17 February 2021
Trading with the EU: How can you avoid costly delays in your supply chain?
Government guidance for UK businesses trading with the EU isn’t always clear. We have done the legwork, so you don’t have to, providing straightforward advice about the UK Trade and Cooperation Agreement (TCA); to help you avoid costly delays in your supply chains, when trading with the EU. Beth Miel, corporate and commercial lawyer, offers key advice.
One of the major uncertainties surrounding Brexit, was the impact that it would have on supply chains. Of particular concern, was whether tariffs would apply to goods crossing from the UK to the EU and vice-versa. The EU-UK Trade and Cooperation Agreement (TCA), which is provisionally in effect from 1st January 2021, pending formal ratification, provides some comfort in this regard, but many businesses will need to adapt to the new rules of trade between the UK and EU. (People should beware that there are different rules when dealing with Northern Ireland, which are still under discussion).
Businesses will need to complete additional paperwork and customs declarations when moving goods across the EU/UK border. The UK is giving importers of non-controlled and non-excise goods a six month grace period until the end of June 2021, so businesses importing such goods from the EU to the UK, can opt to delay making customs declarations until 30 June 2021. However, customs declarations will be needed now when importing controlled and excise goods, such as tobacco and alcohol products. By contrast, the EU has not reciprocated with a similar grace period, so businesses importing into the EU from the UK have to quickly adapt to the new compliance procedures and the associated costs of either completing paperwork themselves or appointing a customs agent to handle it.
UK businesses now need an EORI number (depending on the circumstances either an EU or GB EORI number) to move good between the UK and the EU.
Rules of origin and tariffs
A key feature of the TCA is the continued absence of tariffs or quotas on goods moving between the UK and EU. However, this only applies for goods which meet the “rules of origin”. Under the TCA (which sets out detailed rules), goods must be locally sourced, or have had sufficient work carried out on them in the UK (or EU as applicable) to satisfy the rules of origin. The rules are already causing problems for some businesses, as was recently illustrated with Marks and Spencer’s Percy Pigs.
Percy Pigs are manufactured and packaged in Germany and so under the TCA can enter the UK tariff-free because they satisfy the “rules of origin”. However, they are then taken from M&S warehouses in the UK and exported to the Republic of Ireland, (which is in the EU). Because they have left the EU and have not been sufficiently processed for the rules of origin to count, it may be that a tariff needs to be paid to export them to the Republic of Ireland, despite them having been made in the EU in the first place. Under the rules of origin this would not be the case if, for example, they were unpacked and incorporated into another product such as a cake as they would have been sufficiently processed to constitute a UK product, but merely storing them in the UK is not enough. It remains to be seen how the rules of origin may be amended to deal with such a situation. In the meantime, UK businesses which are affected by this, are being encouraged to consider having a distribution centre in the EU, so that the products don’t have to come into the UK and leave the EU and risk tariffs when they are re-exported.
Businesses which are affected, must assess their supply chains to fully understand the origin of all the components of their goods. In order to benefit from being duty and quota free when importing into the UK (or EU as applicable), businesses will need to claim this preferential tariff on their customs declaration and declare that they hold proof that the goods meet the rules of origin. The UK and EU have agreed a 12-month grace period which means that until 31 December 2021, businesses do not need suppliers’ declarations from suppliers in place when the goods are exported, but they must be confident that the goods do meet the rules of origin requirements. Businesses may be asked to retrospectively provide a supplier’s declaration after this date.
Testing and certification
Certificates of conformity issued by UK regulatory bodies are no longer recognised in the EU and vice-versa. This means that if a business wants to sell its products in both the UK and the EU, it may have to get them checked twice to get them certified. This will have costs implications, as UK businesses selling in the UK and the EU will need to comply with two regimes.
In summary, exporters to the EU need to make sure that they prepare their documentation correctly, at the right time, to make sure that their goods can move as they expect. Importers of controlled goods to the UK will need to make sure that they have the necessary import clearances in place now and importers of non-controlled goods will need to make sure that they are ready to meet the UK’s import requirements from 1st July, otherwise their goods may get delayed.
Some of the key actions to take now
Although not all mentioned above, we have set out some key actions to take now if you move goods between the UK and the EU:
- Acquire an EORI number (possible both UK and EU and possibly Northern Ireland) if not already acquired;
- Take advice on changes to VAT rules on imported goods;
- Consider commercial arrangements and terms of trade, in particular:
- references to Incoterms or other provisions relating to customs and other border clearance issues,
- pricing provisions to take into account any increased costs associated with Brexit; and
- whether delivery provisions are sufficiently flexible in case of border delays;
- Determine the customs value of goods;
- Confirm rules of origin;
- Consider how customs declarations to HMRC systems will be made and consider the use of a customs intermediary.