Dealing with the commercial impact of additional UK tariffs on goods originating in Russia

As part of the UK's response to the Russian invasion of Ukraine, it has imposed 3 tranches of additional import duties on products originating in Russia and Belarus. In all current cases, these additional duties are 35%.

The additional duties on import into the UK are currently authorised under and implemented by the Customs (Additional Duty) (Russia and Belarus) Regulations 2022 ("the Regulations"), and the list of products to which the additional duties currently apply (and are going to apply) can be found here. The list includes:

• Copper (March)
• Lead (March)
• Iron and Steel (March)
• Aluminium (March)
• Fertilizers (March)
• Rubber (April, not yet in force)
• Sulphur (May, not yet in force)
• Carbon (May, not yet in force)
• Hydrogen and "rare gases" (May, not yet in force)
• Rare earth metals (May, not yet in force)
• Aluminium oxide (May, not yet in force)

In principle, the additional duties only apply to the relevant goods originating in either Russia or Belarus. The question of where the items originate is one to be determined by reference to the non-preferential "rules of origin" used by the UK, currently set out in S.17 of the Taxation (Cross-border Trade) Act 2018. 

The non-preferential origin test in effect states that for items that are mined or grown, their origin is the place they are mined or grown. For any manufactured items the goods "[originate] from the last country or territory in which substantial processing of them has taken place that is economically justified." As to "substantial" processing, it is only "substantial" if:

"(a) it results in the manufacture of a new product or represents an important stage of manufacture, and

(b) it takes place in an undertaking equipped for the purpose."

So a good that was mined in Russia will be of Russian origin, even if transhipped through a third country. If it is converted into a "new" product in the EU, i.e. it passes the above origin test, then when imported into the UK from the EU, the good will not pay the additional duty, as it is no longer of Russian origin.

However, in order to avoid the additional duty, these goods would of course require proof of origin on import into the UK.

Under the Regulations, the first tranche of additional duties came into force on 25 March 2022, but under Regulation 4, do not apply to any relevant items of Russian or Belarusian origin that have:

1. completed all explicable export formalities in Russia or Belarus; and
2. either (a) if by road, left Russian or Belarusian territory; or (b) if by air or sea, left the relevant port in Russia or Belarus in each case by 25 March.

The additional duties will be imposed at the UK border, and it will be the importer of record that pays them. The additional duties will be a relevant issue when looking at commercial contracts, whether long term supply contracts, or otherwise, that are affected by the additional UK duties. In most contracts there will be "boilerplate" terms that will deal with allocation of taxes and other charges, including increases or changes.  In some cases, particularly those anticipating Brexit, there were specific clauses dealing with new or additional costs and duties. Whether the party charged with the additional duties can pass them on to a counterparty depends on what the contract says, including any INCOTERMS that are specified in it, and to a lesser extent the relevant bargaining power of the parties. So, for example, if the contract requires the goods to be delivered in the UK DDP (i.e. with UK duty paid) then the seller is responsible for any additional duties.

There may be options to change sources of goods supplied, but such changes may raises issues of quality standards or certification of compliance under the contract.

In the context of seeking to pass on additional duties to a counterparty, a party might seek to rely on section 44(2) of the UK Sanctions and Anti-Money Laundering Act 2018 ("SAMLA").  This provides that an act done in the reasonable belief that the act is in compliance with UK financial sanctions will not give rise to liability in civil proceedings.  However, this section is inapplicable in the tariffs context, as the new duties were not enacted under SAMLA.