The Trade and Cooperation Agreement means that the EU and the UK have duty and quota free access to each other’s markets – however, it is critical to understand that the agreement only applies to goods that meet certain conditions, specifically the rules of origin set out in the agreement.
Rules of origin can be complex, and it is important for businesses to fully assess how these rules impact on their trade in goods between the EU and Great Britain. Failure to properly determine origin can result in under or overpaying customs duties and potentially lead to corrective action being taken by customs authorities.
If you export goods to the UK, you should establish whether the goods qualify as EU origin in order for preferential tariffs to apply under the agreement. You should also be in a position to provide a declaration to your customer that the goods so qualify. If you import goods from the UK, you should ensure that you have evidence to support any claim made that the goods qualify as UK origin in order to avoid the payment of tariffs.
The origin of goods is not determined by where goods are shipped from. Rather “origin” is a customs term which describes the economic nationality of a product.
Under the agreement, goods are generally regarded as being either of EU or UK origin where;
If a product is not “wholly obtained” in a country, it is necessary to look at the origin rules that are specific to that product in order to determine whether it can avail of reduced or zero tariffs under the agreement. For these purposes, it is important that the correct customs classification of the product is available in order to identify the specific origin rule to be applied under the agreement.
If a product does not automatically qualify for preferential origin under the product specific rules, additional rules can often assist. For instance, the tolerance rule may allow for the inclusion of a percentage (for instance 10% of the product’s ex works price, 15% of the weight of the product) of non-originating product to be included.
We have set out below some examples of how Rules of Origin under the TCA can impact on businesses:
It is important to note the limits of the preferential origin relief. If an Irish businesses sources product from the UK that was originally produced in the EU and was distributed from the UK (and not sufficiently worked on in the UK) then relief would not apply under the TCA. Relief only applies to goods of UK origin.
For example, a GB distributor buys products from a French manufacturer and imports it into the UK. No duty arises on importation of the product into the UK as the product is of EU origin. The distributor sells the products to customers both in GB and Ireland. The importation of the goods from GB into Ireland will not be able to avail of preference under the TCA as the product is not of UK origin. Tariffs will arise in Ireland unless another relief can be applied such as returned goods relief or transit followed and customs warehousing.
Cumulation allows a business to treat as originating in a country certain non-originating goods used or processing works done in another country. Under the agreement, bi-lateral cumulation applies such that materials originating from the UK, as well as production carried out within the UK on non-originating materials, may be considered as originating in the EU (and vice versa). This is an important aspect of the agreement but care is advised as the rules can be complex.
In addition, for rules of origin purposes, the agreement does not recognise other trade agreements entered into by either the EU or the UK. As a result, cumulation only applies to trade between the EU and the UK – the agreement does not enable processing carried out in say Northern Ireland, to be recognised as EU processing for the purposes of conferring EU origin under the EU trade agreement with Canada.
Under the agreement, entitlement to preferential rates of duty is subject to the appropriate evidence of origin being produced to support the customs import declaration. This can take the form of a declaration as to origin made by a registered exporter on the invoice or another commercial document identifying the goods, or be based on the importers own knowledge.
Irish exporters will need to register with Revenue for the Registered Exporters System (“REX”) in order to provide the REX number when issuing statements of origin to customers. Rex is not however required for businesses exporting consignments of less than €6,000 or where no statement of origin is being provided.
It is good practice to also undertake due diligence to verify the accuracy of the proofs provided. Businesses can also consider obtaining a legally binding decision from customs authorities confirming the origin of a product (referred to as Binding Origin Information).
If your products are not qualifying products under the agreement then they will be treated as akin to product from a Third Country and normal rules and duty rates will apply. Increasingly, businesses are finding that the terms of the agreement do not allow for zero tariffs to apply to a range of common supply chains, for instance:
As a result, businesses are seeking to apply mitigation strategies, such as sourcing directly from EU producers, or seeking to use customs procedures (such as warehousing) and reliefs in order to manage or eliminate the potential for duties to apply.
If you have any queries on how Brexit will affect your business, please get in touch with our dedicated Brexit Response Team.