British exporters are facing a ‘perfect storm’ as they will be required to demonstrate compliance with the rules of origin in the UK-EU trade deal from January 2022 to continue tariff-free trade with the EU.
Under the UK-EU Trade and Cooperation Agreement (TCA) British exporters can send goods to the EU tariff-free if their products are classed as having ‘UK origin’.
Similarly, EU exporters sending goods to the UK can do so duty-free so long as their goods are classed as having ‘EU origin’.
Rules of origin vary by product, but typically an item must be made from around 50% British or EU-sourced content to qualify for zero-tariff access under the TCA.
Grace period
Businesses were given a one-year grace period at the start of this year, but from January 2022, they will have to demonstrate they are compliant with these rules, or they will be required to pay duties.
According to the FT, firms currently misunderstand the level of evidence required to demonstrate originating content, with some providing misleading statements of origin or simply stickering products made in China with a Union Jack flag.
Processing
Government guidance says that to be considered originating and to qualify for a reduced rate of customs duty, products must be sufficiently worked or processed within the countries in the agreement.
However, confusion over the issue of what constitutes ‘sufficient processing’ was highlighted earlier this year when Marks and Spencer’s Percy Pig sweets faced tariffs when being re-exported to the Republic of Ireland from Britain having been originally imported from Germany.
The government has provided guidance on how to check that goods meet rules of origin.
Confusing
Rules of origin make up 50 pages of the UK’s post-Brexit trade deal with the EU and there are fears that they will simply be too confusing for many companies, who will stop exporting.
British exports could also become less attractive to EU businesses if they face overzealous enforcement by European customs officials.
A survey by the Federation of Small Businesses earlier this year found that one in four SMEs had stopped exports the EU due to increased costs and delays, reported the Guardian.
Not ready
At an IOE&IT webinar in January, exporters were advised to fully understand and record the origin of their imported parts or goods in readiness for the ending of the grace period at the start of 2022.
Industry insiders told the FT that concerns about exporters’ readiness for the new rules were raised with ministers on a Brexit business task force conference call hosted by the Cabinet Office last week.
Perfect storm
Andrew Howie, a partner at Grant Thornton, said that the upcoming changes could combine with the UK’s ongoing supply chain crisis to create ‘further disruption’.
He told Scottish Business News: “Many businesses may not be aware that they are currently benefitting from a range of phased Brexit implementations measures, including grace periods around rules of origin. With this set to change from 2022, when further border measures come into force, businesses need to ensure that they are prepared and ready, to avoid a shock and even further disruption.”
For more information about how to comply with the rules of origin in the UK-EU trade deal, sign up to our Rules of Origin training course here.