Consider checking a Free Trade Agreement!

1. Logistical flows and obvious solutions

To illustrate when an appeal to an FTA can be beneficial, we discuss two examples of logistical flows.

Example 1

A company is exploring the possibility of shifting part of its production to a facility outside the European Union. This involves semi-finished products for a final product to be manufactured in the Netherlands. The semi-finished products are temporarily imported into the EU and processed, after which the goods are ultimately re-exported to markets outside the EU. What is the first thing that comes to mind? Probably inward processing.

Example 2

A company manufactures a product in the EU. To increase production capacity, part of the production is shifted to an Asian subsidiary. The components of the product are therefore first temporarily exported and then the final product is re-imported. The product is sold in the EU. Now, outward processing seems to be the best solution.

The ultimate goal of the aforementioned customs procedures is to avoid paying ‘unnecessary’ duties.

2. Free trade agreements

In addition to the aforementioned customs procedures, there are often other opportunities to optimize the customs logistics flow; namely, the use of the opportunities provided by an FTA. An FTA is a bilateral agreement between the EU and a third country. There is also the possibility that the agreement applies to a group of countries. The agreement includes provisions to promote mutual trade, such as the reduction of customs duties and the determination of origin.

Many trade agreements and economic partnerships have already been established, for example:

•          EU-Mexico Economic Partnership since 2000;
•          EU-South Africa Agreement (TDCA / SADC EPA), 1999 / 2016;
•          EU-Chile Association Agreement, since 2003;
•          EU-Korea Association Agreement, since 2011.

More agreements will be added in the future. Negotiations are being conducted between the European Commission and various countries as part of these agreements. These negotiations are all at different stages, with some discussions and agreements already well advanced. The latest status is periodically communicated by the European Commission through a publication.

Although a certain free trade agreement has not yet been definitively concluded for the countries with which the European Commission is negotiating, it is often clear in advance which goods are covered by the agreements, how duties will be phased out and which origin-granting criteria apply.

Therefore, while you may not yet be able to invoke the FTA, you can already consider the possibilities and limitations that will soon exist.

An FTA can ensure that no import duties apply when importing certain goods. This means that customs procedures, such as inward processing and outward processing may not even be necessary. Before exploring the possibilities of customs procedures, it is worthwhile to check whether you can benefit from a preferential tariff through an FTA.

3. Logistical flows and FTAs

Previously, we mentioned two examples where inward processing and outward processing were obvious solutions. However, making optimal use of a trade agreement can also provide the solution.

Example 1

A company is exploring the possibility of shifting part of its production (semi-finished products) to a facility outside the European Union. The semi-finished products are temporarily imported into the EU and processed, after which the goods are ultimately re-exported outside the EU. By shifting production to a country with which the EU has concluded a trade agreement, the company can benefit from a preferential tariff, when all origin requirements are met. The company would then not need an authorisation.

Example 2

A company manufactures a product in the EU. To increase production capacity, part of the production is shifted to an Asian subsidiary. The components of the product are therefore first temporarily exported and then the final product is re-imported. The product is sold in the EU. If production takes place in a country with which the EU has a trade agreement, a preferential tariff can potentially be claimed. In this case, an authorisation is also not necessary.

4. Conclusion

As demonstrated above, it is wise to follow developments regarding FTAs and other agreements between countries and groups of countries. An agreement between the EU and a country where your goods are produced or marketed, can lead to lower duties or significantly simplify your future customs processes.

Do you have any questions or comments on this topic? Please feel free to contact Samantha Zwart.

While every care has been taken in the preparation of this publication, Customs Knowledge accepts no liability for any errors or omissions, nor for their consequences. This article is not intended as specific advice. Please also refer to the General Terms and Conditions of Customs Knowledge BV.