Category: key concept

The elephant in the room

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A wall of silence still surrounds  the computer system at the heart of the BTOM, called the Single Trade Window (STW). This will be the one and only way of getting data into the system. The final version*⁠1 of the BTOM guide, published on February 11 states: “ …the Single Trade Window could be fully operational in 2027.” 

There are a number of reasons why this could be awkward, but one will do. The STW calculates the aggregate cost of wear and tear caused by lorry traffic to roadways at ports. This operational detail is  used to set a levy called the Common User Charge (CUC). This is payable when a lorry leaves a port: the CUC is added to a rolling monthly invoice. While the STW sets a figure for Government operated ports, private operators were invited to fix their own charges, as they would do for anything else.  Dover and Portsmouth,  the two busiest ports in the UK, both happen to be owned and operated privately.

Sorry, but this is not a clickable link yet. 1 Feb-11-24-Final_Border_Target_Operating_Model.pdf para 350 page 88

Meursing numbers and the price of policy

A former Brussels economist lent his name to a set of figures and formulae that quantified the cost of the EU’s agricultural policy to market prices. Since leaving the Commission, Mr Meursing appears to have disapperaed without trace.

At the foot of this page are links to articles discussing Meursing numbers, supplementary customs codes that encapsulate the composition of specific food products going through customs. These are the foundations of EU customs declarations and reflect the ingredients used.

I am starting a collection of posts to illustrate the application of Meursing numbers.

Rules Of Origin (ROO)

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Goods that combine components from more than one trading bloc are subject to the Rules Of Origin procedure. Goods made in the EU are zero-rated on arrival in the UK, while the status of duty payable on third country components or ingredients used in EU goods is determined by applying Rules Of Origin. These establish whether or not the third country component has been transformed sufficiently for it to be considered an integral part of a new product. If it is a fellow traveller in a blended product, for instance, it is liable for duty.

The first target is to ascertain whether or not the component concerned has been absorbed into the finished EU product. If so, it can usually be covered by the duty payable on the finished product. If, on the other hand, it can be recovered from or identified within the EU product, the third country component may be liable for third country duty pro rata. The key marker is whether or not the third country component qualifies for a change of customs code. This will be decided by the UK customs staff on a case by case basis.

In the case of third country extra virgin olive oil (1509 2000), it is considered a fellow traveller in a blended product. This currently stands at 104 gbp per 100kg, according to the UK government online tariff service, https://www.trade-tariff.service.gov.uk/subheadings/1509200000-80 (as of check made on May 29).

Line for line

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The product descriptions that appear alongside customs codes in a schedule are set in stone. The whole point of the Harmonised System (HS) is that at any given time, specifications are the same from one trading bloc to the next. When classifying carcases, for example, there is no adjustment to be made for organic product over intensively-raised. The existence of additional input costs is of no concern when filling in customs declarations. Every market has its own mechanisms for assigning values and prices, which are separate from fiscal liability.

Third country

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Despite the inference that there could be multiple options, being a third country is a binary opposite of a member state in European parlance. The possible source of ambiguity in this distinction is that there are two implied alternatives to being a third country. Between themselves, EU member states use the term third country to refer to countries which are not EU members, in much the same way a verb might be conjugated. To complete the analogy, the first person is the member state speaking, the second person refers to the other member states on an equal footing, while the third person is identified as a separate, external non-member.

Unlike other areas of European policymaking, in which a wide spectrum of buying-in is accepted without argument, the distinction between being a member state and a third country is fundamentally indivisible. The UK negotiators failed to gain any traction in their attempts to carve out a halfway quasi-membership status that might have opened the way to feathering a cuckoo’s nest of a la carte patronage for British interests. The choice of Michel Barnier to lead Brexit talks for the European Union reflected his commitment to the indivisible membership of a European community that was used to accommodating consensus policymaking in specific areas and contexts.

Import VAT

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In today’s economy there is a big difference between the place of production and the place of importation. The place of importation today is the customs post which is clearing goods for onward travel. At the turn of the twentieth century in the days of empire, it is arguable that the UK national frontier included or contained the colony concerned. One can be sure, however, that customs duty would not have been expected on goods leaving a colony and arriving in the UK.

In today’s post-Brexit economy, however, things are a bit different. The place of production determines the rate at which duty is payable (or zero percent, depending on the provenance of the goods). Regardless of duty, however, import VAT is due and can be considered a fiscal rite of passage. A consignment of goods arriving at a UK border post will have a customs value: this is the aggregate of the value of the goods, insurance, shipping and administrative costs (such as phytosanitary checks for plant material).

Zero duty goods will not be charged import VAT on the zero duty, but will be charged VAT on the rest of its customs value, at the applicable UK rate. Since import VAT is an aggregate, it will be levied on each component of the consignment at the applicable rate of VAT, for example haulage from point of origin to the customs post will be charged at 20%; food safety checks at, say, GBP 450 per container will be taxed at 20%, likewise freight insurance and office admin costs. In short, zero-duty goods will escape customs duty but not import VAT. The implementation of Sanitary and PhytoSanitary (SPS) checks in July 2023 will add another administrative layer to food imports as well as increased levels of import VAT when customs values rise.

The increased cost of importing food — or anything else for that matter — will not go unnoticed. The government’s additional tax revenue will take a bit of explaining. There is not a queue of UK politicians waiting to sell this delicate state of affairs to the electorate.