Rules of Origin causing sleepless nights? No need to stress! These six fundamentals will help you comply and save duty argues Arne Mielken of Customs Manager Ltd.
We are referring in this article to the EU-UK TCA. To gain the best benefit, we recommend that you read this blog alongside the treaty.
Trading under ‘FTA' (free trade agreement) terms – even one as ambitious as the EU-UK Freee Trade Agreement, with zero tariffs or quotas – will inevitably be very different compared to the frictionless trade enabled by the EU's Customs Union and Single Market.
Rules of origin will apply to goods in order to qualify for preferential trade terms under the agreement. Here are six things to understand for any businesses wishing to trade successfully with the EU or UK under preference.
1. What are the Rules of origin?
Rules of origin are an intrinsic component of every free trade area. They determine the ‘economic nationality of products when these have been produced using components or materials made in more than one country.
Such rules are necessary to ensure that the products benefiting from the terms of the free trade agreement (in this case, zero tariffs, zero quotas) are either wholly obtained from or manufactured in the free trade area itself (in this case, the EU and the UK), or sufficiently worked or processed there (e.g. by setting a limit on the value of non-originating materials that can be used in order to benefit from the agreement.
This ensures that the free trade agreement benefits the operators inside that free trade area, preventing circumvention.
Under the Trade and Cooperation Agreement, EU and UK traders would have to meet rules of origin compared to those which the EU and the UK have with other trading partners. These rules and procedures are therefore familiar to our respective business operators.
To claim preferential rates of duty, your product must originate in the EU or UK (as the exporting country) as set out in Chapter 2 of the Trade and Cooperation Agreement ‘rules of origin’ and the ‘Product Specific Rules of Origin’ contained in Annex ORIG-2.
The introductory notes to product-specific rules of origin can be found in Annex ORIG-1.
You’ll need to know how to classify your goods when checking the product-specific rules.
information pertaining to the fulfilment of origin criteria must be assured. There are three origin criteria:
“wholly obtained”, (such as harvesting, mining, fishing)
products produced in that Party exclusively from originating materials in that Party; and
products produced in that Party incorporating non-originating materials provided they satisfy the requirements set out in ANNEX ORIG-2 [Product-specific rules of origin].
Four origin criteria
tariff classification change (in 2, 4 or 6-digit format)
value method, the value of the final product as well as the value of all the non-originating materials used in the production of that product;
weight, the weight of the final product as well as the weight of the relevant non-originating materials used in the final product;
a specific production process, a description of that specific process
If your goods do not meet the rules of origin requirements (or if you cannot prove that the goods meet them) you’ll still need to pay Customs Duty.
To find out the rate of duty, you’ll need to classify your goods correctly.
2. Proof of origin
From the EU-UK TCA:
To benefit from preferential tariffs when importing into the UK from the EU or importing into the EU from the UK, the importer will be required to declare they hold proof that the goods comply with the rules of origin.
You’ll be entitled to claim the preferential rate of duty if you have either:
a statement on an origin that the product is originating made out by the exporter
the importer’s knowledge that the product is originating
HMRC advises that where a UK importer is delaying your declarations for goods imported into the UK from the EU you only need to include the declare a proof of origin when you make your supplementary declaration.
3. Importers knowledge
As an importer, you can claim preference using the knowledge you’ve obtained about the origin of the goods. This is known as ‘importers knowledge’.
This can be used as an alternative to an origin declaration.
‘Importers knowledge’ allows the importer to claim preferential tariff treatment based on evidence they have obtained about the originating status of imported products.
This evidence must be in the importer’s possession, be in the form of supporting documents or records which may be provided by the exporter or producer and provide evidence that the product qualifies as originating and satisfies the requirements provided for in the EU-UK TCA Agreement on origin.
Before claiming the preferential treatment, in the event that an importer is unable to obtain the information as a result of the exporter deeming it to be confidential information or for any other reason, the exporter may provide a statement on origin (see Point 4) so that the importer may claim the preferential tariff treatment on the basis of a statement on origin.
Examples of supporting documents or records which should cover: the commodity code, a brief description of the production process (including the origin of the goods used), if the origin was based on ‘wholly obtained’ – give a category for the goods, if the origin was based on ‘sufficiently worked or processed’ give one of the following, the value of the product as well as the value of all the non-originating or, as appropriate to establish compliance with the value requirement, originating materials used in the production, the weight of the product as well as the weight of the relevant non-originating or, as appropriate to establish compliance with the weight requirement, originating materials used in the product, a list of all the non-originating materials including their commodity code (in two-, four- or six-digit format depending on the origin criteria), whether the goods have been altered or transformed, if asked by customs, any additional information that will help verify the origin of the goods
If you or the person receiving your goods cannot give this information for commercial reasons you should use an origin declaration.
Download: EU-Japan Information Sheet on Importers' Knowledge
4. Statement on the origin
Exporters will be able to self-certify the origin of the goods, thereby making it easier for traders to prove the origin of their products and reducing red tape.
Exporters can make out a statement on origins for a product on the basis of information demonstrating that the product is originating, including information on the originating status of non-originating materials used in the production of the product.
According to the Q&A document issued by the EU Commission, Businesses will benefit from additional flexibility in collecting documentary evidence to prove origin during the first year, to allow them to benefit from the preferences despite the little time available between conclusion and application of the Agreement.
This means that until 31 December 2021, in the UK, if you’re claiming preference on the basis of the importer’s knowledge or making out a statement on origin, you do not need to hold a supplier’s declaration (see below) at the time you’re claiming preference for goods imported from or to the EU.
The statement on origin must be provided on an invoice, or any other commercial document (excluding a bill of lading), describing the originating product in sufficient detail to enable its identification.
The exporter shall be responsible for the correctness of the statement on the origin and the information provided.
Can be made out in any EU language.
The statement can be made on the invoice or on any other document that describes the originating product in sufficient detail to enable the identification of that product.
The exporter is responsible for providing sufficient detail to allow the identification of the originating product.
Validity: It will be valid for 2 years from the date it was made out on imports into the UK and 12 months for imports into the EU.
From the EU-UK TCA:
The text for a statement on origin is in Annex ORIG-4 of the Trade and Cooperation Agreement.
If the statement on origin is completed for multiple shipments of identical originating products indicate the period for which the statement on origin is to apply.
That period cannot exceed 12 months. All importations of the product must occur within the period indicated.
If a period is not applicable, the field may be left blank.
Indicate the reference number by which the exporter is identified.
For the Union exporter, this will be the number assigned in accordance with the laws and regulations of the Union. According to HMRC: "When exporting from the EU to the UK a statement on origin can be made out by any exporter where the value of the consignment is 6,000 euros (currently £5,700) or less. Above this amount, the EU exporter must have a Registered Exporter (REX) number and include it in the statement". (see below)
For the United Kingdom exporter, this will be the number assigned in accordance with the laws and regulations applicable within the United Kingdom.
Where the exporter has not been assigned a number, this field may be left blank.
EU REX system
The Registered Exporter system (the REX system) is a system of certification of origin of goods based on a principle of self-certification.
The origin of goods is declared by economic operators themselves by means of so-called statements on origin.
To be entitled to make out a statement on origin, an economic operator has to be registered in a database by his competent authorities.
The economic operator becomes a "registered exporter".
The REX number is a string of 35 alphanumerical characters, including a reference to the country of issue.
Businesses relying on statements on origin will be able to verify the validity of the registrations (the REX numbers) of the registered exporters who made out those statements on the origin.
It is recommended that companies in the EU apply for this REX number if they do not have it with the local competent customs authorities.
Download: Introduction to Rex
Indicate the origin of the product: the United Kingdom or the Union.
Place and date may be omitted if the information is contained on the document itself.
The importing Party shall not require the importer to submit a translation of the statement on origin.
Compare the EU-UK TCA with JEFTA
Please note that this declaration is much simpler than in other agreements, for example, the EU-Japan agreement, where you need to indicate the reason for meeting the originating conditions:
Indicate, depending on the case, one or more of the following codes;
"A" for a product referred to in subparagraph 1(a) of Article 3.2;
"B" for a product referred to in subparagraph 1(b) of Article 3.2;
"C" for a product referred to in subparagraph 1(c) of Article 3.2,
with the following, additional information on the type of product-specific requirement actually applied to the product;
"1" for a change in tariff classification rule:
"2" for a maximum value of non-originating materials or a minimum regional value content rule;
5. Cumulation of Origin under the UK-EU TCA
Usually, an EU or UK product can be considered as originating in the other country/region if that product is used as a material in the production of another product in the EU or the UK.
However, production carried out in the EU or the UK on a non-originating material may be originating in certain cases.
A provision is included in the UK TCA on ‘full cumulation', which allows traders to account not only for the origin of materials used but also if their processing took place in the territory of one of the UK or EU. This mechanism enables the agreement to capture to the greatest extent the value-added in the free trade area.
In order for an exporter to complete the statement on origin, the exporter shall obtain from its supplier a supplier’s declaration as provided for below or an equivalent document that contains the same information describing the non-originating materials concerned in sufficient detail to enable them to be identified.
Supplier declarations are where your EU or UK supplier provides businesses with the information needed to prove the origin of your goods for preferential rates of duty between the EU, the UK and other countries.
The supplier declaration can be provided at any time, even after the goods have been delivered.
If you supply goods
If you’re the supplier, you may be asked to provide a suppliers’ declaration to your customer to prove either:
that the goods meet the rules of origin
that you’ve processed or added value to the goods (goods not having preferential origin status)
If you export goods
If you’re exporting goods you may need to need to get a suppliers’ declaration to prove the origin of materials used in the manufacturing process, or for finished products that you buy and re-export.
Types of suppliers’ declarations
The UK TCA does not specifically call out the use of supplier declarations, except in the context of cumulation of no-originating material that has been used in the production of products along side originating material. Here the declarations types are as follows:
Long Term Supplier Declarations for these specic types.
The supplier making out a declaration shall be prepared to submit at any time, at the request of the customs authorities of the EU or the UK where the declaration is made out, all appropriate documents proving that the information given on that declaration is correct.
But the importer must be confident that the goods meet the rules of origin. You must make every effort to obtain suppliers declarations retrospectively.
6. How to claim a preferential rate of duty in the UK
If you’re importing goods into the UK, there’s a different way to claim the preferential rate of duty depending on which system you’re using to make your import declaration.
EU-UK Trade & Cooperation Agreement: A new relationship, with big changes nonetheless
EU takes the UK out of its legislation
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