After Brexit: how will « rules of origin » impact your business?
You wonder what the concrete impact of Brexit is on businesses? You witness the economic effects of Brexit, and wonder how it can affect your business? Can your company work in Europe after Brexit? Most of the answers to these questions probably lie in the cryptic expression, “rules of origin.”
Nord France Invest helps British companies set up in Hauts-de-France to maintain their trade flows with the European Union. The services of Nord France Invest are completely confidential and provided to business decision-makers by the regional authorities of Hauts-de-France.
What are “rules of origin”?
As the World Trade Organization (WTO) specifies, rules of origin are defined as “the criteria for determining the country of origin of a product.” They are important because they often define “rights and restrictions applicable” to these products, and in particular the conditions under which they may be imported and exported.
They, therefore, determine in which classifications products fall, and potential tariffs that need to be paid. These can prove to be very penalizing for exporting companies: a car exported from the United Kingdom to the European Union that does not respect the rules of origin would be subject to a customs duty of 10%, which would make the operation economically unviable in most cases.
The link between Brexit and rules of origin
The UK-EU Free Trade Agreement guarantees free trade between the two parties without quotas or tariffs. But this freedom has multiple conditions, set out in the details of the agreement, that can disrupt your supply chain or your company’s ability to produce and export freely between the EU, the UK and the rest of the world.
One of the main conditions is related to “rules of origin”. For a good to be exported tariff-free, from the EU to the UK or from the UK to the EU, it cannot contain more than a certain percentage of “non-originating” components (i.e. which come neither from the EU nor from the UK).
These rules are very likely to redefine value chains in many sectors, given the significant constraints they impose.
Find out more information about the rules of origin that apply to your products.
The main consequences of rules of origin for your business
The main consequence of these rules is that businesses in the UK can no longer just import goods from outside the EU, recondition or repackage them, and then export them to EU countries. This is because in these cases goods imported by businesses into the UK are not considered as “Made in UK”, even if they are reconditioned or packaged differently. They therefore cannot benefit from the tariff exemption granted by the UK-EU free trade agreement. A minimum level of processing, and therefore of added value for goods, must be carried out in the United Kingdom, to allow it to be “Made in UK” and therefore avoid paying customs duties.
Adapting your business model to rules of origin requirements
As the free trade agreement clearly specifies: “a product shall not be considered as originating in a Party if the production of the product in a Party consists only of one or more of the following operations conducted on non-originating materials ” (Article ORIG.7, “Insufficient production”).
For example, the following operations by themselves cannot guarantee products a UK origin:
- breaking-up or assembly of packages
- simple painting operations
- polishing or glazing of cereals
- simple placing in bottles
- simple mixing of products
- simple assembly of parts
- slaughter of animals
All companies whose activity consists only in importing/exporting and distributing products, or minor repackaging, without any intermediate transformation, will have to fundamentally review their business model.
Tariffs apply when reimporting into the EU
Many companies already noticed these constraints. In the food industry, professional organizations (on the UK side but also on the EU side) have complained about rules of origin for food and drinks. Goods that travel from the EU to UK distribution centres before being re-shipped to the EU face punitive tariffs. It is therefore no longer possible for a truck with such products to bring them from the EU to the United Kingdom, to make deliveries there, before continuing its journey into Ireland tariff-free, as this would be considered a re-export to the EU.
Deadline for certifying rules of origin
As a reminder, companies have until the end of 2021 to provide documents certifying that the rules of origin are respected. In most cases, companies can certify compliance with these rules themselves. This will reduce the administrative burden, but in the short term only.
Reorganise to seize new opportunities
But the likely restructuring of supply chains does not imply the end of trade with the EU. There are many Brexit-related opportunities that your business can take advantage of. For example, in the chemicals sector, companies can carry out part of their production in the EU to obtain REACH (European Chemicals Regulation) certification. Likewise, in the pharmaceutical sector, producing medicines in the EU will facilitate approval by the European Medicines Agency, and therefore speed up procedures for placing them on the market.
Faced with future supply chain reorganizations, your company can adopt a proactive strategy right now, and anticipate future regulatory and administrative barriers, by setting up a company in Europe.
Read more: AFTER BREXIT: Adapting your business model
Hauts-de-France, the solution combining efficiency and proximity
Hauts-de-France is the region in continental Europe that is closest to the United Kingdom. Setting up a company right at the North of Paris provides British managers with a solution that combines multiple advantages:
- immediate proximity of their European subsidiary
- access to major European markets
- logistics performance (infrastructures and carriers)
- recruitment capacities
- attractive salary and real estate costs
Nord France Invest, the Hauts-de-France region’s investment promotion agency, can help you find the best solutions to develop your business and can respond to your needs in a completely personalised manner.