On 4 June, the European Commission advised economic operators to prepare for the consequences of the United Kingdom leaving the European Union on their imports and exports. Following the UK’s withdrawal, UK inputs, including materials and certain processing operations, will no longer be considered EU origin for purposes of enjoying preferential treatment. Whether a particular good qualifies depends on the rules of origin specified in each trade agreement between the EU and its trading partners. The Commission advises EU exporters to treat any UK inputs as “non-originating” when determining the EU’s treatment of their goods post-Brexit and to take appropriate steps to be able to prove the preferential origin of goods without counting UK inputs as EU content. Economic operators importing goods into the EU also are advised to take steps to ensure that the exporter can demonstrate compliance with EU preferential origin rules given the exclusion of UK inputs after Brexit.

A transition period is foreseen from Brexit day in March 2019 until the end of 2020 during which customs arrangements would remain the same. The existence of any such transitional period, however, depends on a final political agreement between the UK and the EU, supported by the UK Parliament and the European Parliament, on the entire withdrawal agreement package. Furthermore, the European Commission has been clear that only when an agreement is in place will it notify trading partners that the UK should be treated as a Member States for purposes of EU-third country free trade agreements during the transition period. The outcome may not be known until first quarter next year and, while undesirable for most concerned, a “hard exit” without an agreement on 29 March 2019 is a real possibility.

For companies trading in goods with UK originating inputs, this implies the need for identification of impacts and contingency planning for trade with the UK under WTO rules and for trade between the EU and its trading partners of goods affected by this preferential origin issue. Kelley Drye can assist with establishing economic baselines and scenarios to aid companies with their business planning.