EU/UK Trade & Co-operation Agreement: Rules of Origin

Brexit

EU/UK Trade & Co-operation Agreement Rules of Origin

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Brexit

EU/UK Trade & Co-operation Agreement Rules of Origin

The provisions securing free movement of goods between the EU and UK are generally perceived as the principal achievement of the EU/ UK Trade and Cooperation Agreement (TCA). These provide that there will not be any tariffs or quotas on goods originating in the UK or the EU subject to businesses meeting “rules of origin” (RoO) requirements. This article explores the TCA’s RoO requirements in more detail.

Johnathan Rees Partner | Head of Corporate & Commercial johnathan.rees@laytons.com +44 (0)20 7842 8000

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Brexit | EU/UK Trade & Co-operation Agreement | Rules of Origin

Background • UK/EU trade in goods is governed by Title I, Heading One, Part Two of the TCA. Title I contains 5 Chapters.

Chapter 1 contains the key provision - a prohibition on customs duties and quotas on all goods originating in the other party.

• Chapter 2 sets out the rules which define where a product is made and therefore determine whether goods qualify for preferential tariff treatment.

These provide that imported goods will qualify for preferential tariff treatment if they originate in one of the parties (EU/ UK).

• Whilst Chapter 2 follows substantially the form of other recent free trade agreements this is the first time that UK businesses will have had to deal with RoO when trading with an EU entity. They pose 2 challenges for UK business • establishing whether their goods meet the RoO requirements • ensuring that they have the requisite documentation to demonstrate that compliance

Substantive rules • For the purposes of Chapter 2 the following products are considered as originating in the other party: • Products “wholly obtained” in that party. These include natural goods grown in the territory and products manufactured entirely from those goods.

• Products produced in that party exclusively from originating materials in that party.

• Products produced in that party incorporating non-originating materials provided they satisfy the “product-specific” RoO requirements.

• These “product-specific” rules include limits on the value of non-originating materials which can comprise a product’s production. The TCA specifies operations deemed “insufficient operation” (and therefore non-qualifying for product specific purposes) the which include assembly of packages and affixing marks, labels or logos. These regulations may create particular challenges in the context of UK-EU trade where goods are frequently imported into the UK and stored in distribution hubs before sent to other EU member states. In the future this practice could attract tariffs - both on the import of the goods into the UK and the subsequent export to the EU. • “Tolerance provisions” are included to save a product which does not meet the “product-specific” rules of origin but where the total weight/ value of non-originating materials used in its production do not exceed certain de minimis levels. In these circumstances the product would be considered as originating.

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Brexit | EU/UK Trade & Co-operation Agreement | Rules of Origin

Bilateral cumulation • Cumulation provisions in free trade agreements allow goods (or the processing of goods) from one country to be treated as originating in the territory of another party. This is intended to assist manufacturers with cross-border supply chains to qualify for preferential treatment under the free trade agreement.

• To minimise disruption to existing EU/ UK supplier chains, the TCA includes such "bilateral cumulation" arrangements whereby products from one party will be treated as originating in the other party, and production carried out in one party on a nonoriginating material may be taken into account for the purpose of determining origin.

• However that position is complicated in cases of trade with 3rd countries with whom both the EU and UK have free trade agreements. By way of example a UK manufacturer using inputs imported tariff-free from Japan under the UK-Japan FTA may face tariffs when exporting finished products to the EU.

Claims procedure • Under the TCA, in order for a product to qualify for preferential tariff treatment, the importer must make a claim based on either of the following proofs of origin: • A “statement on origin” by the exporter (also known as an “invoice declaration” or “origin declaration”). The statement is a prescribed text rather than a document which the exporter will typically add to the invoice (or any other commercial document describing the product in sufficient detail). The statement or document can be in an electronic format. A statement can apply to a single consignment or multiple consignments of identical products. HMRC guidance indicates that a statement may be made out in English or any EU official language but that it is preferable to use the same language as that used for the commercial document itself.

• The importer’s knowledge that the product is originating - based on their own knowledge about the originating status of imported products.

The importer’s knowledge must be based on information demonstrating that the product is originating and satisfies the requirements provided for in the TCA. The government has provided guidance on the types of supporting documentation which will be required (see links below).

• The claim will typically be included in the customs import declaration but can be submitted retrospectively no later than 3 years after the date of importation.

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Brexit | EU/UK Trade & Co-operation Agreement | Rules of Origin

Record keeping • An importer making a claim must keep the statement on origin made out by the exporter for 4 years from the date of importation.

• An exporter who has made out a statement on origin must keep, for 4 years from the date it was made out, a copy of the statement on origin and all other records demonstrating that the product satisfies the requirements to obtain originating status.

• In both cases, these records can be stored in an

In Conclusion While the tariff-free aspects of the TCA were widely hailed it is clear that they come with strings attached. It is vital for UK importers to ensure that they are familiar with the RoO and have the necessary systems and documentation in place to ensure that they can make a successful claim for preferential tariff treatment.

electronic format We have prepared a checklist for importers to help with RoO claims and compliance. To request a copy please

Verification

contact us.

Detailed guidance on the rules of origin under TCA can be found at:

EU/ UK Customs authorities may take steps to verify claims which can be conducted before or after the release of the goods. Where businesses provide incorrect information, fail to comply with record-keeping requirement, or do not cooperate in a verification process the authorities can impose “administrative measures” and, where appropriate, sanctions.

• HMRC: Rules of origin for goods moving between the UK and EU. For further relevant guidance • HMRC: Get proof of origin for your goods • HMRC: Claiming preferential rates of duty between the UK and EU • HMRC: Check your goods meet the rules of origin

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