Companies engaged in continuous production processes may face challenges when using the EU inward processing procedure. For background, inward processing allows an EU company to import materials without having to pay import duties and other charges like anti-dumping and anti-subsidy duties, if the product made with these imported materials is exported.
First, EU customs law allows companies to use inward processing if the imported non-EU materials used in the production can be identified in the product produced. Companies having a so-called continuous production process generally find it difficult to identify the non-EU materials in the products produced. For example, if a company sources Chemical X in the EU as well from the U.S., and mixes them together in a continuous production process to produce Chemical Y, the company may be unable to identify the proportion of U.S. origin Chemical X in the produced Chemical Y.
Second, EU customs law allows the so-called principle of equivalence with inward processing. This means that non-EU goods can be replaced by the same (equivalent) material with EU goods. However, the law does not allow equivalence if (1) one of the materials used is subject to anti-dumping or anti-subsidy measures, and (2) the processed good is sold in the EU.
To illustrate, suppose a company buys 100% of Chemical X from South Africa, which is subject to anti-dumping measures in the EU. But, in certain years, it replaces 50% of the South African material with EU origin Chemical X as equivalent goods. The company produces 100 KG of Chemical Y through a continuous production process. From this volume, 25 KG is exported out of the EU and 75 KG is sold in the EU. The company may face difficulties in using EU Chemical X as an equivalent good in its sales of 75 KG in the EU because (1) Chemical X from South Africa is subject to anti-dumping measures, and (2) the EU law prohibits use of equivalent goods if Chemical Y is sold in the EU.
In conclusion, EU inward processing procedures and anti-dumping measures create hurdles for companies that operate a continuous production process. This is in addition to the complexities that companies may face when using storage and inward processing procedures, discussed in a previous blog post.
