Reed Smith Client Alerts

Moving goods back and forth between the EU and the UK has become considerably more difficult since 1 January 2021. Brexit has not only increased the number of formalities for crossing the Channel, but often it has also led to the payment of import duty – despite the EU-UK Trade and Cooperation Agreement. Companies must be aware that after goods leave the EU for the UK, the goods can only return to the EU free from import duty under strict conditions. The European Commission’s approach to returned goods under the EU-UK Trade and Cooperation Agreement is different from the approach under the Canada-EU Comprehensive Economic Trade Agreement, which leads to the question of whether such a double standard is legally justified.

Importing goods from the UK into the EU: the origin requirement

Under the EU-UK Trade and Cooperation Agreement (the TCA), no customs duties are levied on goods originating in the other party (article GOODS.5 of the TCA). The origin requirement is an essential one: to benefit from TCA preferential treatment, goods imported into the EU must be wholly obtained in the UK, be made exclusively from originating materials in the UK, or meet the product-specific rules of origin as set out in the annex to the TCA. On 5 February 2021, the European Commission issued its guidance on origin procedures under the TCA.

In determining the origin of a product under the TCA, so-called ‘bilateral cumulation’ is possible: a product originating in the EU will be considered as originating in the UK when used as a material in the production of a product in the UK, and vice versa. This is only the case, however, if the production goes beyond the acts of insufficient processing listed in the TCA. Simply painting, polishing, preserving, labelling, etc., will not be sufficient to confer origin.

Goods that do not satisfy the origin requirements shall be subject to the conventional duty rate when imported from the UK. The same approach applies when importing goods from the EU into the UK. But what about originating goods that return after initially being exported to the other party?

The Commission’s approach to returned goods

Where EU originating goods are exported from the EU to the UK (duty free) and then returned to the EU (without undergoing processing in the UK), EU import duty will need to be paid when the goods are re-exported to the EU. When those goods left the customs territory of the EU, they lost their Union status and, at the same time, they failed to obtain UK originating status under the TCA (due to insufficient processing). As such, the relevant UK exporter cannot make the relevant ‘statement of origin’ which would allow the relevant EU importer to import the returned goods into the EU duty free.

This approach contrasts sharply with how the Canada-EU Comprehensive Economic and Trade Agreement (the CETA) works. For EU originating products returning to the EU from Canada without having undergone any processing in Canada, the Canadian exporter may make out an origin declaration referencing the ‘Canada/EU’ origin, entitling the importer in the EU to benefit from the CETA duty preference. The same applies for goods returning to Canada. The EU explicitly acknowledges this simplification in its October 2020 CETA guidance on origin.