21 January 2021

EU and UK businesses have had a month to understand and apply the UK-EU Trade and Cooperation Agreement (TCA) to varying degrees of success. In this article, we explore three common mistakes and their consequences from a contract perspective. We also reflect on the impacts of this new trading relationship in the wider international trade context.

Common customs mistakes

Mistake #1: Incoterms rules don’t matter

Incoterms rules describe the obligations of the buyer and the seller, allocate risk and costs between the buyer and the seller. They can be found in sales contracts and are indicated on the commercial invoice.

One of the many consequences of the end of the Customs Union relationship between the UK and the EU is that customs duties become due, unless the goods can claim preferential treatment under the TCA. Not all goods traded between the UK and the EU can.

If a seller has chosen to deliver using DDP Incoterms, the seller would be responsible for the payment of any customs duties. This is an additional cost compared to trade up until 2021.

In addition, the Incoterms rules are also relevant to customs valuation, the determination of the value to be declared on the import declaration. When the customs duty rate is ad valorem, there is a direct impact on the amount of customs duty payable.

The importance of Incoterms should not be underestimated. However, changing them could potentially open the sales contract to other changes, such as pricing. That should not however prevent businesses from undertaking a review of their Incoterms now to select the most advantageous terms from a customs duties liability viewpoint.

Mistake #2: EU goods exported from a distribution centre in the UK can claim preferential treatment under the TCA

Many UK&I businesses supply the Irish market from a distribution centre located in Great Britain. Some have assumed that since the goods were manufactured in the EU, upon their return to the EU (i.e. Ireland), the TCA will allow the importer to claim preferential treatment and pay zero duty.

Based on the current wording of the TCA, as well as the guidance, this is a misconception. Businesses should examine their supply chains to explore ways to mitigate the customs duty impact when EU goods are re-sold to an EU customer via the UK.

Businesses with a UK distribution centre model who are contracted to make supplies to customers in the EU may wish to review these contracts to account for the additional financial impacts.

Mistake #3 We know what 'importer’s knowledge' means

For businesses that are trading goods, which are covered by the TCA, they must be able to evidence the preferential origin before they can benefit from zero tariffs. There are two ways to evidence preferential origin. The most common way is for the exporter to make a statement on origin on a commercial document, which is normally the commercial invoice. Alternatively, the importer can claim importer’s knowledge upon import.

Importer’s knowledge is a relatively new concept of evidencing origin. It should be used carefully. In order to claim preferential treatment using importer’s knowledge, the importer must have access to all the information necessary to determine whether or not the goods in that particular shipment are of EU or UK preferential origin according to the rules in the TCA. Where the buyer and the seller are unrelated parties, it is unlikely that the importer will have access to commercially sensitive information which would allow them to make this assessment. As such, importer’s knowledge should be applied with care.

When relying on a statement on origin made out by the exporter and it is later found that these statements on origin were falsified, customs duties would become due. The business may wish to address, in their commercial contracts, situations such as this to determine which party will ultimately be liable to pay.


It is early days, but we are already starting to see UK manufacturers flexing their muscles in relation to the composition and tariffs on goods entering the UK (google Brompton or Marks & Spencer by way of example if you have not seen the press). Naturally the Government had to set up its own trade dispute remedy function, and the Trade Bill 2019-2021 provides for the establishment of a Trade Remedies Authority for this purpose. Until such time as the Bill passes Parliament and receives Royal Assent, however, the powers and functions of the proposed TRA are being wielded by the Secretary of State under the aegis of the temporary Trade Remedies Investigations Directorate. You can search on their website for 'live' inquiries, which may lead to full blown disputes.

Product Regulation

We previously warned that if UK businesses now buy from customers in the EU-27 Member States there is the likelihood they will face additional costs if the goods do not meet the required rules of origin or if origin is not evidenced, as they will be treated as imports from a third country. Goods imported from a third country now attract customs duty rates as listed in the UK Global Tariff (UKGT), the UK’s new MFN tariff regime applicable from 1 January 2021. The 'hot' areas where we are seeing the most enquiries on this issue this month are in relation to Food, Chemicals, Technology and Electricals (especially those products that are multi component and cross the UK/EU border a multitude of times before they are ready for sale).

Foreign Direct Investment into the UK

So with Brexit and COVID-19, the reputation of the UK as a great place to do business and be used as a springboard for worldwide businesses to launch into Europe, took a bit of a bashing. However, whilst government data showed a drop off in attractiveness, businesses continued to venture to the UK, and since the new year, there has been a marked increase in businesses once again looking to set up in the UK. The highly educated workforce, sympathetic but robust regulatory regimes and comparatively weak pound continue to provide a sound security blanket for foreign direct investment in the UK. We will watch with interest to see how the UK Government balances the financial costs of COVID-19 with making the tax and regulatory regime more attractive to overseas investment into the UK.


There is some preparation to be done before the next round of sales contract negotiation. Here are some suggestions:

1. Complete an updated financial impact analysis to identify where the TCA can help and where it cannot.

2. For originating goods covered by the TCA, ensure the procedural requirements relating to evidencing origin are met.

3. Check which Incoterms in your contracts are suitable now the TCA and UKGT are in play.

4. Explore options to make your supply and sales contracts more resilient to assist in ROO identification and customs cashflow challenges.

5. Keep an eye on the TRA website for others in your sector lodging potential disputes against competitors of yours.


This article was written by Paul Browne, Head of International Trade and Jessica Yang, Director, JY XBorder Consulting Ltd. For further guidance and help with the actions listed above, please get in touch with Paul or Jessica.

Key contact

Paul Browne

Paul Browne Partner

  • Head of International Trade
  • Real Estate
  • Nuclear

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