Late in the afternoon of 24 December 2020, the UK government and the EU Commission announced that the UK and EU had agreed the terms of a post-Brexit Free Trade Deal. The text of the Agreement was published later the same day. The media (and social media in particular) are already myth-ridden. Here, we consider and bust another two.
Myth 1: The Trade and Cooperation Agreement (“TCA”) means that goods which come into the UK from Asia can be exported by British businesses to the EU without tariffs being applied.
The TCA made between the EU and the UK remove tariffs for each other’s goods. In effect this grants a preference not provided to others – that is, preferential origin.
Rules of origin are the counterpart of the preferential tariff rates which in the case of the TCA are zero. But to avoid the TCA being abused by importers merely shipping goods from other markets through, say, the UK, the TCA is concerned with what constitutes a product “originating” in each of the UK and the EU.
UK goods seeking to enter the EU on a zero-tariff basis will have to prove that they are “wholly obtained” in the UK. But in many cases goods are manufactured using components made in different countries and shipped as needed to be assembled into the final product. With multiple components adding value, it can be very difficult to determine origin for some products. In this case, the final product is determined by the location of the “last substantial transformation.”
For preferential origin, substantial transformation is defined through one or a combination of three main criteria:
Change of tariff classification: When the work undertaken within a country results in a change of classification. For example, the unique code for car parts, 8708, is different to the code for a finished car, 8703. If car parts are assembled into a finished car in a particular country, it will qualify as a change of tariff classification.
In contrast there may be situations where the assembly undertaken does not result in a change of tariff classification.
Sufficient value-added: The originating country must contribute a minimum percentage of the value of a product. Each component will add a certain amount of value, calculated as the percentage of the ex-works price of the final good (that is, the total price of the inputs to the good excluding transportation and insurance costs). Typically, around 50%+ of value has to be added to claim origin.
Specific processing: Finished products can qualify when particular working or processing activities are carried out. For example, a rule may require clothing products to be manufactured from yarn.
Myth 2: The TCA allows goods which come into the UK from Asia and which are in the UK for not less than a minimum period of time to then be exported by British businesses to the EU without tariffs being applied.
Time alone does not alter the rules or the origin!
If you have any questions about these issues in relation to your own organisation, please contact a member of the team or speak with your usual Fox Williams contact.
Click here to read more myth busters relating to the EU / UK trade agreement.