Details of how the deal reached in late 2020 is impacting commercial transactions are now starting to arise, and as they do, they throw light on details within the 1246-page agreement that make for some uncomfortable reading.
The initial news was that the deal would see tariff-free trade with the EU. In fact, it is tariff-free trade with the EU, but subject to the strict and complex rules of origination. Less snappy but more accurate.
One of the first transactions “caught” by the new rules involves Marks & Spencer and their popular “Percy Pig” sweets.
These sweets are manufactured in Germany (the place of origin under the “wholly obtained” definition). They are then exported to Great Britain. This transaction is duty free as the goods originate in the country which the goods start from. It’s the next step that has shown the limitations of the deal however. Where M&S in Great Britain sell these sweets on to their Republic of Ireland stores, because the goods have not undergone any significant transformation, their origin is still Germany. As this is not the country that the goods are being exported from, the sales to Ireland will subsequently incur duties for M&S Ireland.
The rules on origin are complex and, usually, initially dependent on the commodity code of the relevant goods. Whilst there may be ways of avoiding duty on the second part of the transaction, for example having the goods sent directly to Ireland or placed in a customs warehouse in the UK rather than enter into free circulation, the costs and potential further implications must be thoroughly reviewed.
The indications are that the problems encountered by M&S and other retailers are so far limited to food and clothing, but, as mentioned before, this is the point where the true impact of Brexit may be felt by businesses; where commercial practices are held up to the agreement. As a result there may be news of other instances that we will keep you up to date with.
If you have any questions about the impact Brexit could have on your business, please contact Ian Marrow, Director at Rickard Luckin at firstname.lastname@example.org
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