The United Kingdom’s third country status in regards to the EU has been problematic for manufacturers, suppliers, and logistics companies with tariffs and taxes, new administrative requirements and logistical border delays to navigate. Space sector companies may wonder if the United Kingdom’s continued membership in the European Space Agency (ESA) offers a way to mitigate these concerns.
Can transactions involving ESA use the special status ESA enjoys as an intergovernmental organization as regards exemptions for duties, taxes and restrictions regarding cross-border movement of goods and services, notwithstanding the new Brexit hurdles that now apply?
Privileges Under the ESA Convention
Under the founding ESA Convention of 1975, ESA and its member states benefit from a number of privileges covering immunity of jurisdiction and execution; exemption from direct taxes on ESA and its property and income; and rights of entry into and departure from ESA member states for ESA staff members.
Article VI of the convention also provides for an exemption from import and export duties, taxes, prohibitions and restrictions for “goods imported or exported by the agency or on its behalf, and strictly necessary for the exercise of its official activities.”
The convention clarifies that eligible “official activities” are administrative activities and activities in the field of space research and technology and their space applications in pursuance of the purpose of the agency, as defined in the convention.
The “purpose of the agency” is to provide for and to promote, for exclusively peaceful purposes, cooperation among European states in space research and technology and their space applications, with a view to their being used for scientific purposes and for operational space applications systems.
The convention states that, for other research and technology activities, it will be decided on a case-by-case basis whether they fall within the scope of these privileges, after consultation with the authorities of the relevant member states. These exemption provisions will not apply to taxes and duties that are charged for public utility services, nor will they apply to goods imported for the personal benefit of ESA staff members.
Marco Ferrazzani, ESA legal counsel, mentioned that, “under Article IX.3 of the Convention, a legal setup could also open a way forward for a space product developed by U.K. industry being contractor under an ESA program, to be supplied to other industry on the continent, enjoying such exemptions.”
These provisions were ratified by the 22 ESA member states, facilitating intra-European exchanges for space programs and are enacted in the United Kingdom through the European Space Agency Immunities and Privileges Order of 1978, which applies these exemptions from customs duties and taxes on the importation of goods “subject to compliance with such conditions as the commissioners of customs and excise may prescribe.”
The Impact of Brexit
Before the end of the Brexit transition period on Dec. 31, 2020, the use of these provisions for the export of goods used for ESA activities between the United Kingdom and other ESA member states was largely unnecessary. The majority of these transactions were between the United Kingdom and other EU member states and therefore fell under the blanket exemption from import and export restrictions under the EU Customs Union regime. However, since the United Kingdom left the EU Customs Union on Jan. 1, the provisions of the ESA Convention and Immunities and Privileges Order are now the principal regime governing such transactions for ESA activities and programs between the United Kingdom and all other ESA member states.
While, under this regime, the import and export of goods for eligible ESA activities will largely remain immune from customs and duties, it does mean that these transactions could now potentially be subject to conditions that may be applied by the Her Majesty's Revenue and Customs in the United Kingdom under the Immunities and Privileges Order.
Customs and duties exemptions for goods used in the minority of ESA activities which do not fall under the convention’s definition of official activities will now be decided on a case-by-case basis, where previously they would have been covered, for transactions with most ESA member states, by the blanket exemption within the EU Customs Union. Ferrazzani underlined how the “ESA Convention, drafted and enacted well before the EU would shape its space program, still contains applicable provisions which could serve and facilitate European space developments and commercial exchanges among all its member states.” VS
Joanne Wheeler is the director of Alden Legal.