It is an ill wind that blows no one any good. As businesses prepare for the end of the Brexit transition period, they would be well advised to consider an overlooked source of income: overpaid customs duties.
As the Department of International Trade sallies forth to replace the Free Trade Agreements ("FTAs") that the UK enjoyed as part of its EU membership, we consider the last 'hurrah' available under these agreements - the claim back of overpaid duties.
In this note, we look at why this is a viable proposition for UK and EU companies alike but warn that there may be a limited window of opportunity for such claims to be made. We also consider the need for business to consider its altered exposure to customs duties where the UK has not negotiated 'rollover' FTAs, or they have expired, and in the light of newly minted UK FTAs such as with Japan.
EU Free Trade Agreements and preferential duties
Until the expiry of the Brexit transition period on 31 December 2020, UK businesses continue to benefit from preferential duty rates when trading with countries that have concluded Free Trade Agreements ("FTAs") with the EU.
Preferential duty rates allow traders to pay reduced (or zero) customs duties provided that certain rules are met.
Many traders underutilise these FTAs - meaning that duties are paid unnecessarily. Depending on the volume and value of the products, this may be hundreds of thousands of pounds in duties in a given year.
Where duties have been overpaid, business can lodge applications with the relevant customs authorities to reclaim these. We have recently been engaged in successfully claiming hundreds of thousands of pounds for clients under various EU FTA's.
UK traders will lose access to EU FTAs on 31 December 2020, and it is not clear what process will govern duty refund requests from 1 January 2021.
Time is running out to reclaim large amounts of overpaid customs duties.
FTAs have the potential to deliver significant cost savings in industries, especially those subject to high tariffs, including:
- clothing and footwear;
- consumer electronics and parts; and
- food and beverage.
The EU has FTAs with over 70 countries. If your business exports to one of these countries, your products may be eligible for reduced (or zero) customs duties. Notable EU FTA partners include:
However, many FTAs are underutilised. In 2018, only 37% of exports utilised preferential duty rates available under the EU-Canada Comprehensive and Economic Trade Agreement ("CETA").
Refund requests based on EU FTAs are about to get more complicated
The UK will no longer benefit from EU FTAs after 31 December 2020.
While the UK has negotiated continuity agreements, which effectively 'rollover' the terms of the existing EU agreements after Brexit, these are in fact completely new agreements. It is not clear whether customs authorities will allow UK traders to make refund requests using the processes within the previously applicable EU FTAs.
These FTAs contain differing rules for the periods over which duty refunds can be claimed. CETA, for example, allows exporters up to three years to apply for a refund of duties paid for products that should have received preferential treatment. With the UK no longer a party to these FTAs, it is not clear what timescales will apply.
It should also be noted that customs authorities have varying policies for refund requests. Some countries (e.g. Canada) allow importers to apply for duty refunds for up to four years after the goods were initially imported into Canada. By contrast, the Korea Customs Services requires that refund requests are made within two years of the date the relevant goods cleared Korean customs.
The process for reclaiming duties under a previously applicable FTA could be subject to a different process to reclaims under a currently applicable FTA. Lodging reclaim requests during the Brexit transition period therefore provides greater certainty to traders with regard to the process and timescale for obtaining duty refunds.
What should I do?
UK traders, and particularly those in sectors with high default tariff rates, should act now to assess whether they have appropriately utilised EU FTAs, and whether they may be eligible for duty refunds where they have not done so.
EU based businesses will be able to make refund claims in reliance upon EU FTAs during and after the Brexit transition period, with no change to the process resulting from Brexit. The exact process will depend upon the rules set out within the relevant FTA.
Businesses currently importing into the EU from EU FTA partner countries should ensure that they are appropriately utilising FTAs. If not, businesses paying duties on imports into the EU may be able to claim refunds for any overpaid duties from the relevant EU Member State customs authority.
UK FTAs will shortly enter into force - are you ready?
To much fanfare, the UK announced last week that it had concluded an FTA with Japan.
The UK-Japan FTA is one of a number of new UK-negotiated FTA that enter into force on 1 January 2021, and will govern the UK's trade with various trading partners that previously benefitted from an EU FTA.
These will apply whether or not the UK and EU conclude an FTA as part of the Brexit negotiations.
UK traders should assess whether their products qualify for preferential duty treatment under these UK agreements.
Not all EU FTA have been 'rolled over' by the UK yet, and with time running out - it is possible that trade with some countries may be subject to higher tariffs from 1 January 2021 (e.g. Canada, and Vietnam). UK businesses trading with these countries should consider their potential duty exposure in the event that the UK is not able to 'rollover' the relevant EU FTA before the end of the Brexit transition period.
Here to help
Gowling WLG's International Trade and Customs team regularly assists clients to calculate potential duty overpayments and prepare refund documents, and manages on their behalf duty refund processes across multiple jurisdictions.
We advise a number of businesses on the post-Brexit customs and trade landscape and the steps that can be taken to reduce risk, minimise duty exposure, and keep goods moving whatever the Brexit outcome.
 Report from the Commission to the European parliament, the Council, The European Ecnomic and Social Committee and the Committee of the Regions on Implementation of Free Trade Agreements
 Existing UK trade agreements with non-EU countries