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The Ultimate Guide on how to meet the Rules of Origin

(S,P) Find out the rules to establish the country of origin of imported and exported goods and to help identify goods that qualify for lower or no customs duty.


Content

  • What are Rules of Origin?

  • Products made using materials originating from one country

  • Products made or processed using materials from different countries

  • Rules that apply to imports and exports

  • Rules that apply to exports only

  • Rules that apply to imports only

  • How to get proof of origin

  • If you need an origin ruling


What are Rules of Origin?

Rules of origin help you work out where your goods originate from, and which goods are covered in trade agreements.


You’ll need to understand the rules of origin to:

  • claim tariff preference when you’re importing

  • prove the origin of goods you’re exporting

The origin of the goods:

  • is where they have been grown, produced, or manufactured

  • may not be the country where they are shipped or bought from

This applies to all goods, whether they’re covered by the:


  • trade agreements

  • Generalised Scheme of Preferences

  • non-preferential rules of origin

Preferential and non-preferential rules of origin may both apply. Where preferential rules do not apply businesses need to use the non-preferential rules.


Tariff Quotas

Some products are subject to preferential and non-preferential tariff quotas that allow a certain amount of goods to be imported at a reduced or zero rate of duty. To benefit from the lower rate of duty you must claim a tariff quota when you import the goods. You can use the trade tariff tool to check if there is a tariff quota for the goods you’re importing and any additional documents you may need before you can make a quota claim. When a preferential or non-preferential quota is exhausted, imports will be subject to the full rate of duty.


Before you can apply any rules specifically for imports and exports, you need to check if your products are made using materials originating in one country, or different countries.


Products made using materials originating from one country

Your goods are treated as ‘wholly obtained’ if they’re exclusively produced in a country covered in a trade agreement, without incorporating materials from any other country.


‘Wholly obtained’ includes products such as:


  • mineral products extracted or taken from its soil or from its seabed

  • live animals born and raised there

  • products obtained by hunting or fishing conducted there

  • products produced only using materials from the country covered by the trade agreement and do not include materials from any other country

Products made or processed using materials from different countries

Your products are treated as ‘sufficiently worked or processed’ if they’ve been either:


  • produced using materials from a country different to the country they’re treated as originating from

  • were partially processed in a country different to the country they’re treated as originating from

Sufficiently worked or processed

If you’re importing goods from a country that your country has a trade agreement any materials used in the production of the goods that did not originate from that country must have been ‘sufficiently worked or processed’ during the production process.


If you’re producing goods for export in your country using materials from other countries those materials need to be ‘sufficiently worked or processed in your country for the final product to be treated as originating in your country


If imported materials are not ‘sufficiently worked or processed in your country, the origin of the goods will be the country or territory where they were last ‘sufficiently worked or processed’.


List Rules of Product Specific Rules

Each agreement will set out the rules that goods must comply with to be considered ‘sufficiently worked’ or processed’. This will include:


the product classification heading or chapter number

a detailed description of the goods

a description of how goods not treated as originating in that country must be worked or processed to be treated as originating in your country


Working out if your goods are ‘sufficiently worked’ or processed

There are different rules that apply to:


  • Both imports and exports

  • Import only

  • Export only

These will help you decide if goods are ‘sufficiently worked’ or processed.


You can find more information about these rules and how they apply to your goods in either the:


trade agreements for the country you’re trading with

Generalised Scheme of Preferences

Rules that apply to imports and exports

The ‘value added’ rule (known as the ‘ad-Valorem rule)


This rule sets a limit on the value of materials from a different country that can be used before a finished product is considered as not originating from another country.


You may need to work out the ‘ex-works value’ of your goods to use this rule. This is the price you paid for the product when it left the factory which is made up of the:


  • materials used to make the product

  • any other non-material costs related to its manufacture

You should deduct any internal taxes which may be due, or you paid when the product was exported.


Ex Works Price

Some trade agreements use the ex-works price as the value of the goods. You must check the relevant country’s trade agreement to see if the rule applies to your goods. If the rule applies, the agreement will say:


‘Manufacture in which the value of all the materials used does not exceed [X]% of the ex-work price of the product’.


You’ll also need to know how much it cost to make the finished product. You should include costs for things like:


  • labour

  • profit, research and development

  • any overheads, including:

  • power

  • fuel

  • catalysts

  • solvents

  • plant equipment, machinery and tools

The product will meet the origin rule if the percentage of the costs to make the finished product are not more than the ex-work price mentioned in the trade agreement, for example:


The trade agreement says, ‘Manufacture in which the value of all the non-originating materials used does not exceed 60% of the ex-work price of the product.’.


Non-originating is when your product is not treated as originating in that country. The product or the materials that make up that product come from a different country.


The ex-work price of the product is £1,000.

The costs to make the finished product are £550.

To get the percentage figure:


Divide the costs to make the product by the ex-work price:

550 ÷ 1,000 = 0.55

Multiply that figure by 100:

0.55 x 100 = 55

The percentage of the costs to make the product is 55%. The product meets the origin rule, as this is less than the 60% figure in the trade agreement.


If the costs to make the finished product are not enough by themselves to meet the origin rule, you’ll need to prove that enough of the materials used to make it is originating to meet the rule.


For example, if the agreement says the non-originating materials to make the finished product must not exceed 40% and the figure for your product was 45% you’ll need to prove that at least 5% of those materials are originating to meet the rule.


The customs value is the value of the non-originating material declared to the customs authority of the country where they are used to produce the final goods.


Rules that apply to exports only


The change of tariff classification rule

Your goods cannot have the same commodity code as any of the materials imported from a different country that were used to make the final goods.


If this rule applies to your goods, it will state ‘Manufacture from materials of any heading except that of the product.’ Other commodity codes used to classify your goods can also be specified.


In this case, you must compare the commodity code used to classify your goods of:


all materials that do not originate in the countries covered by the trade agreement

the finished product you’re exporting

If the commodity code used to classify your goods meet the requirements in the agreement, the rule has been met.


Manufacture from certain products or through specific processes rule

This rule defines either which specific:


materials from a different country may be used in the manufacture of your goods

processes which need to have taken place in order for the goods to originate in your country


If this rule applies to your goods, it will state ‘Manufacture from [yarn] [meat], and so on.’


You may also be eligible to import the material in an earlier stage of production (such as loose fibres imported from another country to produce yarn).


However, you may not import material in a later stage of production (for example, you may not import fabric from another country to produce yarn).


Insufficient production

Insufficient production means minimal operations that, when carried out either individually or in combination, are considered as being of little importance. These do not affect the country the materials originate from.


Manufacturing and processing operations must be more than simple operations or processes and must need special skills, machines, apparatus or equipment especially produced or installed to carry out the manufacture or process.


The list of minimal operations can vary by agreement so you should check the relevant agreement.


Some of the listed operations can be clearly identified as insufficient operations, such as the affixing of a label on the product. However, there are also some operations that need to be assessed further as they contain the term ‘simple’, for example, ‘simple assembly’.


‘Simple’ usually describes activities that do not need special skills, machines, apparatus, or equipment especially produced or installed for carrying out the activity. This term may be further defined so that the skills, machines, apparatus, or tools used must also contribute to the product’s essential characteristics or properties.


Using materials from a different country to make a product

The general tolerance rule lets manufacturers use materials from a different country up to a specific weight or percentage value of the ex-works price, depending on the classification of the product.


If the specific list rule already allows this the tolerance cannot be used to exceed the percentage amount specified in the list rule. The maximum tolerance will always be that allowed by the specific list rule.


Treating accessories, spare parts, packaging and tools as a single product

Accessories, spare parts and tools supplied with a finished product are treated as being part of a single end product for origin purposes if they:


  • make up the standard equipment usually included in the sale of such items

  • are included in the price of the item or are not separately invoiced

  • are classified with the item in the tariff of the importing country

Packaging of a kind that does not have to be classified separately from their contents is also covered by the preference documents for the contents.


Goods used in production but are not part of the final product

These are elements that are used in the production of a product that does not form part of the finished product so are not considered when determining the origin of a product.


Neutral elements include:


  • fuel, energy, catalysts, and solvents

  • equipment, plant, devices, and supplies used to test or inspect the product

  • gloves, glasses, footwear, clothing, safety equipment, and supplies

  • machines, tools, dies, and moulds

  • spare parts and materials used in the maintenance of equipment and buildings

  • lubricants, greases, compounding materials, and other materials used in production or used to operate equipment and buildings

It can also include any other material that does not enter the final product if both:


  • the material is not intended to enter the final product

  • you can demonstrate that the material used was only used in the production process

When you can treat products as originating from a different country

Cumulation is the term used to describe a system that allows the origin of materials or processing undertaken in country A to be added to the materials and processing undertaken within-country B, so long as they are further processed or added to products originating in country B. This allows those factors that contributed to the origin of country A materials to be considered as though undertaken in B.


With cumulation although not all preferential agreements enable this, where they do the working or processing carried out in each partner country on originating products does not have to be ‘sufficient working or processing’ as set out in the list rules although it should be beyond minimal processing.


There are 4 types of cumulation:

  • bilateral

  • diagonal

  • regional

  • full

Bilateral cumulation

Bilateral cumulation operates between 2 countries where a trade agreement contains a provision allowing them to cumulate origin. Materials originating in either country in the trade agreement will be considered as materials covered by the rule of origin. You’ll need to check which rule applies:


Value-added rule

Cumulation allows the value of materials originating in your country or in the other country to be excluded from the percentage maximum threshold.


Change of the tariff classification rule

There is no need to check if there was a change of tariff classification of any materials originating in the UK or in the other country.


Manufacture from certain products rule

There is no need to check if the materials originating in your country or in the other country meet the stated requirements.


Diagonal cumulation

Diagonal cumulation operates between more than 2 countries. Materials originating in a defined country or countries, may be used as materials originating in the country of export when used in export to a country not in the agreement.


Some trade agreements allow for diagonal cumulation and where it applies this will be set out in the agreement. You’ll need to check which rule applies:


Value-added rule

Cumulation allows the value of materials originating in your country or in the other country to be excluded from the percentage maximum threshold.


Change of tariff classification rule

There is no need to check if there was a change of tariff classification of any materials originating in the UK or in the other country.


Manufacture from certain products rule

There is no need to check if the materials originating in your country or in the other country meet the stated requirements.


A regional cumulation is a form of diagonal cumulation, which only exists under the Generalised Scheme of Preferences.


Full cumulation

Full cumulation allows for the working or processing carried out on the materials that is more than insufficient in the countries participating in the agreement to be considered as carried out in the final country of production. You’ll need to check which rule applies:


Value-added rule

Cumulation means that the value-added to materials from a different country does not have to be included in the percentage maximum threshold.


Manufacture from certain products rule

Working or processing undertaken on materials from a different country can be counted towards any conditions which must be met.


Claiming back duty when using inward processing

Inward processing is a procedure that allows the duty on goods to be suspended on import when they are going to be further processed either before they are re-exported or released onto the home market.


Duty drawback is when you claim a refund of duty that was paid at the time the goods are imported when the goods are reexported.


The no drawback rule means you cannot claim back duties applicable to a country not included in the agreement. However, some agreements allow for partial drawback for a limited period.


It means that all customs duties and equivalent charges must be paid on any materials, components or parts imported to manufacture a finished product on which preference will be claimed.


You must decide if you should either:

  • claim the reduced amount of Customs Duty on any imported materials used in manufacturing the goods

  • pay any duties due and issue a preference document so your customer to claim preference

If the goods are split, combined or changed after they’ve left the exporting country

Originating goods must be the same as those which left the country of export. Goods can move through or be stored in countries not in the agreement, provided they stay under customs supervision. If consignments are split or domestic legal requirements (such as labelling) are carried out, the goods must remain under customs supervision.


The importer may be required to submit evidence, for example:

  • a single transport document

  • a certificate of non-manipulation issued by the customs authorities of the country of transit

  • factual or concrete evidence based on marking or numbering of packages

If the goods were transported from a feeder vessel and then consolidated with other consignments in a seaport, then there should be a transport document (for example, a bill of lading) for each leg of the journey.


Storing similar goods together

When using materials from your country and other countries in the production of products, the producer must make sure they’re physically segregated. If the materials are stored together, they would be considered as not originating from your country.


Fungible materials mean materials that are of the same kind and commercial quality, with the same technical and physical characteristics, and which cannot be distinguished from one another once they are incorporated into the finished product.


You can use accounting segregation to store originating and non-originating fungible materials together if it would be difficult for you to do this because:


  • of the cost

  • it’s not practicable

Accounting segregation means the originating materials will not lose their originating status.


This method must make sure that the number of finished products obtained, which are originating, is no more than that which would have been obtained if there had been physical segregation of the materials used.


Using accounting segregation, the origin of the materials that will be physically used in the production process does not matter. At the date of determining the origin of the product, the producer must hold enough quantities of originating materials, as reflected in the stock records, to produce that originating product.


Your records must follow a stock management method using accounting principles. This allows the customs authorities can make sure that no more final products receive originating status than would have been the case if the materials had been physically segregated.


Principle of territoriality

Exporting goods to a country not included in the agreement during production

You normally have to carry out processing or works on a product in the country included in the trade agreement. This is known as the ‘principle of territoriality.


However, due to modern manufacturing processes, it’s not always possible to do this. Some agreements may let you carry out processing or works in a country not included in the agreement.


You’ll have to follow the specific conditions to be able to claim preference, in these circumstances. If you do not, the returning product will be treated as non-originating.



Rules that apply to imports only

Goods are re-imported after working or processing outside the territory of a partner country. There is limited scope for operations to be carried out in countries not included in the agreement using outward processing but only if all following requirements are met the:


  • total added value acquired in the country, not in the agreement does not exceed a set percentage of the ex-works price of the product

  • the total value of the materials from a different country incorporated in a country in the agreement, taken together with the total added value acquired outside that country in the agreement, does not exceed the value allowed under the annex containing the list rules

  • person exporting the goods must give all the documentation needed to check the total value acquired in the country not in the agreement

  • ‘Total added value’ means all the costs arising, including transport costs and the value of materials from a different country incorporated there.


Goods imported from exhibitions

Goods originating in a preference country and consigned to your country from an officially approved exhibition in a non-preference country may be imported under preference. You’ll need to produce a:

  • preference document showing the name and address of the exhibition

  • copy invoice for the purchase of the goods, bearing the statement ‘These products were consigned to you from (name and place of the exhibition)’ given by the preference country exporter who consigned them to the exhibition

  • certificate signed by the customs authority under whose control the goods remained during the exhibition confirming consignment from the preference country to the exhibition before consignment to your country

Split consignments when importing large machinery or plant

When importing large machinery or plant, for example, a car assembly line or a power station, it can be impractical to import the goods in a single consignment. You’ll need to:

  • present the proof of origin with the first import declaration

  • include a written statement explaining that further consignments are to follow

  • for later import declarations quote the reference number of the proof of origin and date of the first import declaration

How to get proof of origin

You must give evidence to show the origin of your goods.


If you need an origin ruling

If the origin of your goods is not straight forward you can apply for an origin ruling. This is a ruling that confirms the origin of specific goods and is valid for 3 years.


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