ireland protocol
- A Hard Border means, regardless of the tariff position, border control procedures will be in place and therefore traders will now need to make customs declarations, ensuring that they have classified and valued their goods, evidenced whether they have EU-UK origin and have prepared all the consequent paperwork to document their procedures
- There are set out and agreed rules for the classification and valuation of goods under World Trade Organisation rules – GATT 1994 Art VII Customs valuation Agreement for valuation of imports
- As mentioned above, the movement of goods between the EU and the UK (and vice versa) will be tariff and quota free if those goods are of EU-UK origin
- Therefore, a key factor will be what constitutes EU-UK origin, this is governed by the Rules of Origin as set out in the TCA
- There will be no duty on temporary imports for repair or repaired goods between the UK and the EU, regardless of origin, provided they are in free circulation in the country of export
- Small consignments will not have to prove origin, origin can be declared
- A small consignment (per guidance 29 December) for imports into the EU are goods valued at less than €500, if sent in small packages between private individuals and, less than €1,200 if in travellers' personal luggage, for personal use (not B2B transactions)
- For the UK, the definition includes all goods valued under £1,000
- These rules do not apply to goods which form a series of imports being made to avoid the normal rules
- There is mutual recognition of AEOs and these will benefit from fewer safety and security controls at borders and therefore should enjoy speedier clearance times, particularly when trading in heavily safety and security controlled industries or products. In the future it is expected that the parties will agree on how to respect each other's AEO traders and simplify procedures, that each are likely to undertake post clearance audits and issue advance rulings valid for at least three years
- The position on VAT remains as it has been understood for some time (primarily as a result of the almost certain involvement of the CJEU on VAT matters were any additional agreements to be made):
- The UK (other than goods in NI) will be treated as a third country by the EU for goods and services, just as the EU countries will be third countries to the UK
- Additional VAT registration requirements will exist as a consequence of, for example, trading in goods on UK-EU soil, or providing electronically supplied services to UK-EU recipients
- Simplifications (e.g. triangulation and call off stock) are no longer available for GB traders
- There will be Mutual Assistance on customs and VAT matters including assistance with collecting each other's VAT and duties debts from traders established in their territories and information exchange to combat fraud
Rules of Origin (RoO)
- To claim preferential origin and therefore, application of the zero tariff for movements between EU and UK, an exporter is required to obtain (from its supplier) a declaration as per the form in the Annexes to the TCA or, the importer can make a declaration based on its knowledge
- The declaration can be on an invoice or in a separate statement is valid for 12 months or for a longer time period if stated, up to 24 months
- A claim of preference is the responsibility of the importer and documentation should be retained by the importer for three years to evidence the claim
- Exporters should retain evidence to document statements of origin for four years
- The UK, in guidance on RoO published 29 December, announced a six-month temporary easement for imports into the UK (but not vice versa). Traders have until 30 June 2021 to submit full proof of origin with their import declarations. If evidence cannot be obtained, then the import declarations would need to be amended and any duties paid
- Exporters have until 31 December 2021 before they need to produce evidence of origin at the point of export but may be asked to provide evidence retrospectively to cover exports for 2021
- ROI and EU exporters are required to register on REX prior to issuing statements of origin for goods valued in excess of €6,000
- To be considered goods of EU or UK origin and qualify for the zero-duty preferential tariff products must either be:
- Wholly obtained in either EU-UK (i.e., grown, reared, mined or caught); or
- Substantially transformed by production or manufacture in either, in line with the relevant Product Specific Rules (PSRs)
- Materials originating from the UK or EU may be considered as originating in the UK or EU when used in production in the other territory. For example, EU goods used in production of goods in the UK will be considered to have UK origin. Therefore, if the finished goods are exported to the EU, they qualify for UK preferential origin without the need to consider the PSR's (providing they have no non-originating material content e.g. parts or materials from a third country)
- The above applies to movements between the UK and the EU only. This rule does not apply for exports from the UK or EU to a third country. In the example above, the EU goods incorporated in the goods produced in the UK would be considered as non-originating material if the goods were exported from the UK to a third country (e.g. the US). In order to establish whether such goods would qualify for preferential origin at import into a third country export market, the Free Trade Agreement origin rules between the UK and the export market would need to be reviewed and met
- PSRs, tolerances and 'insufficient production' lists are included in the Annexes to the TCA
The risk of additional duties arising in such supply chains remains, even after the introduction of the TCA, as products may not qualify as originating under the TCA.
The use of the UK as a landbridge, sourcing products through the UK from countries with which the EU currently has a Free Trade Agreement, storing and distributing both EU and non-EU goods in and from a UK warehouse all have different and significant customs compliance requirements.
The TCA does not provide for a scenario whereby a trader importing EU originating goods into the UK from the EU, and then subsequently reimporting these goods into the EU (e.g. Ireland) can qualify the goods as originating and thereby avail of 0% duties on import into Ireland without either undergoing further production or remaining under customs supervision (such as customs warehousing or transit) in the UK.
While such goods should qualify as originating for the first leg of the journey i.e., entitled to 0% tariffs on import into the UK, the fact that these former “EU” goods would not qualify as originating for the 2nd leg into Ireland has taken many by surprise; and so this additional cost appears not to have been factored into many companies' scenario planning.
Where goods do not qualify as originating under the TCA, there may still be other duty mitigation opportunities available depending on the particular supply chains - e.g., availing of customs economic procedures or operating specific customs reliefs. It may also be beneficial to take a wider strategic look at existing supply chains to see if they still make sense in the post-Brexit era and whether implementing strategic sourcing of certain goods or materials or a more fundamental change to the go-to-market model is required.