By Robert J. Kerwin
It was four years ago that Britain’s then-prime minister, David Cameron, set a referendum on the U.K.’s continued membership in the European Union. In June 2016, the citizens of the U.K. voted to leave the EU.
In January 2020, the U.K. officially withdrew, and since that time the EU and the U.K. have been operating under a "transition" agreement which left many aspects of trade in place, really as if the U.K. was still a member of the EU. The official Brexit "transition" period expires on December 31, 2020, at which point the "EU-UK Trade and Cooperation Agreement" will operate to define their future relationship.
Much will still need to be sorted and various committees have been established to undertake this sorting. The Agreement is being described as "provisional" or "draft", as the EU Parliament will formally take up approval next year, but most observers expect the EU Parliament’s approval to be a mere formality. As of January 1, 2021, the Brexit Agreement is taking effect, which begs the question:
Are you ready?
Reading through the Agreement
could be a daunting task. The main text of the Agreement is nearly 500 pages long and with appendices, the total read
is closer to 1300 pages.
In a forward to the 34-page U.K. summary, Britain’s prime minister, Boris Johnson, touts the Agreement’s accomplishments as the “first [agreement] the EU has ever reached allowing zero tariffs and zero quotas.” And remarks: “[w]e will preserve the immense benefits of free trade for millions of people in the United Kingdom and across Europe.”
President of the European Commission, Ursula von der Leyen also offered an assessment
: “[i]t was worth fighting for this deal because we now have a fair and balanced agreement with the U.K., which will protect our European interests, ensure fair competition, and provide much needed predictability for our fishing communities. Finally, we can leave Brexit behind us and look to the future. Europe is now moving on.”
So, what does it all mean for "trade" between the EU and U.K.? While I confess, I have not waded through all of the pages of this enormous Agreement, and there remain a few blanks with regard to implementation, here are some of my key takeaways from discussions with IAMERS members:
1. You should have a plan for expected delays and extra paperwork to meet customs formalities checks and controls.
As of January 1, 2021, customs requirements will apply for medical equipment entering the territory of the European Union or leaving the European Union for the United Kingdom. Even though the Agreement establishes a free trade area providing zero tariffs and zero quotas, all products traded between EU and U.K. will be still be subject to regulatory compliance checks and controls for safety and health.
No one really knows at this point if this customs process will be seamless and speedy. It will be important for you to consider that delivery schedules will be impacted, and you should now be thinking more comprehensively about what you may need to change in your standard contracts and more particularly, the supply chain impacts.
“Particularly when involved in the shipping out of MRs, you want to anticipate possible delays in your logistics,” cautioned Harry Khabra, managing director of U.K.- and Spain-based Vertu Medical. On the whole, Khabra was optimistic about sorting and transport issues, adding: “we are about giving value-adds when we make a sale, and clearing these logistical issues will be just another part of the risk analysis."
2. Know your custom documentation requirements.
This is a good point to begin figuring out the details of the U.K. and EU customs requirements. Under the Agreement, fees and other charges imposed in connection with importation or exportation will be limited to the approximate cost of the services rendered, and not represent an indirect protection of domestic goods or taxation of imports or exports. Both the U.K. and the EU have promised to promptly publish all fees and charges they impose in connection with importation or exportation via an official website. The information will include the reason for the fee or the charge for the services provided, the responsible authority and how payment should be made.
3. Expect the backlog, particularly for road and sea traffic.
For some EU and U.K. businesses, complying with these customs formalities will be a relatively new experience. Several experienced shippers have noted that we can anticipate, at first, some delays at the borders which could cause delays in importing. It will be important to know about your time frames for deliverables and whether you have agents in place to satisfy the custom formalities. As Christian Frandsen predicts: “each individual firm will be spending more time on trade compliance, as there might be a lot of obstacles on the export/import procedures.”
4. You should be checking the Incoterms in your standard contracts.
The Incoterms are a set of three-letter trade terms from the International Chamber of Commerce which are inserted in contracts to describe the various tasks, costs and risks involved in the delivery of goods from sellers to buyers. Maybe you will want to change some of your “D” terms such as DAT (Delivered at Terminal). Some experienced sellers are viewing the DAP (Delivered at Place) to be a value-add for buyers who would prefer that Seller clear customs.
5. You should have a plan for the movement of specialized tools.
“You may also want to consider the movement of specialized tools (ramp supply, transport wheels etc.) as they likely can no longer be moved freely," advised Christian Frandsen, head of logistics for Denmark-based Agito. "They likely need to be moved on ATA Carnet (or temporary export).”
Failure to comply with these requirements may cause a company to pay full DUTY & VAT when engaged in transport.
6. You should consider if your hospital seller has become an exporter
Some medical equipment buyers have long been purchasing directly from hospitals. This raises a further question as to whether the hospitals are registered as "exporters" and if not, how would the hospitals go about getting units out of the territory if they do not have a local entity from which to export?
7. You should be acquainted with, and have in place, supplier declarations to address “Rules of Origin”.
As of January 2021, businesses will have to demonstrate the originating status of goods traded, in order for these goods to be entitled to zero tariff, zero quota status.
Can I demonstrate the "originating" status of the medical equipment I am selling in order to be eligible for preferential treatment under the EU-UK agreement? Equipment not meeting origin requirements may be liable for customs duties notwithstanding the zero tariffs and zero quotas.
Have I adapted my supplier declarations to reflect the rules of origin? Am I familiar with the expected procedures for demonstrating the originating status? It probably is worth a review of Chapter 2 of the Agreement entitled "Rules of Origin" (the core concepts are described in the first five pages) to analyze the possible impacts of this section. Though Article Orig. 2 makes clear that products "wholly obtained" or "produced" are viewed as satisfying the Rules of Origin, it’s not so clear with regard to some products incorporating non-originating materials. As noted therein, “accessories, spare parts, tools, and instructional or other information materials referred to … may be disregarded in determining the origin of the product except for purposes of calculating the value of non-originating materials if a product is subject to a maximum value of non-originating materials."
8. Repaired and remanufactured devices.
The Agreement does provide (in Article Goods 8) that a customs duty does not apply, regardless of its origin, if the "repaired" goods re-enter the party’s territory after the good was temporarily exported from its territory to the territory of the other party for repair. Remanufactured goods are to be treated in the same way as new goods. It was interesting to note that if either the EU or the U.K. adopt restrictions with respect to used goods, these restrictions will not apply to remanufactured goods. I did not locate any other discussion with regard to "used" goods.
9. Know the chemicals in your medical equipment and if your devices are properly registered.
EU rules on registration, evaluation, authorization and restriction of chemicals (“REACH”) will no longer apply in the U.K. Though the EU REACH requirements will not apply in the U.K., the U.K. will have U.K. REACH Regime. There seems to be a transition period until October 28, 2021 for the new U.K. regime to be adopted. In general, I did not locate anything in the Agreement to suggest that these EU rules will be relaxed when it comes to U.K./EU trade. Sellers/Buyers will want to factor in the REACH and the U.K. Reach Regime compliance in purchases/sales.
10. Certificates, authorizations, markings and labelling.
The situation is similarly complicated for application of the EU RoHS Directive and the U.K. corresponding regime. The Conformite Europeenne marking (CE) which is the most recognized indicium of compliance, will no longer apply in the U.K. For most CE marked goods there will be a one-year transition period in the UK. It is worth reviewing the 2019 U.K. guidance
for businesses moving to a U.K. Conformity Assessed Marking.
Much more may be said in future articles as to the terms of this expansive agreement concerning such matters as new immigration systems, service providers, foreign nationals and/or companies outside the EU, contracts, jurisdiction, intellectual property rights and personal data. Suffice it to say that the Agreement may have, notwithstanding the pronouncements, significant impact on business operations.
About the author: Robert Kerwin is General Counsel to the International Association of Medical Equipment Remarketers and Servicers (“IAMERS”). This article does not constitute legal advice concerning the EU-U.K. agreement or otherwise. Readers are encouraged to consult their own legal counsel and/or regulators within their member country or jurisdiction of origin.