Exciting news for those interested in international trade!
Since midnight on May 31, 2023, the United Kingdom has implemented two new trade agreements. Stay tuned for updates on how these agreements will impact the UK's economy and global trade relations. This blog post discusses the Free Trade Agreements (FTA) established between various countries, specifically Australia and New Zealand.
These agreements have been implemented to promote trade and economic growth between the involved nations. Let's look at the FTAs with Australia and New Zealand and how businesses can benefit.
The First Post-Brexit Free Trade Agreements The UK Has Negotiated Independently
As of midnight on May 31, 2023, the UK has officially implemented two new trade agreements that were independently negotiated. These agreements mark a significant milestone, as they are the first to be established since the UK's departure from the European Union. Furthermore, the arrangements have been implemented across all three countries involved. Companies constantly seek new opportunities to expand their markets in today's fast-paced business world. This has led to a desperate search for fresh and innovative ways to grow their businesses. Therefore, the timing of this agreement is particularly opportune, given the current global economic climate. Moreover, this development comes at a crucial time when companies want to expand their operations and improve their bottom line.
What is a Free Trade Agreement, and why does it matter to UK businesses?
International trade relies on trade agreements covering various topics (see below). These agreements grant preferential access to markets for goods made in the UK, and equal access for goods made in Australia and New Zealand is one of their most important advantages. All parties in this mutually beneficial relationship benefit from economic growth and success. In other words, a trade agreement effectively eliminates or reduces tariffs and other trade obstacles between two or more nations, making the exchange of products and services more accessible and affordable. Due to the new free trade agreements with Australia and New Zealand, businesses should expect to gain from improved access to new markets, fewer tariffs and other trade barriers, and more significant potential for investment and collaboration. In particular, the accords will increase access to Australia's and New Zealand's agricultural and food markets, which are substantial exporters of goods, including beef, dairy, and wine.
What is in the UK-NZ and UK-Australia FTAs?
Free Trade Agreements (FTAs) have come a long way from their traditional focus on trade in goods and services. Modern FTAs cover many areas, making them more comprehensive and beneficial for all parties involved. These agreements cover a wide range of topics, including sanitary and phytosanitary measures, technical barriers to trade, financial services, professional services and recognition of professional qualification, temporary entry for businesspersons, investment, digital trade, government procedures, consumer protection, Small and Medium Sized Enterprises, innovation, gender equality, animal welfare and transparency and anti-corruption. It's clear that these agreements are comprehensive and aim to address many aspects of international trade.
How can businesses benefit from reduced customs duties in a free trade agreement? Meet Rules of Origin
Businesses always investigate how to lower costs and boost profits in today's global market. One approach to achieve this is taking advantage of the preferential tariffs provided by trade agreements. Reduced customs fees may decrease prices for these goods, increasing their marketability in Australian, New Zealand, or UK markets. However, businesses must take the necessary precautions and fully comprehend the regulations to benefit from these trade agreements. To help as much as possible, a few crucial factors must be considered. The Rules of Origin, in particular, are essential to consider. To be eligible for these tariff reductions, businesses must abide by these rules.
According to these regulations, materials from different sources may be used to manufacture a good if the final production steps occur in the nation that will export the interest. This guarantees that a particular proportion of the product's value comes from the UK, Australia, or New Zealand while ensuring that the raw ingredients come from various sources. This is advantageous for UK companies who source a large portion of their materials from elsewhere, such as the EU.
Chapter 4 of the UK-Australia FTA contains these regulations:
General Rules
Product-Specific Rules
Chapter 3 of the UK-New Zealand FTA has the Rules of Origin:
General Rules
Product-Specific Rules
Origin Declaration
In addition, depending on the situation, the amount of a product that must originate in the UK to be eligible for the reduced tariff when exported to the UK, New Zealand, or Australia is specified in these Chapters, and their product-specific authorities annexe.
How can businesses meet these Rules of Origin?
By following the below four steps, you can ensure that your products comply with the terms of your agreement and avoid any potential legal issues:
Understand the rules: Understanding the rules of origin for the specific trade agreement you are working with is essential. This will help you determine whether your product qualifies for preferential treatment (see below)
Keep accurate records: Identifying your product's origin is essential. This includes documentation such as bills of materials, invoices, and customs declarations.
Work with suppliers: If you are sourcing materials from different countries, it is essential to work with your suppliers to ensure that they provide you with the necessary documentation to prove the origin of their products.
Seek professional advice: If you are unsure about the rules of origin or need help preparing your documentation, seek professional advice from a trade consultant or customs broker.
Determining If Your Product Originates under the UK-Australia or UK – New Zealand FTA
We advocate a simple three-step approach to determining if a product originates under the terms of the agreement.
STEP 1 Prepare For A Successful Rules Of Origin Self Assessment
This step is about collecting the HS code of the Finished product, containing the HS codes of the Raw Materials used and Understanding the Origin of the Raw Materials
STEP 2 Does your finished product meet the rules of origin?
This is where you must walk through all aspects of the respective trade agreement.
You may need to consider answering the following questions:
Has your product been produced using any non-originating materials?
Do you meet the product-specific rules of origin?
Do you comply with the Territoriality principle?
Do you carry out more than "Minimal operations"?
Do you segregate your accounts?
Can you use Duty Drawback?
To meet rules of origin, adhering to the so-called Product-Specific Rules (PSR) is of fundamental importance where goods are produced using ingredients or materials from countries outside Australia, New Zealand or the UK, respectively. The good news is that these rules are becoming more flexible, allowing businesses to use some imported parts and ingredients while still qualifying for the 0% preferential tariffs. If you still cannot quite make it, you may consider options such as the "absorption principle", "tolerance", or "cumulation" to help your product qualify after all.
We have produced a detailed step-by-step guide that walks you through all aspects of the trade agreements with easy-to-answer YES or NO questions to provide you with a YES or NO result. Visit www.customsmanager.ors/shop to get your copy. |
STEP 3: Proof the Origin
Businesses must have evidence of originating products to benefit from zero customs duty. Under the agreements, this can be done in two ways:
First, by placing a statement of preferential origin on commercial documents raised by the exporter. This applies to both agreements and is essential to maintaining adherence to the terms and conditions outlined in these agreements. By including this statement, exporters can help ensure that their goods are eligible for preferential treatment under these agreements, ultimately leading to increased profitability and success in the global marketplace. Regarding exporter preference origin statements, no need to provide any authorisation or approval number.
This means that you can easily make these statements without any hassle. The exact wording can be found in Annex 3B of the UK-New Zealand FTA and Annex 4B of the Australian FTA.
Alternatively, importers can also claim preferential duty based on their own. However, this can only happen when an importer holds comprehensive records of all production and manufacturing processes for imported goods. These records serve as a vital source of information for various stakeholders, including regulatory authorities, customers, and suppliers, and support the concept of "importers' knowledge".
Compliance is essential when claiming preference
Remember to keep accurate and up-to-date records, and importers can ensure compliance with relevant regulations and standards and identify and address any compliance issues regarding evidencing preferential origin. Therefore, it is essential to establish robust record-keeping practices and systems to manage these records efficiently.
Conclusion
The UK has implemented two new Free Trade Agreements with Australia and New Zealand to promote trade and economic growth. These agreements grant preferential access to markets for goods made in the UK and equal access for goods made in Australia and New Zealand. Businesses can benefit from improved access to new markets, fewer tariffs, and more potential for investment and collaboration. Free Trade Agreements (FTAs) cover many topics, making them more comprehensive and beneficial for all parties involved. Businesses must meet the Rules of Origin to benefit from reduced customs duties in a free trade agreement.
The critical top tips for benefiting from the Rules of Origin are: Understand the rules of origin for the respective trade agreement, keep accurate records, work with suppliers, and seek professional advice. For example, determining if a product originates under the UK-Australia or UK-New Zealand FTA requires three steps: Prepare for successful rules of origin self-assessment, comply with Product-Specific Rules (PSR), and prove the origin of the goods using a Statement on Origin or Importers Knowledge.
To help you meet the Rules of Origin, we have produced a detailed Step-By-Step Guide that you can purchase here:
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