What businesses need to do to import into the UK from the EU for free if a deal is struck!

Arne Mielken CEO of Customs Manager explains how this will work...automatic

We look at what you need to do to import into the UK for free if a deal is struck

The signs of a breakthrough deal are coming through loud and clear. If all goes well, from 2021, the UK will have a Free Trade Agreement with the European Union. With the political wrangling over, the attention now turns to the practical implementation of the deal. For business owners importing goods into the United Kingdom from the 27 EU Member States, administrative burden and costs must be minimised as much as possible. We take a look at one crucial aspect to consider from next year to help UK businesses pay no customs duty and import VAT at all: the product’s origin. The fundamental question that all UK businesses now need to answer is:

where is my product from?

The bad news first: more red tape is unavoidable

Trading with the EU outside its structure must logically be less advantageous and more burdensome than trading inside the EU Single Market and Customs Union, why else, from a pure business sense, would anyone join such a club? Regardless of the outcome of the FTA negotiations, as of 01/01/2021, the UK will be a third country trading with the EU and vice versa. Legally speaking, and this matters for the movement of goods, we should remember that there will be two customs unions from 2021, regardless of a deal being struck:

1. The customs territory of the United Kingdom, consisting of
   • England
   • Scotland
   • Wales
   • Northern Ireland
     (This also includes the Channel Islands and the Isle of Man).
2. The customs territory of the European Union, comprising 27 EU Member States.

This means:

• Businesses face the prospects of border formalities, customs controls and checks including in EU and UK ports to move from one custom's territory to another.
• Import formalities for entry into the EU and the UK apply to goods entering a customs territory, including goods in transit.
• Export formalities, including the pre-departure declaration, apply to goods exiting a customs territory, including goods in transit.

Get ready for more paperwork and prepare your customers for possible delays

This change means, concretely, that businesses wishing to trade with each trading zone need to be prepared for additional paperwork, the possible imposition of duties and tariffs and controls at or away from the border.
 

In particular, at the very least, we expect that:

• Customs Declarations, including pre-arrival and pre-departure declarations, need to be lodged in several national systems.
• Licences, such as Health Certificates and proof of the status of goods, may need to accompany the goods and may need to be presented at each border.
• Delays may occur at the borders due to the new procedures and some traders not presenting the right paperwork at the right time, creating a bottleneck.

So, what can a Free Trade Agreement do?

Any future agreement will “only” determine whether tariffs and quotas apply, yet customs formalities as described above will apply. The UK and the EU have signed free trade agreements (FTAs) with individual countries throughout the world. In the case of the EU-UK FTA the hope is for zero tariffs and zero quotas (known as “preferential tariff treatment”) which would provide significant relief for many businesses facing exorbitant costs due to tariff imposition. However, these agreements also often include clauses on trade facilitation and rule-making in areas such as investment, intellectual property, government procurement, technical standards and sanitary and phytosanitary issues. In the case of the EU-UK deal, there will be a focus on a level playing field to avoid one party undercutting the other and, on a fisheries deal, too.
 

How can a business benefit from zero duties and zero quotas?

To benefit from this preferential trade, the terms of the FTA must be met. Preferences should only go to imports of goods from countries that are part of the agreement, here the UK and the EU. This should not, for example, be China or the US. This means that customs authorities need to determine the origin or economic nationality of the product. This is done with so-called “rules of origin”. They apply to a country's products and are set out in the Origin Protocol attached to the specific agreement between the EU and the UK.

What are Rules of Origin?

Origin is the 'economic rationality' of goods traded in commerce.

Any EU-FTA rules of origin will likely, like any FTA, distinguish between goods wholly obtained in the EU or UK and “goods sufficiently transformed in the EU or UK”.

It is now the job of EU and UK businesses wishing to benefit from the EU-UK FTA deal to verify that the product they are sending was indeed either from the EU or UK country and arrives at the EU or UK without being manipulated in another country (apart from the mere operations needed for keeping the product in good conditions). There are specific conditions to be met and documents needed to demonstrate that a business indeed meets these rules.

Goods wholly obtained in the UK or EU

These are goods that are exclusively produced/processed only in the EU or UK and without incorporating materials of any other country. This includes plants, minerals, or live animals, among other products.

Goods sufficiently transformed in the EU or UK

This refers to any product which was produced with materials of other countries or was partially processed abroad. In these cases, the EU-UK FTA will contain a set of preferential rules of origin per-product list that defines the criteria to determine if a product was sufficiently transformed in the EU or UK. There are usually three groups of rules:
 

A) The 'value added' rule

You may find a rule in which the value of all the materials used cannot exceed a certain percentage of the (ex-work) price of the product.

B) Change of tariff classification

You may find a rule that states that you cannot have a good that has the same tariff classification as any of the non-originating materials used in the product.

C) Manufacture from certain products

You may find a rule that permits you to use specific non-originating material in the manufacture of your product. For the complete list see the Rules of Origin annexe of the EU. Be aware that in some cases the rule may be a combination of criteria a), b) and/or c).
 

Proving Origin

A correctly completed and endorsed certificate of origin may need to be provided, known in the EU as a EUR1 Movement Certificate to support claims for preferential (zero) rates of duty in the country of importation. There are simplifications available, which are subject to authorisation.

What to do if you are not sure about the origin?

Businesses can request a “Binding Origin Information (BOI), a written origin decision for preferential goods which is legally binding. It is provided by the customs authorities in the EU or UK and is free of charge.

Conclusion

Claiming preferential origin from the EU from 2021 is only possible with an EU-UK FTA, which is implemented and in force. If businesses state on their customs import declaration that they wish to make use of preferential trade between the EU and the UK, they can reduce the customs duty and quota to zero, provided a deal has been struck. If you don’t claim preference, full duty may be due. This means that zero duty and zero quotas are NOT automatic, it must be actively claimed.
 

If you claim it, you must be entitled to it. You can only get the benefits if you can prove that the goods are actually from the EU or the UK. You do this with the so-called “Rules of Origin” which can be found in the FTA itself. They are quite complex to understand and you need to prove that you are eligible.