Using the Harmonised System and product-specific rules for duty-free imports in Global Trade
(S,P) How can businesses use the Harmonised System to classify their goods, and what are product-specific rules in Free Trade Agreements?
Contents
The Harmonised System
What the product-specific rules are and examples
Types of product-specific rules in the EU-UK Trade and Cooperation Agreement and examples
The Harmonised System You will need to use the Harmonised System (HS) to classify your goods and check they meet the rules of origin. It is an internationally standardised system of description and numbers and forms the first part of the:
10-digit commodity code is used to classify goods when importing them into a country.
8-digit commodity code is used to classify goods when exporting from a country.
Note: This can vary and some countries can require more or fewer digits (e.g. Germany requires 11 on import).
It is used by customs authorities around the world to identify products when working out tariffs and taxes, and for gathering statistics.
The HS is administered by the World Customs Organisation and is updated every 5 years. It serves as the foundation for the import and export classification systems used in every country.
The main categorisations for products are:
chapters (2-digit level or first 2 digits of the HS)
headings (4-digit level of the HS)
subheadings (6-digit level of the HS)
Example of how the HS is structured If you want to find the HS code for household dishwashers, they are classified under: Chapter 84 – nuclear reactors, boilers, machinery and mechanical appliances Heading 8422 – dishwashing machines; machinery for cleaning or drying bottles or other containers… Subheading 842211 – household dishwashing machines
How to find your relevant classification code If you’re classifying your goods for the first time, you can find out more about ways to help find a classification for your product. This includes getting advice from Customs Manager Ltd to find the right commodity code.
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Dedicated Classification Hub (Step-by-step Guides)
https://www.customsmanager.org/easy-customs-hs-code-classification
Exercises + Solutions and consolidated articles on all aspects classifications
https://www.customsmanager.org/customs-global-trade-blog/categories/customs-classification
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Origin: What the product-specific rules are and examples Every product traded under a free trade agreement has a product-specific rule that must be met to show the product originates in the free trade area and qualifies for preferential tariff treatment (reduced rate of Customs Duty). Each rule describes the nature or value of processing that must be carried out on any non-originating materials so that the final product meets the origin requirements.
You should check the rules agreed by the countries that have signed a free trade agreement and are buried deep in the Free Trade Agreement. Get familiar with how they look:
EXPERT BLOG ENTRY
EU-UK Trade & Cooperation Agreement (TCA) for Newcomers: How to secure free trade - PART 1
EU-UK Trade & Cooperation Agreement (TCA) for Newcomers: How to secure free trade - PART 2 (S,P)
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Consolidated Expert Blogs dedicated to Free Trade Agreements:
https://www.customsmanager.org/customs-global-trade-blog/categories/free-trade-agreement
Consolidated Expert Blogs dedicated to Rules of Origin:
https://www.customsmanager.org/customs-global-trade-blog/categories/rules-of-origin
Rules of Origin Support Hub (Explainer Videos, webcasts, support tools):
https://www.customsmanager.org/rules-of-origin
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Types of Rules of Origin There are 4 types of rule that a product may need to meet (on their own or in combination) to be granted origin.
The types of rule are:
wholly obtained
change of commodity code to classify your goods
value added or percentage rule
specified processes
You’ll need to decide the correct commodity code for the exported product to find the relevant rule in the Trade Agreement product-specific rules list. Customs Manager publishes these gradually for each agreement, but if you are interested in a particular rule of origin, please get in touch, for example:
-> UK- Canada Free Trade Agreement - Rules Of Origin Product Specific Rules For Instant Download (P)
-> UK-Serbia Free Trade Agreement - Rules of Origin: Product Specific Rules For Instant Download (S,P)
Once a product has gained originating status, it is considered 100% originating. This means that if that product is then used in the production of another product, its full value is considered originating and no account is taken of non-originating materials within it.
For example, if a UK-manufactured engine contains 30% non-originating content but meets its rule of origin if that engine is used in the production of a car in the UK or EU, 100% of the value of that engine can be counted towards the originating content of the car.
Many product-specific rules, including for products used in the following examples, give manufacturers the choice of several different rules. The manufacturer will decide and to select which rule to apply to their exported product.
Types of product-specific rules in EU-UK Trade and Cooperation Agreement and examples
Wholly obtained requirement If a product-specific rule of origin requires that a product is wholly obtained, the product must be made only from UK (or EU materials that are further processed).
Agri-food examples
Harmonised System (HS) code: 10 Product: cereals Rule: production in which all the materials of chapter 10 used are wholly obtained If barley is grown and harvested in the UK, then the product is ‘originating’.
HS code: 0203 Product: meat Rule: production in which all the materials of chapters 1 and 2 used are wholly obtained. If meat is produced from animals born, raised and slaughtered in the UK, then the product is ‘originating’.
Change in commodity code (HS Code) used to classify goods A change in commodity code means non-originating materials must have a change on the correct level to be able to have originating status. The change can be on a chapter (2-digit level of the Harmonised System), heading (4-digit level of the Harmonised System) or subheading (6-digit level of the Harmonised System) and usually applies to all non-originating materials.
You will need to decide the classification of all non-originating materials and parts to make a change in the commodity code so that you can demonstrate a change in classification has taken place.
There are no limits on the amount of originating material you can use, regardless of their HS code.
To show the rule has been met, you will need to know the HS code of your exported product and:
all of its inputs
the origin of the inputs
Change of chapter (CC) Any non-UK or non-EU originating materials or components used in the product must be classified in a different HS chapter (2-digit HS code).
Agri-food example HS code: 160419 Product: prepared or preserved trout (Oncorhynchus mykiss) Rule: CC The rule can be fulfilled if prepared or preserved trout is manufactured from non-originating trout from HS chapter 3. This is because the non-originating materials used are not classified under HS chapter 16.
Manufactured goods example
HS code: 8903 Product: yachts Rule: CC The rule is fulfilled if a yacht is manufactured from non-originating parts from chapters other than HS chapter 89 (ships, boats and floating structures). For example, unlimited non-originating parts of steel (HS chapters 72 and 73) or glass (HS chapter 70) could be used, regardless of their value, as they are classified in a different chapter to the final product.
But the rule would not be met by a yacht imported from a country outside of the UK and EU with only fitting-out work carried out in the UK before being exported to the EU, because the finally exported yacht would stay in the same HS chapter as one of the inputs.
Change to tariff heading
Any non-UK or non-EU originating materials or components used in the product must be classified in a different HS heading (4-digit HS code).
Agri-food example
HS code: 150110 Product: lard Rule: Change to Tariff Heading (CTH) The rule can be fulfilled if lard is manufactured from non-originating pig fat of HS heading 0209. This is because the non-originating materials used are not classified under HS heading 1501.
Manufactured goods example
HS code: 8528 Product: televisions Rule: CTH The rule can be fulfilled if television is manufactured from non-originating parts provided they are all from any heading (4-digit HS codes) other than HS 8528.
For example, unlimited non-originating ‘parts suitable for use….with the apparatus of headings 8525 to 8528’ – that is, television parts (HS 8529) – may be used, regardless of their value, as they are classified in a different HS heading to the final product.
Change to tariff subheading Any non-UK or non-EU originating materials or components used in the product must be classified in a different HS subheading (6-digit HS code).
Agri-food example
HS code: 151219 Product: sunflower-seed oil Rule: CTSH The rule can be fulfilled if sunflower-seed oil is manufactured from non-originating crude sunflower oil of HS subheading 152111. This is because the non-originating materials used are not classified under HS subheading 151219.
Manufactured goods example
HS code: 392330 Product: plastic carboys, bottles, flasks and similar articles Rule: CTSH The rule can be fulfilled if a plastic flask is manufactured from non-originating parts from any HS subheadings (6-digit HS codes) other than HS 392330. For example, unlimited non-originating ‘stoppers, lids, caps and other closures’ (HS 392390) may be used, because they are classified in a different HS subheading to the final product.
Manufacture from materials of any heading, including other materials of the same heading If a product-specific rule of origin allows production from non-originating materials of any heading, the product can include non-originating materials of the same heading. This means that a change of heading does not need to take place. Originating materials of any heading can also be used. To satisfy this rule, there must be some level of processing by the exporting party. This must go beyond the processes listed in the ‘Insufficient Production’ clause. Find out more information about insufficient production.
Agri-food example
HS code: 090412 Product: crushed or ground pepper Rule: production from non-originating materials of any heading Pepper and ground or crushed pepper are classified in the same heading. If crushing or grinding takes place the rule is fulfilled regardless of the originating status of the pepper, as the processing goes beyond ‘insufficient operations’.
Manufactured goods example
HS code: 2701 Product: coal briquettes Rule: production from non-originating materials of any heading Coal and briquettes of coal dust are classified in the same heading. The process to transform coal into briquettes (including applying intense pressure) goes beyond the processes listed in ‘insufficient processing’ and so the briquettes can be considered ‘UK originating’ regardless of the originating status of the coal used to produce the briquettes.
Value and weight limit for non-originating materials Under a value limitation rule, the value of non-UK or non-EU originating materials may not go over a given percentage of the ex-works price of the product.
Sometimes, the limit might apply only to the value of specific types of inputs to a product. If the use of an ingredient, material or component is limited by value, the rule concerning tolerance cannot be relied upon in addition to the threshold.
There is a definition of ‘ex-works price’ in the agreement
Manufactured goods example
HS code: 920120 Product: grand pianos Rule: MaxNOM 50% (Maximum 50% non-originating material) The rule states that the product must contain a maximum of 50% (of the ex-works value) material that does not originate in the UK or EU. This means that if a grand piano has an ex-works value of £1,000, no more than £500 worth of non-originating parts may be used in its manufacture.
Average pricing rules The value of the non-originating materials used in production may be calculated on the basis of the weighted-average value formula, or other inventory valuation methods under generally accepted accounting principles in the UK.
This only applies to the price paid for the materials. The accounting method utilised for determining the average value of input non-originating materials may be different to the accounting principles adopted by the business for its general accounting purposes.
Weight and value limitations For some agricultural products, limitations on non-originating materials can apply by weight, by value or there can be the choice of meeting either criterion in certain instances.
Agri-food example
HS Code: 17049030 Product: white chocolate Rule: CTH, as long as a) all the materials of Chapter 4 used are wholly obtained and b) either:
i) the total weight of non-originating materials of headings 17.01 and 17.02 used does not go over 40% of the weight of the product
ii) the total value of non-originating materials of 17.01 and 17.02 does not go over 30% of the ex-works price of the product
Part (a) of the rule is explained in the wholly obtained section of the General provisions for checking your goods meet the rules of origin. In relation to part (b), if the manufacturer uses non-originating sugar (HS heading 1701) with a weight of 22.2g in a white chocolate bar that has a net weight of 60g then part (b)(i) of the rule can be met as the non-originating sugar only makes up 37% of the net weight of the product. Alternatively, the manufacturer could use non-originating sugar that has a value of £0.20 in a white chocolate bar that has an ex-works price of £0.80. This would allow part (b)(ii) of the rule to be met as the value of non-originating sugar only makes up 25% of the ex-works price of the product.
Applying the rules If a product-specific rule specifically excludes certain non-originating material or provides that the value or weight of a specified non-originating material shall not go over a specific threshold (see the following example), these conditions do not apply to non-originating materials classified elsewhere in the Harmonised System.
Example When the rule for heading 35.05 (dextrins and other modified starches, glues based on starches, and so on) requires ‘Change in Tariff Heading except from non-originating heading 11.08’ then the use of non-originating materials classified elsewhere than 11.08, such as materials of chapter 10 (Cereals is not limited).
Specified operations Specified operations are particular to certain specialised industries or products. Rules may include the re-treading of tyres to take place in the UK for a tyre to be originating, or a chemical reaction to take place for chemical products.
As well as the chemicals sector, these rules are common in textiles and clothing and may specify that the weaving and cutting of fabric to make garments must take place in the free trade area for the product to be originating. Combinations of several rules
Different product-specific rules can be combined to make a rule whereby all the listed conditions must be fulfilled.
Agri-food example
HS code: 18069011 Product: milk chocolate bar Rule: CTH, provided that
a) all the materials of Chapter 4 used are wholly obtained and
b) either:
i) The total weight of non-originating materials of headings 17.01 and 17.02 used does not go over 40% of the weight of the product
ii) or the total value of non-originating materials of 17.01 and 17.02 does not go over 30% of the ex-works price of the product
The manufacturer could use non-originating cocoa paste from HS heading 1803, non-originating cocoa butter of HS heading 1804 and palm oil of HS heading 1511 and would meet the CTH part of the rule. These headings are all different to that of the final product (1806).
To meet part (a) any materials from chapter 4, which includes milk and milk powders, would need to be obtained in the UK or alternatively from the EU (using bilateral cumulation). For milk, this would mean from a live animal raised in either the UK or EU. In terms of part (b) of the rule, either part (i) or part (ii) could be met by the manufacturer to complete the product-specific rule for the product.
Exclusions A product-specific rule may include a restriction on certain materials and components being used in the production of a product.
Agri-food example
HS code: 2204 Product: wine of fresh grapes Rule: CTH, except from non-originating materials of headings 22.07 and 22.08, as long as:
all the materials of subheadings 0806.10, 2009.61, 2009.69 used are wholly obtained
all the materials of chapter 4 used are wholly obtained
the total weight of non-originating materials of headings 17.01 and 17.02 used does not go over 20% of the weight of the product
If wine of fresh grapes is produced from non-originating fresh grapes of HS subheading 080610 then it is not considered ‘originating’ as in the production of this final product material from the 5 excluded headings and subheadings was used.
Manufactured goods example
HS code: 2710 Product: petroleum oils and oils obtained from bituminous minerals, other than crude Rule: CTH except from non-originating biodiesel of subheading 382499 or 382600 If biodiesel of HS subheadings 382499 or 382600 is used in the production of an oil of HS heading 2710, the oil will not be considered originating even if all the non-originating inputs CTH as the rule requires any biodiesel of these subheadings used in the product to be originating.
Treatment of packaging materials Packaging materials are generally not considered when determining the origin of your product.
There are limited exceptions, for example, if a product-specific rule limits a non-originating material by the value of the final product or value tolerance is applied, the value of originating packaging materials can be taken into account when determining the value of the goods.
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