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Major issues with the Rules of Origin and the new UK-EU trade agreement

A major flaw in the way that goods can move between the EU and UK has been identified and is causing disruption to supply chains in both territories. This issue is being colloquially entitled the ‘Distribution hub issue’ and the ‘Percy Pig * M&S problem’.

In short, under the Trade Cooperation Agreement (TCA), items of full EU origin – manufactured and originating in the EU – which are then imported and cleared into the UK can claim the zero-tariff preference.

However, if the same goods (unprocessed and hence not changing their originating status to UK origin) are subsequently re-exported back to the EU (including the Republic of Ireland) then the zero tariff cannot be claimed on this UK-to-EU movement. Therefore, they will be charged with duty on entry back into the EU.

This causes problems for businesses who use the UK as a distribution hub.

This is a major oversight on the part of the TCA negotiating team. Such an easement already exists in the Comprehensive and Economic Trade Agreement (CETA) but is absent in the TCA.

However, in the short term the preference on the re -export cannot be claimed.

Businesses have a couple of potential options:

  1. Inform their EU customers and build in the additional duty costs in their selling price.
  2. If goods are in the same condition when entering the UK hub as when leaving, use Returned Goods Relief.
  3. If there is minimal processing that is insufficient to grant UK origin (such insufficient processing includes packaging, cosmetic changes, etc.) or the processing does not change the first four tariff code digits, then the client should use Inward Processing.
  4. Use Transit or an approved Customs Warehouse (Bond) to hold goods before returning /export.
  5. Bypass the UK and make intra community movements.

The issue is with the EU/UK Joint Committee and Border Strategy Team at HMRC. However, until (or if) the TCA easement is granted this is a major issue for clients using the UK as a distribution hub on EU products imported to be subsequently re-exported back to the EU with no origin change.

*Percy Pig sweets are produced in the EU and imported by M&S into the UK then supplied to the ROI. 

Would you like to know more?

If you would like to learn more about how Brexit may impact you, please visit our Practical Guidance: Brexit hub here.

And if you have any questions or would like to discuss your specific circumstances, please get in touch with your usual Blick Rothenberg contact or Simon Sutcliffe using the details on this page.