When the EU-UK Trade and Cooperation Agreement was signed in late 2020, it was heralded in the UK as a way for companies to sell their products to EU customers with minimal increases in cost and complexity. . The message from the EU Commission to EU traders was that it would provide the necessary safeguards for EU-produced goods from UK competition, while allowing relatively free movement of goods between the two signatories.
Nine months after Brexit, many UK manufacturers have seen their EU sales severely reduced due to the high EU duty and customs clearance costs on their products. While clearance costs were somewhat expected (and budgeted for), the duty costs came as a surprise to many UK manufacturers. Manufacturers had been confident their “UK-origin” goods would be duty-free. Many thought that EU goods imported into the UK would retain their EU-origin status, or that the simplest processing operations in the UK would be sufficient for the goods to obtain a UK-origin.
UK manufacturers need to be certain that their processing operations are sufficient for the final goods to be declared as UK-origin goods. Manufacturers who have already been trading with FTA countries will already be familiar with the processes of Origin Solicitation (obtaining country of origin information from their component suppliers) and Origin Determination (performing Regional Value Content [RVC] calculations on the Bills of Material for the products they make). However, the RVC rules in the EU-UK TCA are unique and require careful study and interpretation; they could lead to an incorrect declaration, which has expensive consequences. Customs penalties for incorrect declarations, plus the cost of preparing and submitting entry adjustments, can be quite costly. HMRC has recently published some examples to clarify what “sufficient” processing means, however, interpreting these may simply give the manufacturer more reasons to scratch their head.
Further down the supply chain, many UK distributors who act for mainland EU suppliers and have a sales territory covering the Republic of Ireland as well as the UK have also been hard hit. EU-origin goods supplied to a UK distributor lose their EU-originating status when put to UK free circulation (a UK import entry is made, import duty and VAT are accounted for). Unless the UK distributor processes the goods significantly, the onward supply to Ireland requires EU duty to be paid upon the goods’ arrival, as the goods lost their EU-origin status but did not acquire UK origin. The well-publicized Percy Pigs case illustrated this “double duty” problem well.
- The EU-UK TCA is not going to change much any time soon, and as international supply chains open up post-COVID, both EU and UK distributors and manufacturers will have to find ways of avoiding paying unnecessary duty costs to maintain their competitiveness relative to suppliers outside of the region. What customs solutions help distributors and manufacturers? The manufacturer must calculate the origin content and/or obtain a customs ruling to ensure they’re correctly selling their goods as EU or UK origin
- The manufacturer may consider changing product sourcing to meet RVC thresholds.
- The UK distributor could use customs warehousing facilities (a public warehouse or their own private warehouse) to avoid putting the goods to free circulation, allowing the goods to retain their EU origin status.
- Both sectors could benefit from implementing duty mitigation measures aside from customs warehousing, including inward processing, outward processing, end-use relief, and temporary admission measures. A trusted customs expert has the right tools to help the importer or exporter calculate the cost benefits.
- Where goods are moving along multiple supply chain “legs” (UK-EU-UK or EU-UK-EU), the final importer could potentially utilise Returned Goods Relief, avoiding duty liability, if they can provide proof of earlier payment of UK (or EU duty) by the original supplier.
How can you move goods between the UK and the EU without incurring high duties, time-consuming custom clearances, and penalties? You need a clear understanding of the TCA. Moreover, you must make changes to your origin calculation/certification processes to comply with the regulation. This might require manufacturers and distributors to review and potentially rework their supply chains. They might also consider duty mitigation mechanisms. Livingston can assist with all of these issues – contact us today.