The implications of Brexit have begun to take effect in the trading world. New UK/EU Trade deals now control the import and exports of goods between the two regions. As of the 1st of January 2021, companies have had to prove the place of origin of their goods to be eligible for the benefits in the EU-UK agreement. In this article, we discuss the EU-UK trade deal and the Rules of Origin that allow companies to benefit from this agreement.
The UK/EU trade deal
The UK/EU Free Trade Agreement cancels custom duty on goods transported between the UK and Europe. Goods bought and sent between the two regions don't require custom duty. Companies must prove the place of origin of their goods before sending to claim the zero tariffs. The paperwork to verify this is called a statement of origin.
Proof is required to avoid loopholes. For example, a company could try to send something to Europe through the UK. If their country has a free trade agreement with the UK but not Europe, they could try to send it via the UK to claim the free tariffs.
You can include a statement of origin on an invoice or any other document that describes the originating product in detail. If you fail to provide an origin for your goods, your cargo may be subject to delays and extra costs.
The UK's rules for VAT on imported goods can still apply, even if your goods originate in the EU and are eligible for zero tariffs.
Rules of origin
The rules of origin help to determine and explain where the product originated. The place of origin is always the country where the goods were made or began their journey, but this can sometimes be complex. For example, if goods were packaged and sent from China but were entered and cleared in the EU before being sent to the UK, then the place of origin is China.
Any trade deal the UK might have with the origin country can be invalidated if the goods are not controlled correctly. For example, the UK and Europe both have a GSP (Generalised System of Preferences) agreement with Myanmar. If goods from Myanmar enter the EU and are cleared into free circulation and then sent to the UK, the GSP status is lost. Custom duty will then be payable in the UK as the origin is not from the EU, and the GSP was voided by being cleared in the EU.
How is the origin of goods determined?
You'll first need to define what goods are being traded using The World Customs Organisation classifications. The economic nationality of the goods can then be determined, which is different from simply where it came from. It can involve determining the value of the goods and where the contributions were made in adding this value to the product. For goods obtained and manufactured in one country, the economic nationality is from that nation alone.
Determining the origin of goods for complex manufactured goods
When a product has value-added from different countries, it can be more complex to determine the origin. For example, a car has many parts, each made in different countries and shipped to one location for assembly. Because of the various parts adding value, it's too complicated to determine its origin. In this case, the origin of the product is determined by the location of the 'last substantial transformation'.
When do rules of origin apply?
A statement of origin is required in most trades between the UK and EU to claim preferential tariffs. The below points clarify when it may and may not be needed:
- You may need proof of origin when the total value of the goods is over £1000. Goods below this threshold still need to meet the rules of origin to qualify for zero tariffs, but businesses don't need to provide proof of origin documentation.
- Regardless of value, proof of origin is required for all commercially traded goods between the UK and Europe.
- If goods are brought into the UK from the EU and are then returned to the EU, tariffs may apply. This can depend on if the goods originated in the EU and if they've been altered into a new product while in the UK.
- There's no customs duty charged on goods imported into the UK with a total value below £135.
You can claim preferential tariffs in a customs declaration form. UK importers can claim preferential tariffs via the CHIEFS or CDS system. Importers from both the EU or the UK can make claims for up to three years after the import.
Important points to consider
These rules are complex because there are many factors to consider in international trade. Choosing a freight forwarder such as WTA to handle your shipping can take all the headaches out of these new Brexit import laws and can ensure you're operating correctly.
You can learn more about the services WTA has on offer, here or by getting in contact with our team.