Bit technical this, but some of you might be interested in the tariff-free claim re the Brexit deal (I do consulting work in this area, so have to read the mountain of new rules that have just been published).
Member states of the EU can move goods tariff (and largely paperwork) free between themselves. A movement of good from, say, London to Paris is equivalent to a movement from London to Manchester in other words. This arrangement relies on a concept called “free circulation” and free circulation status applies in two circumstance, namely:
- goods “wholly obtained” in the EU (eg dug from the ground, produced on farms etc);
and- goods imported from non-EU countries that have satisfied all the import formalities, paid the relevant import taxes etc.
So if, say, a car maker assembles cars from EU-made components and from third country components that are all in free circulation, the car can move to other member states without further customs formalities and imports taxes.
This is the arrangement that, until 11 pm today, the UK enjoys as part of the customs union.
So what will change after 11 pm? In short, the free circulation concept will disappear, and instead if imports from the EU are to enter the UK without customs duties they will have to satisfy various rules of origin. To go back to our car maker, who we’ll say is in Germany: that business will assemble cars from lots of EU-made components, but will also have components sourced from non-EU countries. If he wants to sell his cars tariff-free to the UK, he’ll have to show therefore that his cars “originate” in the EU despite their non-EU content. This is done in one or a mix of several ways, namely:
- by calculating the values of the EU vs the non-EU content, and then looking up special rules on a product-by-product basis (for example, you may have to show that at least 50% of the ex works price is EU added);
- by changes to the classification of the imported components. All imports and exports are classified using a global nomenclature called the Harmonised System, so this rule means that the classification for the non-EU component (eg an engine) is different from the classification for the EU-made product (eg, a car). This change in classification rule also varies according to the number of digits of the classifications that have to change (four-digit level, six-digit level etc);
and/or- product-specific rules (for some plastics for example, it’s “a chemical reaction, purification, mixing and blending, production of standard materials, a change in particle size, isomer separation, or biotechnological processing is undergone”).
Sometimes just one of these rules will apply, and sometimes a combination of them will.
OK, so what does this mean in practice? These days relatively few EU-made goods are “wholly obtained”. From cars to tomato sauce to textile goods to pretty much anything manufactured, there’s a good chance that some or all of the materials used come from outside the EU. This means that for these goods the origin rules have to be understood and calculated, and that many apparently EU goods won’t be deemed to be EU goods at all, so if they’re shipped to the UK they’ll have to pay import duties. Thus if, say, our car maker has too much non-EU content in his cars instead of duty free access to the UK they’ll pay an import tax of 10%.
And all of this applies reciprocally of course. That is UK manufacturers/exporters will have to do the same calculations for their goods, and if they fail the same UK origin status rules those goods will attract import duty when they arrive at the EU border.
So, in summary, what this means is that “tariff-free” post Brexit is true to an extent, but in fact there will be considerable tariffs imposed in both directions for all the non-originating goods that move from the UK to the EU and
vice versa. Anyway, just thought this might be worth setting out for any of you not quite as across the rules as I have to be…
