We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
18 December 2020
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.
With the Department of International Trade set to replace the free trade agreements (FTAs) that the United Kingdom has enjoyed as part of its EU membership, this article considers the last 'hurrah' available under these agreements: the claim back of overpaid duties.
This article looks at why this is a viable proposition for UK companies, but warns that there may be a limited window of opportunity for such claims to be made. It also considers the need for businesses to consider their altered exposure to customs duties where the United Kingdom has not negotiated 'rollover' FTAs, or they have expired, and in light of new UK FTAs, such as that with Japan.
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 FTAs with the European Union.
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. Some companies have successfully claimed hundreds of thousands of pounds for clients under various EU FTAs.
UK traders will lose access to EU FTAs on 31 December 2020 and it is unclear 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:
The European Union has FTAs with more than 70 countries. If a business exports to one of these countries, its 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).(1)
The United Kingdom will no longer benefit from EU FTAs after 31 December 2020.
While the United Kingdom has negotiated continuity agreements, which effectively roll over the terms of the existing EU agreements after Brexit, these are in fact completely new agreements. It is unclear 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 United Kingdom no longer a party to these FTAs, it is unclear what timescales will apply.
It should also be noted that customs authorities have varying policies for refund requests. Some countries (eg, 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 on which 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.
UK traders, 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.
In September 2020, to much fanfare, the United Kingdom announced that it had concluded an FTA with Japan.
The UK-Japan FTA is one of a number of new UK-negotiated FTAs that will enter into force on 1 January 2021 and govern the United Kingdom's trade with various trading partners that previously benefited from an EU FTA.(2) These will apply regardless of whether the United Kingdom and the European Union 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 FTAs have been rolled over by the United Kingdom yet, and with time running out, trade with some countries (eg, Canada, and Vietnam) may be subject to higher tariffs from 1 January 2021. UK businesses trading with these countries should consider their potential duty exposure in the event that the United Kingdom cannot roll over the relevant EU FTA before the end of the Brexit transition period.
For further information on this topic please contact Bernardine Adkins, Ursula Johnston or Sean Giles at Gowling WLG's London office by telephone (+44 207 379 0000) or email (email@example.com, firstname.lastname@example.org or email@example.com). Alternatively, contact Claire Bradwell at Gowling WLG's Birmingham office by telephone (+44 207 379 0000) or email (firstname.lastname@example.org). The Gowling WLG website can be accessed at www.gowlingwlg.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.