Customs and trade post-Brexit - ThinkHouse

David Lowe: Hello everybody. Welcome to ThinkHouse Spring Seminar on Customs and Trade Compliance. This is our live Webinar and forms one of the series of four live Webinars we are doing for ThinkHouse this spring. ThinkHouse is our programmed aimed at in‑house lawyers and I am David Lowe, one of the Partners here who leads on the organisation of ThinkHouse.

So today is on customs and trade compliance. Last week we had employment and data privacy and next… on Thursday, sorry, we have human rights and all of these sessions will be available on our website in a recorded format as well. But this, right now, is live. And it is going to be our customs and trade compliance in a post‑Brexit arena.

Obviously Brexit has caused huge changes on the border between the UK and the EU and we are dealing with many queries from people as they deal with the complexities of crossing the border, which they have not had before because, whilst we were in the EU, we could easily cross the border without any problem. It even applies to those people trading between Great Britain and Northern Ireland, for reasons that will be explained later, causing complexities to trade that have been free for a very long time.

We are going to open with Bernardine Adkins. Bernardine is our Partner who leads on anti‑trust and international trade and she is going to give us an overview of just where we are, what is happening, what is the next stage in this journey? And then I am really pleased to be joined by Ursula Johnston. Ursula in our Customs and Trade Team, she is currently on secondment at BEIS and has played a big part in the negotiation with the Brexit Treaty and particularly the rules of origin.

Rules of origin are one of those hidden traps in the Treaty that are making a big difference. You might remember, at the beginning of Brexit, whole issues about how Marks and Spencer could not get their "Percy Pigs" to Ireland, well that is all down to the rules of origin. It is a particularly complex but also critical part of the Treaty arrangement and Ursula is going to talk about that.

And we are going to end with James Stunt. James is an Associate in our Anti‑Trust and Trade Team and he is going to talk about how you, as in‑house lawyers can truly demonstrate value to your businesses by getting money back, "free money" as Bernardine likes to refer to it. James can explain how you can get money back off the customs authorities in relation to certain arrangements.

This session will last an hour, we will finish at 11:30 UK time. By all means ask questions as we go along. You will see on your panel there is a Q&A box, where you can just simply add in your questions as we go along and then we will select those questions, as we see appropriate, as the session unfolds. I apologise now if we do not get to all your questions. We know, particularly in customs, we often get very specific questions about, what would be the position for cotton T-shirts that are imported from Turkey? Well this is not the format in which we can deal with that. We will be dealing with the more general questions and then follow up, as appropriate.

I am conscious that today in the UK is the anniversary of the first lockdown and I remember last year scrambling around as we converted our ThinkHouse event from a physical event to a remote event as we all discovered the insides of our houses and spent rather more time there than we ever expected. So, at the end, we are just doing a poll to get some kind of feeling of what people's attitude is to the return to physical events later in the year and the main event for ThinkHouse is spring and autumn and so there will be a main ThinkHouse in September. Should we be considering a physical event? So, we are just putting our toe in the water there to get some kind of sense check as we think about planning for the autumn.

There is also a feedback questionnaire, which is our usual feedback questionnaire, asking you what you thought of today. But, really importantly, what you would like the next sessions to cover. We are heavily guided by what you tell us that you want to hear about and so that feedback is important. Anyway, thank you all very much for joining today and I will hand over to Bernardine.

Bernardine Adkins: Thank you very much indeed David. So yes, as David said, my role is really just to give you a bird's eye view as to where we have got to, because I think there is a sense that what this Brexit deal means is evolving as fast as the government's rules on COVID-19.

Brexit means Brexit! Well, where we ended up was essentially the far end of the spectrum as to what Brexit was meant and it was very much… that was set in motion by Theresa May's deal that she outlined in her Lancaster house speech back in January 2017. That seems eons ago. And the UK's red lines at that stage, and they stayed at that stage those red lines, was leaving the membership of the Single Market, leaving the Customs Union and the European Court of Justice, the jurisdiction of the European Court of Justice.

So, once the UK put those red lines on the table and then they were faced also with the EU red lines, which was very much to preserve their integrity of their single market, really business did not have much of a say in all of this. There were two political stances and the deal was crafted as between those two political stances, and what we have ended up with is essentially a Canada style free‑trade agreement. And it is called a Canada plus because it is more detailed in scope and in some areas it has stricter rules, for example none regression clause if there with respect to subsidies, as they are called nowadays, it is not state aid any more; labour and social standards; energy; environment and climate change and also competition policy.

And, so yes, there was a fair amount of toing and froing between those two positions and the UK did have more leverage than perhaps one would ordinary expect than say, for example, Japan. So some of the EU's initial requirements were softened, we did actually achieve a dispute resolution mechanism which does not require the intervention of the ECJ and also, by the same token, the UK did not get really what it wanted with respect to fishing and also it did not get what it wanted with respect to cross‑accumulation on rules of origin, which is what Ursula will be talking about.

So, in summary, what we got to was, negotiated at break length speeds and it is to the credit of both negotiators that they achieved this. Where we got to, there is a few surprises actually in the deal because it is along that free trade agreement lines. You have zero tariffs; zero quotas on the free movement of goods; you have provisions on trade and services, which I will come on to; and investment. You do have over a transitional period some control restored over UK's fishing water and another place for European Court of Justice.

But here is the rub, when we see free trade, yes free trade will necessarily have been tariffs and quotas on the trade of goods. However, it only applies to those goods which are of either EU origin or UK origin and that is what Ursula is going to cover, and that is the area that is most vexing and difficult for people to deal with. And in that context, because we have lost our access to the Single Market, the notion of mutual recognition of standards whereby whatever goods we produce or services we provided met a certain minimum level of safety, for example. Whereby there was that level of trust as between the members of the Single Market, whereby each would recognise the other's standards and it would mutually recognise CE marks etc. etc. or financial services host and home countries control. All of that has gone. That mutual recognition of each other's standards has gone and I did a word search of "mutual recognition" - it comes up nine times only in a massive document and that is in relation to AEOs, which is basically, trusted trader schemes.

So this means that we have a host of new tariff barriers and customs formalities emerging at the border. So we have new borders checks. It is not about tariffs and quotas, it is also about VAT, it is also about phytosanitary, safety and security as well. And that is what is causing all the friction that people are talking about.

The order thing that people are discovering was, there was so much upset about Northern Ireland at the time the backstop became the front stop and people, I think, have assumed that "oh, the problem has gone away". In fact, no, because the backstop became the front stop, it is there permanently.

Northern Ireland remains within the EU regulatory regime for trading goods and also in energy, which is why, they had to put the border somewhere, it was not possible to put it on the land because that would be in breach of the Good Friday/Belfast Agreement, so where do you put it? And it was agreed that it would be put in the sea.

And obviously there are considerable frictions between the two. The UK have said "well we will unilaterally decide how we are going to manage those frictions" and the EU says "no, you need to talk to us, we need to have a plan, a step plan has to how we are going to manage these frictions. Please stop doing it in a unilateral fashion and we are going to go to the European Court of Justice because you are in breach of your obligations of good faith."

So, ironically, in leaving the EU we have left but actually in going into a free trade agreement, we have actually done it as Great Britain as oppose to as United Kingdom. And, for now, until such time as the Northern Ireland populous decide otherwise, Northern Ireland remains within the EU trade regulatory regime.

So, these are the relevant texts. I mention them simply because we are seeing many people are very much looking at the TCA, the trade and co‑operation agreement and saying "oh, it means XYZ". Something that is very important to appreciate - we are now in a very very different regulatory regime. The TCA is not directly effective in the United Kingdom. So, it is very different to what we are used to with European law where we can invoke European law as against the government. It is very clear, it is in Article 16 of the TCA that this is not directly effective.

So, we absolutely must have regard to national law in order to see what is the applicable law and not, as we used to do, have regards to the actual text itself. It may be illuminating, you may want to use it for lobbying purposes but, ultimately, what matters are these actual texts themselves.

So, as I said, the boring bit of those pretty turgid difficult texts, practically speaking I really would recommend you to have a look at the Border Operating Model, it is 159 pages. The government issued it back in July of last year and then revised it. It is a very very practical, very very accessible explanation of how the border operates and what infrastructure has been put in place; and what forms people should fill in; and what various regulatory checks they need to be thinking about.

So, thank you James. So, this what free trade looks like and as you can see, it is not very free. You have these security and safety checks, especially with food and drink. So with respect to… and anything with animal origin as well and plants as well. So they are called phytosanitary checks and also we also have the financial controls; customs duties; VAT exercise; customs declarations origin; classifications of goods, what codes you put them under; and last, but absolutely by no means least, which is what keeps David off the streets, is the contractual terms as to who is responsible for all of this.

So how will this involve? I would say and I would have said in an ordinary world, you would say well actually the TCA, there is a lot yet to be worked out. It was done at breakneck speed, we are seeing all sorts of holes, because FTAs are not normally negotiated between two people that have such intermeshed economies and also e‑commerce is such a new thing. So, we are seeing so many holes, things that at the time were not thought of, for example: returns for clothes, if clothes do not fit you, you return it. Well, actually, if… the goods in question will have lost its origin and so duties are due back on that good when it is returned back to, for example, Antwerp or wherever it came from.

And that is sort of a glitch. Well lots of those glitches are being worked out. So, what would happen? Ordinarily, you would actually hope that there would be easements, discussions, co‑operation between the two sets of parties but, politically, that does not seem to be feasible at the moment. So, hopefully over time we have got an institutional framework within the TCA, we have got the Partnership Council and a plethora of other committees and working groups, a Trade Partnership Council and ten trade specialised committees.

So, in an ideal world, what one would hope for would be a set of agreed guidelines as to how this should all be interpreted and worked out. But at the moment the political situation is not looking as though we are going to have those agreed guidelines any time soon. It seems to be very much it will be unilateral declarations of people firing at each other in each other's directions. We are just not in a great position to be in from a business perspective but that is where we are.

So, key dates, this is where things are changing. I deliberately did a slash through this, because I have been warning everybody, the honeymoon period is about to end in April. It is now going to end in October. Because with respect to goods coming from the EU to the UK HMRC is now going to say "right, products of animal origin and plants now require notification; health certification to HMRC". And that is when we are really going to see real trade frictions. And I think the government realise we are all going to be partying "please God" this summer, but there will be no food in the shops, frankly. Because people have yet to get themselves used to this new system and also the government have yet to put in place all the infrastructure they need. So, mercifully, that has been commuted through to October.

Also, we have another commutation with respect to full customs declarations. That will start to happen in July. People can still defer their full customs declarations, pay customs at a later date, that has been commuted until January of next year.

So, frankly, what we are seeing in terms of trade disruptions, there are a lot of disruptions from the UK to the EU and the Food and Drink Federation, for example, has said in January there was a fall in sales of food and drink - 75%25 fall. And, that cannot be all due to COVID-19 and in fact people are saying well really now people have got used to supply systems while we are all in lockdown. So a lot of that is very much down to Brexit and people getting used to the new system.

I am mentioning this because we have yet to really experience this because we are all locked up in our back bedrooms, wearing slippers at the moment. But I do see this as being a very very problematic area because, quite frankly, with respect to failing to provide services, what we have is very very limited indeed. There is next to nothing said on the TCA with respect to free movement - ourselves moving across to the EU or vice versa.

And mode 4 is the one that really matters, the movement of natural persons and there are conditions. These are really really limited as to the conditions under which you can move abroad to provide services. And things like contractual service supplies, independent professionals, looks really good. You think, "well that could work". If you look at the detail, so much of this, the devil is in the detail. If you look at the detail, it is supplying services for direct consumers. So, it will apply to things like hairdressers but not advertising professionals or you know top end professionals, no disrespect to hairdressers, who we all very much value.

Also, there are so many reservations. So, so many countries have put reservations with respect to specific professions as well. So that is an area that is going to be fraught with difficulties as people start to move again.

So that is the end of my, what is really a whistle stop tour and I am going to hand you over to the real meat, to Ursula to deal with rules of origin.

Ursula Johnston: Thanks Bernardine. Hi, good morning, and thank you for joining us today. So, just to give some background on what I am going to talk about today. I am talking from the position of being a government employee, albeit on a secondment basis. So, I am currently within the Government Legal Department and I sit within a Policy Team within the Business Enterprise and Industrial Strategy Department and my role has been, up until the end of last year, was advising through the negotiation of the Trade Co‑operation Agreement. And since then I have also been working on some of the other trade agreements, so that is Australia; New Zealand; the US and also potentially what will become the comprehensive Trans‑specific Partnership Agreement.

What I want to do with this presentation is to give you sort of like a run through what rules of origin are around goods. But, also just to give you a bit of a flavour for some of the questions that I have seen come in from industry bodies that get directed to BEIS and then ultimately to myself and my policy clients. And I think quite often as these are starting as what is the applicable rule of origin for my products? Or we seem to have fallen within some gaps within the agreement, and what we are doing at government is trying to look holistically, not only at rules of origin but customs procedures, as a whole, to see where we can help industry to continue trade at the same level as they were last year.

So, as Bernardine mentioned the United Kingdom is no longer part of the EU Customs Union and, in order to continue trade tariff free with the EU, it is necessary for the UK goods, or goods being exported from the UK to meet the applicable rules of origin, which you can find in chapter 2 of the TCA. And, obviously the same applies for trade out of the EU into the UK.

So, rules of origin essentially determine the economic nationality of a good and they form the backbone, in my view, of the free trade agreement, because without meeting those rules it is not possible to take advantage of the agreement. And what you will see as we go through the presentation today is that the rules are quite different depending on what type of good we are looking at and what stage of the manufacturing process that good is at.

So obviously for both the UK and the EU there the objective of both sides of course is to encourage complex manufacturing at the end of the value chain, rather than sort of very basic low value-add manufacturing. So, you will see that the rules do shift as we look at more highly manufactured and more complex goods.

So one of the questions or confusion that we have seen is this… the need to separate distribution from production and that if you merely have distribution activities in the UK, it is highly unlikely that goods that you export from the UK into the EU will qualify for preferential treatment. So you need to always have a minimum level of production in the UK. The only exception to that is where we have distribution but where that distribution activity takes advantage of customs easements and custom suspension arrangements. So that the goods never really enter into what we call the UK free circulation. Then those goods may not need to meet the rule of origin but they will still qualify for whatever arrangement the EU might have with the country of manufacture.

So if I think, for example, of a widget that is manufactured in Canada and those are sent to a UK distribution hub and the UK distribution hub will send those into France and Germany, if those widgets are put into a customs warehouse in the UK then those goods will still be able to qualify for preferential access into the EU, but under the Canada-EU trade agreement. So, you basically can fit any of the qualified criteria that the UK has in place.

So, if you want to look at how to comply with rules of origin and this is a fairly summarised and simplistic view of Chapter 2, the rules of origin. But, essentially there are three key steps. One is to classify your good and I will just touch on that briefly in a moment. Understand then whether your good meets the applicable rule of origin and there may be more than one applicable rule and then, thirdly, is then how to make sure that you, from an administration perspective, that you can demonstrate that your product has met the relevant rule or rules.

Now on the slide, I tried to get this wording removed because it says "you can choose a customs agent to help you with rules of origin" but, in general, your customs agent is not liable to ensure that your business complies with the rules of origin. They may be able to assist in ensuring that the customs declaration is filled out or completed correctly so that you can benefit from the TCA, but it is not their responsibility to make sure that from a legal perspective that your business is compliant. And customs agents are really there just as an agent, as a broker.

And, I also know as well that they are under a huge amount of stress and pressure at the moment. There are not enough customs agents in the UK to process EU trade declarations and that is one of the reasons, as I understand it, that the easement around filing the customs declarations for EU trade will continue until the end of this year.

So, for the purposes of international trade, so whether you are trading with the EU, the US, China - your goods must be classified under the harmonised system which is monitored and regulated by the World Customs Organisation. So you need to find a ten digit classification essentially when you would like to import goods into the UK or export/import your goods into the EU. And under the harmonised system which is, as I said, globally recognised. You will have a six digit code assigned to your goods that is consistent on a global level and then when you get to ten digit level that is particular to whichever territory you are importing into or exporting out of.

And here, if you have a look, so tempered safety glass you have… it falls into chapter 70, which covers glass and glassware, then it would fall into heading 70.08 safety glass and then sub‑heading 70811 which applies to toughened safety glass. And this is quite a simple example, but you can imagine for chemicals, for complex mechanical parts that this process can be quite difficult. And you know we are seeing it with some of the queries that we are getting from businesses that there is a lack of understanding of how to correctly classify goods which then in turn has a knock‑on effect on how accessible compliance with rules of origin become.

So, once you have determined what your code is, your HS code, you need to understand the supply chain where materials are sourced from, what the value of those materials are and, as Bernardine mentioned, under the TCA we have the principle of accumulation, which means that EU content can count as UK content, for the purposes of calculating whether the rule of origin is met and vice versa. And we will have a look at an example of that shortly.

And I think the other important point which is involved here, is that where your product incorporates any kind of none originating materials, so that is materials or ingredients or components which are not of UK or EU origin, then you will need to make sure that your product complies with this product specific rule of origin as well as the general rules of origin.

So, I have set out here the four types of rule of origin that may need to be met so, wholly obtained I will not talk too much on this because this really impacts agricultural, mineral products so goods that are borne from the ground or grown or live animals that have been raised in the UK or the EU. The next rule is where we have a change in the tariff code which essentially signifies that the good has undergone some kind of processing or manufacturing so that your input produce significantly different product at the end of that manufacturing process.

Then the value add or maximum non‑originating material or max‑nom as it is referred to in the TCA. So you will see here that in the rules quite frequently there will be a maximum value threshold of non‑originating material that can be incorporated into your product for it to comply. And, then lastly, we have specific processing rules, so that particularly would be in the sort of chemicals and textiles industries where products have to undergo specific types of processing manufacturing in order to qualify as being locally produced in the EU or the UK.

So, why do we need to think about ex-works price? Well, what I have just explained about the maximum non‑originating content rule is that uses the ex-works price as the reference point. So, if you have a maximum rule then that is… so, for example, you could have 50%25 if you are building a vehicle… 50%25 of the value of that vehicle, the ex-works value of that vehicle could be from components that were procured from outside the EU or the UK.

So, to give you the next specific example of the tariff heading rules, so we have a ceramic mug and you could have two different ways that you manufacture or you could use this mug in the UK. One is where you import the clay and you create and manufacture the mug yourself or you could perhaps import the mug as a ready‑made article but you have to stick the handle on before you can sell it onto the market. So, the rule for 69.11, which is the HS applicable to the mug, is there must be a change in tariff headings. So any none UK or EU originating materials must be classified in a heading other than 69.11. So, you can see in the first manufacturing option you have where you import clay from China, clearly that clay is imported under one HS code but, at the moment, it is exported to the EU. It is exported under a different HS code. So the non‑originating clay is classified under a different HS heading and it qualifies for the change in tariff heading role.

In the second example, where you just simpley wish to attach a wooden handle to the mug in the UK, this will not qualify because, at the moment, where the mug, albeit without a handle, is imported into the UK from China, it is classified as a mug and therefore, by just simply adding a handle, you do not change the tariff heading.

So, here we have a couple of maximum non‑originating material examples. So, we have chosen a valve here. So the product specific rule for 84.81 which is HS code applicable to the valve is either you need to have a change in this para sub‑heading, so that is at the six digit HS code level or, the alternative, and it is not an "and", it is an "or" so, alternatively, you could choose to meet that product specific rule by having a maximum of 50%25 of non‑originating material. So that means that 50%25 of the ex-works price of the product potentially must be made up of UK and EU parts and manufacturing costs.

And what happens in practice is rather than for these max non‑rule calculations, most businesses will rather than looking at the non‑originating content, they will find it easier to support their claim of origin by looking at the originating. So what you see globally, in different trade agreements, the way that these percentage value add rules are calculated and whether you use an ex-works price or an FOB price, they all vary quite significantly as do what you may and may not include in that 50%25 value-add. So, some agreements, for example, will allow to use the profit elements and some will not.

And when you read the text of the TCA you will see that there is quite a lot of detail on what is and is not allowed to be included. So, where you have an import of parts for this valve that are worth £200 but the ex-works price of the valve is £2,500 well then clearly the product meets the 50%25 max nom rule. However, where you have parts you know worth over a £1,000, then the ex-works price of the valve is £2,500 then the non‑originating imports are worth more than 50%25 and so the valve does not qualify under the max nom rule. However, all may not be lost because, depending on the processes that are undertaken in the UK in the manufacture of that valve, it still may be able to meet the change in tariff sub‑heading rule.

And here is just another example. So, again you have a ball point pen, and I will not go through the example that you see. Where you have you know parts imported from Canada with different values and different manufacturing costs this impacts whether the product will qualify or not. So, I think this example nicely illustrates as well that yes the assigning of value to your imports and locally procured materials is important but so is some of the other elements, inter‑calculation like such as manufacturing costs, which can include the labour; manufacturing overheads etc.

And here is just an example of a specific processing rule. So where you have spectacle lenses which are classified under 90.01.50, so that is a sub‑heading at six digit level. So you will see that the TCA specifies quite a particular process that those spectacles must go under to qualify, and these processes will have been led by input from industry from both the UK and the EU to inform policy. What does a typical manufacturing process in the EU or the UK of spectacle lenses look like and how do we ensure that for both parties that those processes are kept on shore.

I have just seen a question. I have a question from Ben - it says "how do you access the value of the labour/value add service when accessing the max nom rule? Is it the basic cost of the labour service and how is that determined in a mass production setting?"

So, that is a good question and that was one of the points of negotiation with the EU because most manufacturers would not keep a record of each individual item. And where you have price fluctuations, you might have overhead fluctuations and how do you allocate those? So what the agreement allows for is that you can use any generally accepted accounting method to apportion an average value across a 12 month period. And so, therefore, what you would probably want to do, you would want to land on sort of an average labour and value add manufacturing overhead costs for each component using averaging. So, I hope that maybe answers your question.

So here is just another example of where we have a television. The rule is there must be a change in tariff heading. So, where you have materials that are imported under various headings so, for example, aerials - they are then manufactured into a TV in the UK and you have that clear change in tariff heading. However, where you have a television that has been imported from Canada and it is a television when it arrives in the UK and merely in the UK we do some small sort of adjustments to the TV or change the frame then, because those imported non‑originated materials are classified in the same heading as the final product that TV will not meet the rule as set out in the TCA.

So, accumulation, what this allows and this is common in trade agreements, so between the EU and the UK we have an agreement that both materials and production can be considered. In either territory can be used in calculating the rule, whether the rule of origin is met. However, one sort of proviso on that is that the production must always be sufficient. So, within the TCA, there is a list of processes which can be considered insufficient for production. And, if your operations do not go beyond those then you will not qualify for UK preferential status. So, what you cannot do is sort of move product back and forth between the UK and the EU endlessly, because you need to be doing some kind of sufficient production when those goods cross the border.

And these are some of the examples of what is considered insufficient production that are contained within the TCA and they are standard across the existing EU and the new UK tariff. And some of the questions that we are getting through at BEIS are quite detailed around some definitions, more definitions and working examples of what some of these insufficient processes are.

And then, just lastly, to touch on sort of what the administration requirements are. In order to obviously for your goods to qualify for preferential origin you either need to provide a statement to your customer in the EU that your goods do meet the preferential rules under the TCA. Or alternatively, and I think this is particularly going to be the case for inter‑company transactions, that you can claim zero tariffs based on just the imported knowledge. So, if you have a subsidiary in France then that subsidiary clearly would be able to access commercial information and data about the product that you are sending to them. They are satisfied that the product you send meets the rule of origin under the TCA.

And, I think, what would be more difficult is where you sell to a third party is that the amount of data and information that would be needed to support and back up the use of the import's knowledge vision will really make it very very difficult because you will not want to be disclosing commercially sensitive information to your non‑related party customers.

And, it says here, until the end of this year you will not need a statement of origin to claim preference but you do need to be confident that the goods meet the rules and you could still be subject to an HMRC verification. Or, indeed, your goods could be stopped at the border in the EU and the Customs Authorities there could ask for evidence that your goods do meet the rule of origin. And the risk is, of course, that you are liable for backdated duties.

I will not look at this in too much detail but this is the statement of origin that will typically be put onto your commercial invoice that travels with the goods.

And here are some more details that I mentioned about importer's knowledge and what information you might need to provide to your importer firm to be able to use it. And, you will see here that you would need to provide, for example, if you were using the max nom rule, you would need to provide them with information about the value of the product and the value of the non‑originating and originating materials used in production which, in a commercial arrangement, you are unlikely to want to do.

This is my last slide here but this is essentially looking at it from the other way round. So when you want to import, so it is on zero duties into the UK, you will need to make sure that you, as the importer, have the necessary evidence to support your claim for preferential treatment of those goods. So either you must ensure that you have sufficient knowledge about the goods and the production process and value of input to use importer's knowledge, or you need to ask your supplier to provide you with a statement of origin.

And what we have seen, and David and I have done a bit of work on this, is that we are seeing that business are starting to bake clauses around preferential origin into their higher-end distribution agreements to make sure that they are given sufficient information or the right documentation to claim preference where preference can be claimed. But we do still have these easements in place so from, that perspective, there is still some time to make sure that everybody is lined up to get this running for next year.

I am conscious, we have got 10‑12 minutes left and so, what I suggest, David shall we pick these questions up at the end of James' session?

David: Why do you not take one of them?

Ursula: Sure.

David:  Let's just give it a bit of a pause and shake down and then back on with James.

Ursula: So I can see Sophie's question. So her first question which is "do mere distributors who serve the whole of the UK market need to be asking their suppliers to confirm country of origin for products which come into GB and then may or may not be exported to Northern Ireland as part of their distribution network?" Yes so in this example I think what you are saying is where if you have a distribution hub located in GB so let's say Birmingham for example and you those goods are perhaps from a variety you have products that you are storing there that could be both the UK, EU or some third country origin. Yes you will need to make sure that when those goods, if you then distribute those goods into Northern Ireland that you are able to provide a statement of origin and that is interlinked with Northern Irish protocol of being able to demonstrate that where you move this into Northern Ireland your good are not at risk of being onward movement into Ireland so being released back into the EU market.

A question has come from Adina "what happens to financial services, what are the rules for imports exports?" I assume that you mean stuff like cross border supply of financial services i.e. I don't know on those particular chapters but I am sure David we can pick that up after the session. I will pass over to James and I will let James introduce himself as well.

James Stunt: Thanks very much Ursula and good morning everybody. I will be spending the final 10 minutes or so of this presentation discussing a topic which is directly linked to rules of origin and one which we are seeing increasingly in practice. In effect I will be discussing the ability of businesses to make an application to customs authorities for the repayment of import duties where a company has not been taking advantage of an applicable EU or UK free trade agreement. As David said right at the start this could potentially be 'free money' from businesses or at least a substantial windfall.

So I will start by showing this graphic which sets out the EU's free trade agreement landscape currently. The EU at the moment trades with over 70 countries worldwide and as you can from the slides that includes a variety of jurisdictions. Some of the world's largest economies and some of the EU's key trading partners. Similarly as you will be aware the UK has also been engaged in negotiating a number of free trade agreements either in the form of trade and continuity agreements with previous partners to EU free trade agreements or has agreed separate free trade agreements in their own right with the UK so the most obvious one for our purposes is the EU-UK trade and cooperation agreements, the TCA. There are also a substantial number of other agreements in place and the number is rising. One thing to just point out is that countries such as Mexico and Canada while these trade agreements might not be fully implemented as yet the countries are still applying preferential tariff treatment in respect of their goods so that is something to keep in mind if you are engaging in trade between those two countries.

So one of the key benefits of a free trade agreements for businesses is the ability to make the most of preferential tariff treatment in respect of products. Essentially that means the businesses can import their products into a party to a free trade agreement and paying reduced or zero tariffs on those imports. Despite this the figure as reported by the EU in its 2019 review of its free trade agreements indicate that preference utilisation is quite low in some cases while it is a relatively positive for countries such as South Africa or South Korea, countries such as Japan reported about 37%25 of imports used preferential benefits and preferential treatment where they were eligible for this treatment and similarly Canada was only about 54%25. What this means is that a large number of businesses could have been trading between these countries and incurring hundreds of thousands of pounds if not more by paying customs duties where they could have benefited from reduced or zero rates of duties. This is obviously a key issue in sectors that have particularly high tariff rates in respect of their products. The most obvious one is the automotive sector but as you can see from the slide, it applies to a wide variety of sectors including clothing, footwear, food and beverage.

So what do you if you are a business that has been importing products between parties to free trade agreements and you identify the fact that you have not in fact been benefitting from preferential tariff treatment underneath the trade agreements. The good news is that many free trade agreements include a provision whereby companies can make an application through the relevant customs authority for a repayment of tariff of imports. A key thing to note when looking at this is that the rules of the procedures for making such an application differ depending upon the relevant free trade agreement and that includes timescales. I have set these out in the slide here just by way of an example the EU and UK ECA and the EU and Canada free trade agreement or CETA have a deadline of three years from the date of the products import into the relevant country by which businesses can make an application in contrast South Korea has a free trade agreement with the EU provides than application can be made two years after the date of clearance so it is not a one size fits all deadline for making such an application.

One other thing to note is that for such applications it may be necessary to provide a retrospective origin declaration and this is essentially a declaration by the exporter which proves that the products in question satisfy the rules of origin as set out under the applicable free trade agreement. Initially customs authorities according to the provisions of the relevant free trade agreement can only accept such retrospective origin declarations within two years of the products imports, so that is something to look out for when considering whether to make an application as you may be in a situation where your imports have spanned the full three years of the deadline for making an application but in practice you are only realistically able to claim for two years' worth of imports.

So the process of making an application the procedures will differ depending upon (a) the terms of the free trade agreement itself and (b) the rules of the individual customs authority in question. I am just taking an example here of making an application to the UK customs authority specifically HMRC and the National Duty Repayment Centre. Applications are typically done on line using a form C285, which requires certain prescribe information in respect of the company so this would be a VAT number for example and also the products in question, so this would include the important entry number and the customs classification code for these products. Any applications should also include various other information such as the ones listed on the slide which may or may not be applicable depending upon the status of the application where this can include the customs entry, the original preference certificate etc. Our experience is that it is always best to provide customs authorities with as much information as you possibly can in order to process a claim. It saves a lot of time in administrative effort further down the line if you are able to get all the documentation in line for the application and saves a lot of hassle.

For applications to HMRC or the National Duty Repayment Centre the application will be processed within 30 days and you will have a response either acceptance or rejection of the application or a request for further information in respect of the application within 30 days of submitting the said application.

So finally the question of Brexit has raised a couple of concerns in relation to this process. As you will be aware the UK having left the EU UK traders have now lost access to the EU's free trade agreements from the expiry of the transition period, 31 December 2020 which raised some concerns as to whether businesses could make applications for repayment of customs duties that they paid under the terms of an EU free trade agreement while the UK was able to benefit from them. We have discussed this with HMRC and our understanding at the moment is that it is very much business as usual from HMRC's perspective so provided that your products were made satisfied the rules of origin under the applicable free trade agreements that you are within the prescribed timescale for making a repayment application and your application includes the correct supporting information, HMRC will continue the process, that repayment application and it will confirm the outcome of any application within 30 days. I should note that this is our understanding of HMRC's perspective on this. We do not quite know yet what other customs authorities throughout the world will take in terms of this approach.

So to finalise what should you be doing now? Assess whether or not your business has been appropriately utilising an EU or UK vitae. Check whether you are eligible for a duty refund and you are within the correct timescales for such an application and make sure they have all the appropriate supporting documentation in order to make a claim.

So that concludes the presentation and I will hand back over to David for questions.

David Lowe: Thanks James. So there is the overview so we have got Bernardine gave her overview at the beginning of where we are with Brexit and the fact that we have got further deadline coming up and some of the challenges we are seeing, just coming to terms with that hard border and the administration required is a big challenge for everyone. I have certainly dealt with more VAT queries in the last six months than I have ever done in the last 25 years and I have reviewed more customs agency agreements than I have done in the last 25 years. We have had Ursula helping us get our heads around these rules of origin because it is not intuitive. Just because you have imported some from the EU does not mean its gets a zero tariff and so getting your head around that is really important and Ursula has provided some really helpful detail and then James has reminded us of some of the upside of this and it might be admin heavy on this but there is upside if you are willing to look into it to hopefully recover overpaid duties.

So we have had a couple of questions. I do not know if there are any ones you want to pick off before we wrap up? So the first one from Sophie is that one we can quickly deal with?

Ursula:So repackaging of goods to comply with local regulatory requirements we need some more detail on what repackaging looks like but in general it is unlikely to be counted as, its normally probably not enough to be considered sufficient so it would fall so one of the operations generally will always be considered simple if you do not need special skills, machines or apparatus to carry out those operations so I think so sub-paragraph (k) says one of the examples of insufficient operation is the simply placing of bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations so it would be question of looking at your particular repackaging operation and thinking through whether you indeed need special equipment or apparatus to do that.

David: Thanks Ursula. Bernardine is the SaaS one you are able to do?

Bernardine: Briefly that is concerned with export of software so depending upon the software in question I think that is asking about export controls and obviously we are now EU a third country so you need to make sure that certainly if we are exporting software from the UK you need to ensure that you are complying with the export control regulations and also visa versa if it is going the other way as well make sure you are complying with it the EU regulatory system and one thing I would add is that the UK is now obviously re-changed its sanctions regime. There are very heavy sanctions for breach of sanctions whereas before it was two years imprisonment the worst case scenario, it is now 10 and the way that the UK has taken on board the EU regime on board it is immensely complex so sanctions and also export controls I would say are a trap for the unwary so that is something people really need to get their heads around and take extreme care especially if you are in one of those areas concerned with controlled goods. There was a question for financial services, what is the regime for financial services? As I said earlier it is going to be immensely complex. It is a question of working out well what is the financial service because obviously it would be a whole host of different possibilities and then you are going to have to pick your way and say OK what is the specific regime, what is the nature of the service that within those various modes of that particular financial services you are providing and then you may have to look through the exemptions as well so it is very much going to depends upon what you are actually wanting to do. That is in terms of financial services we are waiting for the EU to recognise that the UK system as equivalent and quite frankly they are taking their time, it was meant to be done last summer and I would not be surprised if we do not end up with recognition of equivalence and the UK says fine we are taking our toys back and we are going to manage without recognition from the EU so I suspect we may actually end further adrift from the EU because that is how things look at the moment so financial services is very much a spot to what because it is evolving.

David: Right thanks Bernardine. We are running over so I am going to draw a line there and see we have had another question but I think we really need to sort of move on. I would just like to thank you all very much for joining us today for this session on customs and trade. Do join us on Thursday for human rights, the impact that the law is going to have on human rights for companies and do look at when we circulate the recording, do look at last week's data privacy and last week's employment seminars. I am sure you will find them really useful. Thank you very much.