Introduction
To qualify for preferential tariff treatment under the UK-EU Trade and Cooperation Agreement (TCA), post-Brexit, businesses must demonstrate the origin of goods traded with the European Union (EU). If goods do not match the origin standards, they will not be eligible for preferential treatment and will be subject to customs taxes (tariffs). To take advantage of preferential rates negotiated under the UK-EU TCA when importing into the UK or EU, they must claim preference on their customs declaration and provide documentation that the commodities comply with the Rules of Origin.
What are Rules of Origin?
The Rules of Origin (ROO) facilitates an importing country to identify and classify a product’s origin. ROOs outline how customs authorities establish a product’s ‘economic nationality’ – either where it is entirely grown or produced or where the last significant manufacturing & transformation occurred.
When the production takes place in a single country, the process is straightforward. Given the complexity of modern global supply chains, which involves components and operations carried out in various countries, the application of ROO can be pretty challenging. ROOs are legal international trade tools permitted under the World Trade Organization (WTO) rules and are common in international trade agreements. Numerous types of ROO regulations apply, and a product may be subject to more than one rule.
Types of Rules of Origin
The tariff classification, value, and origin of a commodity all have a role in determining how customs tariff treatment and the rule of origin apply. In terms of customs, there are two distinct types of rules of origin, namely non-preferential origin and preferential origin.
- Non-Preferential rules of origin: Non-preferential rules of origin employ to determine the country of origin of goods not only for purposes of applying most-favourable nation treatment (MFN) but also to implement a variety of commercial policy measures such as anti-dumping and countervailing duties, trade embargoes, safeguard measures, and quantitative restrictions or tariff quotas. Additionally, they are utilised for trade statistics, governmental procurement, and origin marking. The UK/EU has its own set of non-preferential origin laws that may differ from any other third country.
- Preferential rules of origin: Preferential rules of origin establish whether items qualify as being from specific nations, subject to special arrangements and agreements. When all requirements meet, businesses may import the items of preferential origin at reduced or zero duty rates, depending on the type of preferential tariff treatment given.
Complying with Rules of Origin to claim zero tariffs on your goods
If you would like to claim zero tariffs on your goods, there are three steps to determine whether your items conform to the rules of origin:
- Classify your goods
- Determine whether your goods meet rules of origin
- Proof your goods meet rules of origin
Step 1: Classify your goods
For international trade purposes, all commodities classify in a standard way, a standardised system of naming, descriptions and numbers used to identify products. To determine the applicable rule of origin, you must know the classification of your commodities. Commodities classify into Chapters (2 numbers), headers (4 digits), and subheadings (6 digits). You can categorise your commodities using the Customs-Declarations commodities tool available within the app.
Step 2: Determine whether your goods meet rules of origin
There are distinct rules for various products (known as Product Specific Rules). You must understand your supply chain to determine where your goods or commodities originate – whether they originate in the United Kingdom or the European Union, or elsewhere in the world (non-originating). When determining whether your UK exports to the EU meet rules of origin criteria, you can include EU-sourced materials and processes if there is a qualifying level of output in the UK – we refer to this as ‘cumulation’. If the product you are exporting contains non-originating material, you must adhere to the applicable Product Specific Rule. Customs-Declarations can help you in determining the Product Specific Rules that conforms to the Trade and Cooperation Agreement (TSA) and HMRC guidelines.
There are four types of rules a product may need to meet:
1) Wholly Obtained (WO): Wholly obtained goods are those whose manufacturing finishes in a single country.
- Animals that have been born and nurtured in the nation (Livestock)
- Animals obtained through hunting, trapping, fishing, gathering or capturing (Captured wild animals)
- Goods obtained from live animals (Milk, egg)
- Plants and plant products grown, harvested or gathered (Cut flowers)
- Minerals and other naturally occurring substances
- Sea-fishing and other items from seas
- Items obtained or produced from the goods listed above (Meat derived from slaughtered cow, for example)
2) Change in Tariff Classification (CTC): Change in tariff classification (CTC) rule requires non-originating materials to have undergone a necessary amount of tariff classification change to qualify as originating. Tariff classification changes may apply at the chapter, heading, or subheading level of the Harmonized System (HS Classification). Generally, it refers to all non-originating materials, although it can also refer to a particular sort of substance.
The CTC regulation requires the exporter or manufacturer to classify any non-originating inputs, materials, and parts that necessitate a tariff classification modification. Only in this manner will the exporter or manufacturer establish that a classification change has happened.
3) MaxNOM or Maximum Level of Non-Originating Material: If a rule specifies a “maximum level of non-originating material” (MaxNOM), a specified proportion of the final good’s value must be produced in the United Kingdom or the European Union. It can comprise components manufactured in the United Kingdom or value added throughout the manufacturing process, such as labour and manufacturing costs.
4) Specific Processing Rule (SPR): Certain rules require that a specific procedure or group of operations occur in the UK before a product can classify as UK-originating. For instance, certain compounds require a chemical reaction to occur in the United Kingdom.
Step 3: Proof your goods meet rules of origin
Businesses must provide evidence that their goods meet rules of origin. Following are some of the potential pieces of evidence:
- Evidence of origin from the supplier, such as a supplier declaration.
- Self-declare that the goods meet Rules of Origin.
- Importers can alternatively claim for zero tariffs based on their knowledge.
