“No, where is it *really* from?”
(Or, why even the ‘Norway option’ has its difficulties.)
I make video cameras.* They are really rather fly. The most fly.
I’m not going to tell you exactly how I do it — that’s a secret — but I’ll give you a general idea:
I import some raw materials and components from various non-EU countries, predominately East Asia. I then put them all together in a special way, here in the UK, and voila: a fly product.
These cameras are so fly, in fact, that I’ve got buyers all over the EU.
As it stands, I pay an import tax on the raw materials and components, but I sell the end-product, my new fly video cameras, to customers in Germany, Spain and Austria without any additional export/import taxes being levied. This keeps costs down, allowing my video cameras to compete with its (inferior) market competitors.
This is possible because, as a member of the EU, we are also part of the EU customs union and share a common external tariff. Any goods entering into a country within the EU customs area have a fixed tax slapped on them, unless agreed otherwise. But once they’re in, they’re in. You can do whatever you like with them— glue them to other things and make something special, anything — and ship the resulting product around the customs union without it incurring any more import/export levies.
The UK has voted to leave the EU. We’re still unsure what that means in practice. But are we to actually leave, the best case scenario is that we sign up to the EEA agreement (The ‘Norway option’). This would allow us to retain full access to the European single market.
This is the best worst option, but it still has its draw backs:
While UK companies would retain access to the single market, we would no longer be a member of the customs union and its common external tariff. Thus, as per the EEA agreement, UK products will now only be able to enjoy tariff free access to the customs union if it can be proved they actually originate here in the UK.
In my case, if I want to continue selling my video cameras to the EU tariff free, I must prove that they actually originate here in the UK and not outside of the EEA. What proportion of a product’s final value needs to born of work done in the UK (or other EEA countries) for it to be considered of UK/EEA origin varies, dependent on the product.
Here’s what I need to work out for my video camera:
All the more so when you consider that the many different parts of my video camera have been sourced from all over the globe. Some of the parts went through two, three, even four countries before making it to me.
I’m probably going to have to employ a lawyer to work it all out for me. Lawyers aren’t cheap. Did I mention I make around 1000 similar products? Same problem.
An identical issue will arise were we to, instead of signing up to the EEA agreement, negotiate a new free trade agreement with the EU.
Anecdotally, I know that some of my UK based competitors and their buyers are planning to ignore any preferential access agreement entirely, and instead pay the WTO rates. The hassle of proving their products are of EEA origin so as to trade tariff free with the EU just isn’t worth it. Maybe I’ll do that.
Whatever happens, it’s going to get more expensive for my buyers in the EU to import my fly video cameras. It’ll probably lose me business.
*I don’t actually make video cameras … and they are probably not the best example (when writing this I forgot about the expansion of the WTO International Technology Agreement which zero tariffs most electronic goods). But you get the idea.