Brexit and the effect on the production Industry
The Financial Times has published an article in July 2017, what triggered our Customs Compliance Origin Specialist, Jolande van Ochten, to write a Brexit article from an Origin perspective.
The article is a good example of what production companies might have to deal with after the Brexit. In the article the car sector has been set as an example. It indicates the effect of producing an end-product after the Brexit in the UK, plus the effect of depending on parts sourced from the EU.
Current- and after the Brexit situation
Are cars produced in the UK are determined to have a UK (preferential) origin? We can subdivide the word origin in two types of origin: Non-preferential origin and Preferential origin.
Non-preferential origin: for example a Certificate of Origin, which is a trade politics related document is often required for importing goods into a certain country. The basic rule for the non-preferential European Union (UK) origin is that the end product must have gone through the last substantial transformation in the EU (UK).
You can find the full ‘non-preferential origin guidelines’ determined by the Eurochambers here.
Preferential origin: for example a EUR1 certificate, invoice declaration or declaration REX which are always duty related. By meeting the preferential origin standards, a reduced percentage of duties is applicable. In most situations this might even be zero.
A Land Rover Discovery was the example in the article of the Financial times. The picture below gives a clear overview of the UK sourced parts and the imported parts sourced and originated in the European Union.
While the UK is still a part of the EU, the parts can be sourced within the EU without paying any duties. In the situation of a hard Brexit, parts and articles sourced from the EU will be considered as third party goods. This of course will also be the case when the EU imports from the UK.
Free Trade Agreement
The Brexit can lead to various scenarios. It can also lead to a Free Trade Agreement between the UK and the EU. Which, in all likelihood, will be bilateral or maybe on a PanEuromedian level or perhaps a construction like the EU has with Turkey.
A lot is still uncertain because of a lack of clear information. At this moment we can only guess and wonder.
The UK car producers can’t possibly buy every component needed to build a car in the UK.
This means that the parts, after the Brexit, imported from the EU, will be sourced from a third country. Which means that duties may be applicable. Duties on these parts will have an average of 4,5 %.
Proof of origin
Within the EU there is a simplification regarding underlying proof of origin in the form of suppliers declarations. This enables companies to declare the origin of goods supplied to each other.
Suppliers declarations refer to applicable law and requirements that need to be fulfilled. The suppliers declarations can be needed in order to request origin documents at the Chamber of Commerce or are needed for Customs controls. The question rises if these declarations will be replaced by official origin documents like an official Certificate of Origin, issued by the Chamber of Commerce. Which will not only effect the UK but also the rest of the EU.
In this article I have spoken of how the car industry will be affected, but other products produced in the UK might have similar situations. Even though a lot is still uncertain it is good to know what might happen when the Brexit takes effect.
Click here to read the full article of the Financial Times “Brexit triggers a great car parts race for UK auto industry” which inspired me to write this article. It gives a clear overview of aspects the impact the Brexit will have seen from a production side of view.
When there is more clarification about the Brexit and the impact it will have we will let you know, keep an eye out on our website for news or sign up for our monthly newsletter and get the news directly in your mailbox.
Source: Financial Times