Summary
For products shipped across an EU/UK border since January 2021, the end of the 6-month grace period for the submission of documentation required to validate self-certified originating status claims (on which duty-free access is based) has started. Failure to validate initial claims will potentially see UK MFN tariffs imposed. This poses problems for ACP products shipped to the UK via the EU, where invalid originating status claims were initially made. For these products extending the grace period for document submission will not help. What is required is the introduction of simplified procedures for the verification of initial ‘originating status’ of ACP products re-exported (e.g., through HMRC recognising country specific phytosanitary certificates as valid documentary proof of origin for duty free access claims). Such reforms need to be urgently introduced if the commercial viability of a wide range of ACP triangular supply chains are not to be fundamentally undermined.
At the end of June 2021 press reports indicated UK importers were ‘sleepwalking into disaster, as the UK’s six-month moratorium on customs declarations comes to an end’ (1). This moratorium was part of a temporary solution to new rules of origin complications arising under the EU-UK Trade and Cooperation Agreement (TCA).
This moratorium introduced a system of self-certification by companies of the ‘originating status’ of the products being traded across EU/UK borders, and provided the basis for claiming duty free access to the UK market under the EU/UK TCA or other appropriate trade arrangements for 3rd country products. Throughout 2021, this special arrangement provided for a six-month grace period for the submission of supporting documentation to validate the self-certified ‘originating status’ claim made, on which duty-free access was granted to goods crossing an EU/UK border.
According to reports carried in The Loadstar, many businesses are unfamiliar with the procedures which need to be followed for self-certified claims of ‘originating status’ to be validated by the end of the grace period. As a consequence, many businesses ‘will sleepwalk into a failure to declare’ (1), with the prospect of facing tariff bills based on the MFN tariffs applicable to the product imported where self-certified claims for duty free access cannot be validate.
This is occurring even where the services of specialist customs intermediaries have been employed. This arises from a lack of effective communications between importers and customs intermediaries on the procedures which need to be followed to access expedited customs clearance processes on a duty-free basis. Evidence submitted to the House of Lords European Union Committee suggested the new rules of origin were not fully understood by businesses, with businesses not following procedures or retaining documentation essential to validating their own self certified claims (2).
Under the UK government’s border operating model considerable emphasis is placed on the role of customs intermediaries in facilitating the continued smooth flow of goods across EU/UK borders. However, these same customs intermediaries are ‘concerned over …the way in which government has handled its post-Brexit customs policy’. Particular concerns are reported over the delays customs intermediaries have faced in being approved to use the Customs Freight Simplified Procedures (CFSP) which provides swifter customs clearance and is the ‘only mechanism for meeting the declaration requirements of goods imported under the six-month waiver.’ One customs intermediary reported it had taken ‘five months to be certified, despite filing a perfect application’ (1).
This has made it difficult for businesses to find customs intermediaries eligible to use the CSFP system. This situation is compounded by the liabilities customs intermediaries have to take on, if they are acting on behalf of companies registered in the EU. This sees the customs intermediary becoming ‘equally liable for any tax due on the imports declared.’ This is reportedly making it difficult for EU registered businesses to find customs intermediaries ‘willing to handle the backlog of EU importers’ declarations’ (1). This could prove difficult for ACP produce onward shipped via the EU to the UK by EU traders.
In addition, some customs intermediaries suggest since the delayed declaration scheme set in place at the beginning of 2021 involves filling in a 28-page document, few UK importers adopted this scheme. This was particularly the case for SMEs. Reportedly some customs intermediaries have adopted the delayed declaration scheme (CFSP) on the importers behalf, without spelling out the implications of this in terms of subsequent documentary requirements to validate the initial self-certification ‘originating status’ claims made (1). As a consequence, much of the documentation required to validate initial claims has not been retained.
More seriously from an ACP perspective, many of those involved in shipping along such triangular supply chains lacked a clear understanding of the new rules of origin introduced within 8 days of the signing of the EU/UK TCA. As a consequence, some false claims for ‘originating status’ and duty-free access appear to have been made. Overall understanding of the new situation was not helped by the repeated bland assurances from Prime Minister Johnson that duty-free trade between the EU and UK had been retained. This is generating some potentially serious problems.
Her Majesty’s Customs and Revenue (HMRC) services is in a particular quandary. In the coming weeks and months, it will have to decide whether to:
- Invalidate unverifiable self-certified originating status claims, deny the duty-free access claimed and initiate processes to recover unpaid import tariffs, with the government revenue benefits this would generate.
- Extend the grace period for submission of supporting documentation beyond the current six months allowed, against the background of an intensified communications campaign targeting the affected businesses, informing them of the detailed requirements they need to comply with to enjoy duty free access on the basis of self-claimed ‘originating status’.
- Accept the details of the new EU/UK trading arrangement was poorly communicated to businesses and waive potential tariffs, by taking self-certified declarations at face value, with the consequent government revenue losses this will generate
How this quandary is resolved will carry important implications for ACP exporters shipping goods to the UK via the EU outside of customs supervision and potentially the future commercial viability of such triangular supply chains.
| Comment and Analysis
From an ACP perspective, particular problems arise as a result of: a) The absence of ‘diagonal cumulation’ provisions in the EU/UK TCA. b) Shortcoming in the ‘direct transport’ provisions of the rules of origin included c) Shortcomings in the infrastructural and institutional arrangements for As a consequence of this reality, ACP agri-food products shipped to the UK via the EU outside of customs supervision and without any substantive process taking place in the EU prior to onward trade will have lost their initial originating status and will have become ‘stateless goods’ subject to standard MFN import tariffs on entry to the UK. This reality has in some instances been disguised by the 6-month grace period. While initial self-certified claims of ‘originating status’ may have been made for these ACP re-exported products by the EU traders or UK importers, if these claims cannot be verifiably documented then import tariffs will be faced. This can only be averted by finding an alternative basis for the verifiable documentation of these products when traded outside of customs supervision. This is a particular problem for ACP fresh produce where intuitively it was assumed these products would be unaffected by the new EU/UK trade arrangements and would continue to enjoy duty free access under rolled over UK-only trade arrangements. In looking at the situation in regard to the re-export trade in these products a distinction needs to be made between: · Those products where honest declarations of origin were made, duty free access · Those products where originating status and duty-free access was claimed on an Invalid claims are most likely to have been made along supply chains where for onward delivery, similar products which are produced both in the EU and imported, are shipped as single consignments across the EU/UK border (e.g., for cut flowers, oranges, peppers, fresh beans etc). While a lot will hinge around whether the UK authorities extend the grace period for submission of supporting documentation for the validation of duty-free ‘originating status’ claims, more fundamentally, for ACP producers whose products have been re-exported from the EU to the UK, a critical issue will be whether the UK authorities will unilaterally introduce simplified procedures for the verification of initial ‘originating status’ of ACP products re-exported in an unaltered state to the UK via the EU, outside of customs supervision. For example, for all ACP cut flowers and most fresh fruit and vegetables (with the exception of only 15 products), the country specific phytosanitary certificates, issued by the authorised body in the country of production (which has to accompany all imports into the EU), could be used as documentary evidence of country of origin. Such documents are already accepted by the UK DEFRA as a valid basis of proof of country of production from a phytosanitary import control perspective. It would be only a small step for the UK government to allow HMRC to accept this same documentation as proof of country of origin, when determining eligibility for duty free access under UK-only trade arrangements with ACP countries for products shipped to the UK via the EU outside of customs supervision. Similar arrangements, using supplier invoices on branded country specific products such as high-quality Caribbean rums, would also need to be considered, with other similar product specific verifiable country of origin proofs being accepted. It should be noted, the challenges faced in the UK are also being faced along ACP-to-UK-to-EU supply chains, although the other complications faced, arising from the implementation of standard EU third country controls on goods crossing from the UK since 1 January 2021, will have had far more serious direct trade disruption effects than along ACP-to-EU-to-UK supply chains (see companion epamonitoring.net articles, ‘Brexit Begins to Seriously Impact of Re-Exports of ACP Products to Ireland via the UK’, 22 June 2021 and ‘Brexit Costs Are Leading to a Restructuring of UK to EU Supply Chains’, 11 June 2021). Given the policy level changes required if substantial tariff bills are not to be faced along triangular supply chains, there is need for an urgent lobbying initiative to encourage the UK government to adopt unilateral measures to address the rules of origin challenge facing ACP exporters. Such UK government action would be wholly in line with the calls made in the House of Lords, European Union Committee report, ‘Beyond Brexit: Trade in Goods’ report of 25 March 2021, for the UK government to adopt unilateral measures to address unresolved issues left over from the hastily concluded UK/EU TCA (see epamonitoring.net article, ‘UK Parliamentary Report Reviews Operational Shortcomings of EU/UK TCA and Highlights Rules of Origin Problems Faced by ACP Re-Exports’, 8 April, 2021). Failure to get to grips with this issue could carry serious long-term implications for the commercial viability of a wide range of ACP triangular supply chains, at a time when Covid-19 linked freight movement challenges across a range of modes of transport are greatly complicating efforts to adjust pre-existing routes to market so as to avoid the need to cross a UK/EU customs and regulatory border (see for example companion epamonitoring.net articles ‘The Sea Freight Reefer Constraint on ACP Perishable Exports Compounds Brexit Complications’, 25 May 2021 and ‘East African Air Freighted Horticulture and Floriculture Exports to UK facing Devastation Given UK ‘Red List’ Travel Restrictions’, 13 April 2021). |
Sources
(1) The Loadstar, ‘UK importers ‘sleepwalking’ into chaos as customs declarations freeze ends’, 25 June 2021
https://theloadstar.com/uk-importers-sleepwalking-into-chaos-as-customs-declarations-freeze-ends/
(2) House of Lords, European Union Committee report, ‘Beyond Brexit: Trade in Goods’, 25 March 2021
https://publications.parliament.uk/pa/ld5801/ldselect/ldeucom/249/249.pdf
(3) COLEACP, ‘Adapting to the UK’S exit from the EU Customs Union and Single market from 1 January 2021: Challenges for ACP Horticultural Exporters Background Information , 1 February 2021, page 79-82
https://eservices.coleacp.org/sites/default/files/file_fields/2021/documents/Brexit%20readiness%20assessment%20tool_EN_2021_BD.pdf