As of 1 January 2021, the United Kingdom (UK) left the EU Single Market and the EU Customs Union, following the end of a transition period. As a result, supply chains and sales channels involving the UK are now governed by different rules, which may have financial and administrative repercussions on businesses.
Businesses whose supply chains and sales channels run through countries that are not part of the EU, including the UK, need answers to the following questions:
- What tariffs apply to my input products and end-products when imported or exported?
- Are there anti-dumping, anti-subsidy or safeguard measures in place in the countries I am dealing with?
- Do I need import or export licences?
On the very cusp of the end of the transition period, the EU and the UK concluded the Trade and Cooperation Agreement (TCA) which establishes the applicable rules for trade between the EU and the UK. Trade between the UK and other countries is either governed by WTO Rules or by bilateral trade agreements, for example the UK-Japan Trade Agreement of 22 October 2020.
A highly contentious point in the Brexit negotiations was the prospect of a hardening of the border between Northern Ireland and the Republic of Ireland. This was addressed by means of a protocol, which keeps Northern Ireland in the EU's single market for goods, while having Northern Ireland apply EU customs rules at its ports. In effect, this means that goods arriving from the UK should be checked and controlled at Northern Ireland's ports as from 1 January 2021, while goods transported into the Republic of Ireland and the rest of the EU are not subject to new controls.
In this article, we provide you with an overview of how trade with the UK has changed since 1 January 2021.
Tariffs between the EU and the UK
Level of tariffs
The Trade and Cooperation Agreement provides for zero tariffs or quotas on cross-border trade in all goods, provided the goods originate in either the UK or the EU.
In order to determine the origin of the goods, the TCA has its own rules which differ from the standard WTO rules of origin. Products can be said to originate in the EU or the UK if they are:
- Wholly obtained in the EU or the UK, for example mineral products extracted from UK or EU soil or seabed, plants and vegetables grown or harvested there, live animals born and raised there and their products, waste and scrap from production operations or used products collected there; or
- Produced in the EU or the UK exclusively from materials originating in the relevant territory; or
- Produced in the EU or the UK incorporating non-EU/UK materials, which satisfy the product-specific rules of origin contained in Annex ORIG-2 of the TCA.
In addition to the three general rules, it is worth noting the following:
- If a product originating from the EU is used to produce a different product in the UK, the end-product will be considered to originate in the UK, and vice versa. This is however only the case if the production steps are considered ‘sufficient’. For example, preservation operations (freezing or drying etc.), simple painting and polishing operations or sorting operations would not be considered ‘sufficient’ production.
- For certain products, such as canned tuna and certain aluminium products, there is a tolerance for limited trade volumes, below which a more flexible rule of origin applies. Once this trade volume is reached, the general rules of origin then apply.
- There are also transitional origin rules for electrical accumulators for automotive use and to electric vehicles. These rules allow for a higher proportion of non-EU/UK materials to be used in products, while still being considered ‘originating’ in the relevant territory. These rules apply until the end of 2026, after which the maximum thresholds will gradually decline.
It is important to note that these rules of origin diverge from the normal WTO rules, requiring companies to keep track of a sometimes subtle difference.
How to obtain the zero tariff?
In order to obtain the zero-tariff treatment, importers can include a claim for the preferential tariff treatment in their customs declaration. Such a claim is based on the knowledge of the importer that the product is an EU or UK product for the purposes of the TCA. If upon importation, the importer does not make a claim for preferential tariff treatment, the zero tariff can still be granted and the excess customs duty remitted if the claim is made no later than three years after the date of importation.
Tariffs between the UK and third countries
The tariffs applied in the UK to goods originating in non-EU countries are governed by the UK Global Tariff (UKGT). The UK Government has created a tool to calculate the applicable duty rate.
The UKGT has reduced its overall tariff rate from 7% to 6%. Moreover, tariffs on GBP 30 billion of imported goods have been cut to 0%.
A temporary 0%-tariff rate applies to products, which are imported into the UK, that are used to combat the Covid-19 outbreak. These products include protective equipment and other relevant medical devices, or equipment set out in the Covid-19 Commodity Code list. Aside from this temporary rate, it is worth noting that almost all pharmaceuticals and medical devices are also tariff free in UKGT under normal circumstances.
Within the UKGT, there is no distinction based on the origin of the goods. However, there are some exceptions to this rule:
- Free trade agreements (FTAs), in which the UK can agree on lower tariffs on certain goods. Although the UK is no longer bound by the FTAs negotiated by the EU, it has decided to ‘rollover’ several of those agreements to continue trading in the same way post-Brexit with approximately 60 of the 70 countries. On top of this, the UK has itself concluded trade agreements with Japan, Jordan, Canada and Mexico;
- Trading with developing countries: the UK has installed a General Scheme of Preference that reduces or removes tariffs on imports from eligible developing countries into the UK;
2. TRADE REMEDY MEASURES
With regards to the rules applicable to anti-dumping, anti-subsidy and safeguard measures, there is no distinction based on the origin of the goods. Since the TCA does not add substantive provisions, the international rules apply the same way for EU goods as they do for, for example, Russian goods.
As the UK has left the Customs Union, EU trade remedy measures in principle no longer apply when goods are imported into the UK. They will however continue to be levied by the customs authorities in the EU, if the goods are subsequently imported in the EU.
The UK however decided to transition some EU trade remedy measures into the UK trade remedies system. As a result, UK authorities will continue to levy these measures to protect the UK industry from dumping practices.
It is important to note that the TCA preferential rules of origin do not apply to determine the origin of goods for trade remedy purposes. The origin of the goods will therefore still be determined in accordance with the WTO rules of origin even if the goods are imported via the UK. It results from this that exporting producers subject to anti-dumping duties in the EU will not be able to circumvent the duties by importing the goods via the UK. Goods found to originate in a particular country for trade remedy purposes before 1 January 2021, will still be considered to originate in that country after 1 January 2021.
Finally, the UK makes no distinction based on the origin of the goods for the purpose of its trade remedies, meaning that international rules now apply the same way to EU goods as they do to, for example, Russian or Chinese goods.
3. LICENSING REQUIREMENTS
Licences between the EU and the UK
The Trade and Cooperation Agreement allows the EU and the UK to adopt or maintain import licences, but this should only be used as a last resort. These procedures should respect WTO rules and be neutral in application, and administered in a fair, equitable, non-discriminatory and transparent manner.
Export licences are not subject to the same ‘last resort’ qualification. Procedures must still be transparent and there are obligations relating to notification when procedures are changed.
Companies may now be subjected to the applicable import or export licensing procedures when importing products in the EU or the UK. A licence under EU law will consequently no longer be valid for importation in the UK.
There are nevertheless exceptions. For example, for dual-use items, both the EU and the UK have removed the need for exporters to apply for individual licences.
It is important to note that EU rules will continue to apply to trade between the EU and Northern Ireland. This means that controlled items that currently move licence-free between the EU and Northern Ireland will continue to do so. However, when exporting from Northern Ireland to a non-EU country, an EU member state-issued licence is no longer valid, and a UK licence is needed.
Licences between the UK and other countries
Except for the procedure for dual-use goods, the rules for EU and non-EU companies regarding licences is identical. It is important to keep in mind that companies importing their goods in the UK will need a UK licence as the EU licence is no longer valid in the UK. The same is true for the certificates of free sale.
For more information contact Hein Hobbelen or Kiliane Huyghebaert