rule of origin

Businesses Fall Foul of Brexit’s Rule of Origin Chaos

Boris pulled off what many thought was impossible – a “tariff-free” Brexit. The business world rejoiced as the future began to look brighter.

But then January 2021 arrived and with it the realisation that things weren’t quite as hunky-dory as they first appeared.

During the Brexit talks, many trade experts and economists warned that a best-case scenario would prevent tariffs on goods predominantly produced in the UK. Those merely passing through Britain or being distributed from there could face import duties. Sadly, these views weren’t made mainstream, until now.

Brexit and the rule of origin

The bad guy in all of this is the rule of origin.

Goods must contain a high percentage of parts or value-added that originates in the EU or the UK to qualify for zero tariffs. Under the new deal, any item with more than 40% of its components not originating in the UK is subject to extra tariffs.

Consider this – a machinery manufacturer in France has a UK subsidiary. When importing machines to fulfil orders, they arrive in the UK tariff-free. The problem is that the UK subsidiary sells to the Republic of Ireland. Previously, this was not a problem, but those machines are now subject to tariffs under the new rules.

David Henig, director at the European Centre for International Political Economy, had this to say on the matter in an interview with Politico.com:

“If you import goods into the UK from China for example and then export them onto Ireland, they’re not eligible for the zero rate of tariffs under the agreement. You have to pay the tariff for coming into the UK from China, and then again to get to Ireland. Clearly, there are questions raised about whether these companies’ operations can work under the new deal. It seems to me that probably they can’t.”

It’s scenarios like this that mean some food and agricultural products attract high EU external tariff rates. As a result, Marks and Spencer have temporarily closed some of its shops in the Republic of Ireland because it was struggling to restock shelves.

Don’t forget your EORI number

As if the rule of origin chaos wasn’t bad enough to deal with, there’s also the small matter of an Economic Operators Registration and Identification (EIRO) number to think about.

As an importer or exporter, you can use this number for customs access declaration and customs clearance for shipments from the EU and countries outside the EU.

If you don’t have one, you can’t import or export goods from the EU legally. If you try to trade without one, the customs authority is likely to take possession of your consignment until a business can produce an EORI number. That’s why you must ensure you have an EORI number before placing an order and an importer must apply for one before the consignment has departed from the country of origin.

Was Brexit a good idea?

With the Brexiters winning the referendum with such a slim margin, that is a question that will be asked for generations to come.

The current chaos was inevitable considering a deal was only struck at the eleventh hour. Despite the flurry of advice from the government, businesses couldn’t prepare for the ‘new normal’ because no one knew what it looked like.

However, now it’s here everyone is left playing catchup. It’s far from an ideal situation but partnering with a logistics company that’s on the ball is the best way to navigate the new regulations successfully.

Smart Directions is an AEO certified courier company that will smooth your import and export path. Call the team now on 01442 507 240.

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