19 December 2022
It is no exaggeration to say that day to day operations for UK businesses that export to or import from the EU has changed enormously in the last few years. Since the UK’s exit from the EU, the task of moving goods across the border has become more involved and costly for UK exporters.
It is therefore important to know where and how the trade agreement between the UK and EU can save cost for businesses. The tariff exemptions under the UK-EU Trade and Cooperation Agreement (the “TCA”) provide one such cost saving, provided that the TCA’s requirements are met.
Under the TCA, import tariffs will not be charged on goods that are traded between the UK and the EU, so long as goods passing to the EU can be shown to have originated in the UK (or vice versa). Customs checks must still be carried out, but the monetary tariffs can be charged at zero.
It is critical therefore for businesses to know if, under the rules, their goods for export have originated in the UK – known as “originating” products. In some cases this is very straightforward, such as stone extracted from UK quarries or meat from animals born and raised in the UK. Things becomes more complex when a product is manufactured in the UK from multiple components. Some of the raw materials or pre-assembled parts may originate from the UK, others may come from overseas (known as “non-originating” items).
For example, in the automotive industry, car components from abroad might be assembled in the UK to produce a finished vehicle. The rules governing whether any product is originating or non-originating are known as the Rules of Origin (“RoO”). The RoO touch upon every aspect of manufacture and sale of a product, including how to assess origin for packing materials and fuel used in manufacture.
Typically, an importer is responsible for paying tariffs. Where a business is looking to export a product that contains non-originating elements though, responsibility is flipped so that the exporter is responsible for ensuing compliance with the RoO.
The RoO do include a means by which non-originating products (or their components) can be transformed into originating products and subject to the zero tariff. The main two examples of how this can occur are:
- Where the product being exported has been sufficiently transformed (for example, by manufacturing process); or
- Where the value or weight of the non-originating material/parts falls below the threshold specified in the TCA.
As an example, if a non-originating raw material such as steel was manufactured into car parts in the UK, this may qualify as sufficient production to transform the non-originating steel into UK-originating parts. If car parts were shipped from overseas to the UK for assembly into a vehicle, this might amount to sufficient production depending on the facts. The exporter might also be able to demonstrate that the weight of all non-originating components in the vehicle comprised less than a set amount of the net weight (excluding packaging) of the final vehicle.
This is often between 10% and 50% of the value or net weight of the finished product, depending on the product type. The RoO also include detailed rules for each specific product type, specifying whether certain components, for example screws or insulation wires, might be excluded from any of these calculations.
It is always worth remembering though that tariffs may still be payable under the TCA in certain circumstances even if the RoO are met, for example if the parties have breached customs legislation.
Navigating the RoO can be a daunting task. Blaser Mills Law can provide advice on the application of the RoO and the legal steps UK businesses should take in their commercial contracts to protect themselves when exporting their products to the EU.
For further information or advice please get in touch with Becky on rac@blasermills.co.uk or call 01494 932614.