RULES OF ORIGIN AND THE EU-UK TRADE AND COOPERATION AGREEMENT
Understand how the economic nationality of your goods may determine areas such as tariffs, prohibitions and restrictions, licensing and quotas, and trade sanctions.
Rules of Origin are the criteria used to determine the economic nationality of a product, as opposed to the geographic nationality of the product. Restrictions and tariffs are applied at different levels according to the nationality of the product. For example, tariffs on goods originating in China may differ to those on goods originating in Europe.
Rules of origin do not apply in the single market of the European Union (EU), therefore since the end of the transition period following the United Kingdom's (UK) withdrawal from the EU, UK companies that have previously only traded within the EU have had to establish administrative procedures to take them into account.
The origins of a product are used to determine the tariffs when crossing borders. In addition to this, Rules of Origin are also used to charge anti-dumping duties, and put safeguard measures in place, for government procurement purposes, marketing or labelling, or gathering trade statistics.
Cumulation is a deviation from the core concept of origin and occurs when manufacturing processes take place in several countries. Where two or more countries have the same rules of origin, and free trade agreements in place between them, if the product of one country of an FTA is further processed to a significant level in partner country, it can be labelled as originating in the final country of production.
Establishing a claim for preferential tariffs
The Trade and Cooperation Agreement has established preferential tariff treatment for products that are originating in either the UK and EU. To claim the preferential tariff the importer is responsible for correctness of a claim for preferential tariff treatment.
A claim for preferential tariff treatment can be based on:
a.) a statement on origin that the product is originating made out by the exporter; or
b.) the importer’s knowledge that the product is originating supported by evidence if requested by the custom’s authorities.
The importer must keep the statement on origin and, when required by the customs authority of the importing Party, shall provide a copy thereof to that customs authority.
The importer making the claim for preferential tariff treatment based on a statement on origin must keep a statement of origin and bears responsibility for compliance.[1]
The four key elements for traders to note when claiming preferential tariffs on the Trade in Goods between the EU and UK are as follows:
Statement of Origin on Commercial Invoice a statement on origin must be included on the commercial invoice or another accompanying document such as the packing list;
Clear Description of Goods the accompanying document, such as the invoice, must describe the originating product in sufficient detail to enable the identification of that product;
Third country goods in free circulation in the EU or the UK will not benefit from EU preferential tariffs, when crossing the border. The trade deal is established to benefit producers within the UK and the EU - the Trade and Cooperation Agreement identifies that goods must be of EU or UK preferential origin.
Rules of origin refer to the country of origin of a product. The terms of The Trade and Cooperation Agreement identify that goods must be of EU or UK preferential origin to qualify for preferential tariff treatment.
When conducting trade, if the supplier of products from the EU or the UK wishes to claim preferential origin, they must accompany goods with a Statement of Origin. An example of this is detailed within Annex 4 of the Trade and Cooperation Agreement.
Non-preferential rules of origin
Non-preferential rules of origin are usually set in national policy and legislation where there are no preferential trade agreements in place between two or more countries. Countries must establish the non-preferential origin of a product on World Trade Organisation in accordance with terms and associated tariffs.
Preferential rules of origin
Preferential rules of origin are agreed within a bilateral, regional trade agreement or customs union, or for non-restrictive trade preferences (i.e., for developing countries). These are generally more restrictive than non-preferential counterparts to avoid "trade deflection". They also act as a non-preferential tariff protectionist measure, if they set domestic production levels too difficult to meet. The Trade and Cooperation Agreement[2] lays down specific conditions in determining the origin of goods for the purpose of application of preferential tariff treatment.
A product can access originating status if it is either wholly obtained or has been sufficiently worked or processed within the UK or EU.
Wholly Obtained goods (text from the article of TCA ORIG-5)[3]
Products that are wholly obtained in the UK or an EU Member State may be made using natural resources or obtained from natural resources, or they made have been produced entirely in either party, using domestic materials.
1. The following products are considered as wholly obtained in a Party:
(a) mineral products extracted or taken from its soil or from its seabed;
(b) plants and vegetable products grown or harvested there;
(c) live animals born and raised there;
(d) products obtained from live animals raised there;
(e) products obtained from slaughtered animals born and raised there;
(f) products obtained by hunting or fishing conducted there;
(g) products obtained from aquaculture there if aquatic organisms, including fish, molluscs, crustaceans, other aquatic invertebrates and aquatic plants are born or raised from seed stock such as eggs, roes, fry, fingerlings, larvae, parr, smolts or other immature fish at a post-larval stage by intervention in the rearing or growth processes to enhance production such as regular stocking, feeding or protection from predators;
(h) products of sea fishing and other products taken from the sea outside any territorial sea by a vessel of a Party;
(i) products made aboard of a factory ship of a Party exclusively from products referred to in point (h);
(j) products extracted from the seabed or subsoil outside any territorial sea provided that they have rights to exploit or work such seabed or subsoil;
(k) waste and scrap resulting from production operations conducted there;
(l) waste and scrap derived from used products collected there, provided that those products are fit only for the recovery of raw materials;
(m) products produced there exclusively from the products specified in points (a) to (l).
2. The terms “vessel of a Party” and “factory ship of a Party” in points (h) and (i) of paragraph 1 mean a vessel and factory ship which:
. (a) is registered in a Member State or in the United Kingdom;
. (b) sails under the flag of a Member State or of the United Kingdom; and
. (c) meets one of the following conditions:
(i) (ii) it is at least 50% owned by nationals of a Member State or of the United Kingdom; or it is owned by legal persons which each:
(A) have their head office and main place of business in the Union or the United Kingdom; and
(B) are at least 50% owned by public entities, nationals or legal persons of a Member State or the United Kingdom.
Substantial transformation
Products from third countries that have undergone sufficient processing in the partner country are permitted to be labelled as originating in the country of processing, in line with the relevant Product-specific rule. It has been substantially transformed in line with the relevant Product-specific rule. HM Revenue and Customs identify that there are three basic rules used to decide if goods are sufficiently transformed[4]:
· the ad-valorem, or ‘value added’ rule
· the change of tariff classification
· manufacture from certain products or through specific processes
The Value Added Rule
Once the identification of a product has been made, the next step will be to determine the product’s economic origin, rather than its geographic origin, calculating through assessing the contributions made by adding value to a product. The ‘value added’ rule, establishes a limit on value of non-originating materials which can be used before a product is considered non-originating.
Under a value limitation rule, the value non-UK or non-EU originating materials may not exceed 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.
Note 4 of Annex ORIG-1 (Introductory Notes to Product Specific Rules of Origin) sets out the definition of ‘ex-works price’.
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 £1000, 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 method 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/value limitations
For some agricultural products, limitations on non-originating materials can apply by weight, by value or there can be choice of meeting either criteria in certain instances.
The Change of Tariff Classification Rule
If a product-specific rule of origin requires a change from any other chapter (2-digit level of the Harmonized System), heading (4-digit level of the Harmonized System) or subheading (6-digit level of the Harmonized System), any non-originating material used in the production of the product must be classified in a chapter, heading or subheading other than that of the final product.
There are no limits on the amount of originating material businesses can use, regardless of their HS code.
To demonstrate the rule has been met, businesses will need to know the HS code of their exported product, all of its inputs, and 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 third country with only fitting-out work carried out in the UK before being exported to the EU, because the finally exported yacht would remain in the same HS chapter as one of the inputs.
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.
Agri-food example: HS code: 090412
Product: Crushed or ground pepper
Rule: Production from non-originating materials of any heading.
Pepper and ground/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.
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, such 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.
Tolerance rules
Tolerances rules described in the Trade and Cooperation Agreement, Product-specific rules of origin, enable products from third countries to be made from a limited economic value of third-country materials, and qualify for ‘originating’ preferential tariffs.
To understand how to calculate whether the materials within a product meet tolerance requirements, the trader must identify the commodity code of the product in the UK Trade Tariff.
The product-specific rules of origin are established using the Harmonised System classification (2017). The HS Chapter - International is identified within the first two digits of a commodity code and the HS Heading - International, is identified within the first four digits of a commodity code. Permitted tolerances vary between products.
1. If a product does not satisfy the requirements set out in Product-specific rules of origin due to the use of a non-originating material in its production, that product shall nevertheless be considered as originating in a Party, provided that:
(a) the total weight of non-originating materials used in the production of food products classified under Chapters 2 and 4 to 24 of the Harmonised System, other than processed fishery products of Chapter 16, does not exceed 15% of the weight of the product;
(b) the total value of non-originating materials for all other products, except for the textile products classified under Chapters 50 to 63 of the Harmonised System does not exceed 10% of the ex-works price of the product; or
(c) for textile products which are classified under Chapters 50 to 63 of the Harmonised System, the tolerances set out in the TCA Note 6, 7 and 8 of ANNEX ORIG-1[5] apply.
2. Paragraph 1 does not apply if the value or weight of non-originating materials used in the production of a product exceeds any of the percentages for the maximum value or weight of non- originating materials as specified in the requirements set out in ANNEX ORIG-2 [Product-specific rules of origin].[6]
3. Paragraph 1 of this Article does not apply to products wholly obtained in a Party within the meaning of Article ORIG.5 [Wholly obtained products]. If ANNEX ORIG-2 [Product-specific rules of origin] requires that the materials used in the production of a product are wholly obtained, paragraphs 1 and 2 of this Article apply.
Bilateral cumulation
Bilateral cumulation is permitted, meaning that products or materials from each trading partner can be processed in the other's territory, and will be allocated the origin and preferential status of the country they were processed in.
A product will be considered as originating in the UK or the EU, if that product is used as a material in the production of another product in the partner country. Production carried out in a party on a non-originating material may be taken into account for the purpose of determining whether a product is originating in the other Party. The production must go beyond insufficient production.
In order for the export to complete the statement on origin, the exporter shall obtain from its suppliers a supplier’s declaration or equivalent document that contains the same information to describe the non-originating materials. This will be a requirement from 1st January 2022.
Insufficient production (text from the article of TCA ORIG-7)[7]
A product shall not be considered as originating in a Party if the production of the product in a Party consists only of one or more of the following operations conducted on non-originating materials:
(a) preserving operations such as drying, freezing, keeping in brine and other similar operations where their sole purpose is to ensure that the products remain in good condition during transport and storage;
(b) breaking-up or assembly of packages;
(c) washing, cleaning; removal of dust, oxide, oil, paint or other coverings;
(d) ironing or pressing of textiles and textile articles;
(e) simple painting and polishing operations;
(f) husking and partial or total milling of rice; polishing and glazing of cereals and rice; bleaching of rice;
(g) operations to colour or flavour sugar or form sugar lumps; partial or total milling of sugar in solid form;
(h) peeling, stoning and shelling, of fruits, nuts and vegetables;
(i) sharpening, simple grinding or simple cutting;
(j) sifting, screening, sorting, classifying, grading, matching including the making-up of sets of articles;
(k) simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations;
(l) affixing or printing marks, labels, logos and other like distinguishing signs on products or their packaging;
2. Preserving operations such as chilling, freezing or ventilating are considered insufficient within the meaning of point (a), whereas operations such as pickling, drying or smoking that are intended to give a product special or different characteristics are not considered insufficient.
This document has been agreed between the European Union and the United Kingdom and is provided for information only. No rights may be derived from it until the date of application. The numbering of the articles is provisional.
(m) simple mixing of products, whether or not of different kinds; mixing of sugar with any material;
(n) simple addition of water or dilution with water or another substance that does not materially alter the characteristics of the product, or dehydration or denaturation of products;
(o) simple assembly of parts of articles to constitute a complete article or disassembly of products into parts;
(p) slaughter of animals.
2. For the purposes of paragraph 1, operations shall be considered simple if neither special skills nor machines, apparatus or equipment especially produced or installed are needed for carrying out those operations.
Diagonal cumulation
The European Union did not concede to the United Kingdom's request for diagonal cumulation, meaning that goods from a territory that both partners have a free trade deal with, such as Japan or South Korea, or GSP and GSP + developing nations that benefit from tariff-free access to both the European Union and the United Kingdom, such as Bangladesh, cannot benefit from preferential access if the goods are sent to a territory for distribution or processing, then sold into the partner territory.
The Trade and Cooperation Agreement, Part two: Trade, Transport, Fisheries and Other Arrangements, Heading One: Trade Title I: Trade in Goods, Chapter 2: Rules of origin Section 1: Rules of origin lays down specific conditions in determining the origin of goods for the purpose of application of preferential tariff treatment.[8]
Statement on Origin
A statement on origin shall be made out by an exporter of a product on the basis of information demonstrating that the product is originating, including information on the originating status of materials used in the production of the product. The exporter shall be responsible for the correctness of the statement on origin and the information provided.
A statement on origin shall be made out using one of the language versions set out in ANNEX ORIG-4 [Text of the statement on origin][9] in an invoice or on any other document that describes the originating product in sufficient detail to enable the identification of that product.
The exporter shall be responsible for providing sufficient detail to allow the identification of the originating product. The importing Party shall not require the importer to submit a translation of the statement on origin.
Statement of Origin – Example taken from TCA, Annex ORIG-4
(Period: from___________ to __________ (1)) The exporter of the products covered by this document (Exporter Reference No ... (2)) declares that, except where otherwise clearly indicated, these products are of ... (3) preferential origin. ……………………………………………………………............................................. (4)
(Place and date)
…………………………………………………………….............................................
(Name of the exporter)
1. If the statement on origin is completed for multiple shipments of identical originating products within the meaning of point (b) of Article ORIG.19(4) [Statement on Origin] of this Agreement, indicate the period for which the statement on origin is to apply. That period shall not 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.
2. 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. 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.
3. Indicate the origin of the product: The United Kingdom or the Union.
4. Place and date may be omitted if the information is contained on the document itself.
5. A statement on origin shall be valid for 12 months from the date it was made out or for such longer period as provided by the Party of import up to a maximum of 24 months.
A statement on origin may apply to:
(a) a single shipment of one or more products imported into a Party; or
(b) multiple shipments of identical products imported into a Party within the period specified in the statement on origin, which shall not exceed 12 months.
6. If, at the request of the importer, unassembled or disassembled products within the meaning of General Rule 2(a) for the Interpretation of the Harmonised System that fall within Sections XV to XXI of the Harmonised System are imported by instalments, a single statement on origin for such products may be used in accordance with the requirements laid down by the customs authority of the importing Party.
Third country goods in free circulation in the EU
One of the key aspects of the EU-UK trade deal which may raise contention concerning customs compliance, is the free circulation of third country goods already cleared in the EU, when crossing the UK border. For goods which are not originating in the EU or the UK, a third country duty may be liable. It is possible to identify this by referencing the commodity code of the product against the UK Trade Tariff Volume 2.
Exporters are required to declare the origin of their goods when trading with the UK. This is used by importing countries to protect their producers, for trade statistics and other purposes.
Supplier’s Declaration Template
The supplier's declaration, the text of which is provided below, must be made out in accordance with the footnotes. However, the footnotes do not have to be reproduced.
I, the undersigned, the supplier of the products covered by the annexed document, declare that:
1. The following materials which do not originate in [indicate the name of the relevant Party] have been used in [indicate the name of the relevant Party] to produce these products:
All the other materials used in [indicate the name of the relevant Party] to produce those products originate in [indicate the name of the relevant Party] I undertake to make available any further supporting documents required. …………………………………………………………………………………………………………………… (Place and Date) …………………………………………………………(Name and position of the undersigned, name and address of company) ………………………………………………………………………………………………………………………… (Signature)(6) _______________
Long term supplier’s declaration template
The long-term supplier's declaration, the text of which is given below, must be made out in accordance with the footnotes. However, the footnotes do not have to be reproduced.
I, the undersigned, the supplier of the products covered by the annexed document, which are regularly supplied to (4) ……………., declare that:
1. The following materials which do not originate in [indicate the name of the relevant Party] have been used in [indicate the name of the relevant Party] to produce these products:
Description of the products supplied (1)
Description of non-originating materials used
HS heading of non-originating materials used (2)
Value of non-originating materials used (2) (3)
2. All the other materials used in [indicate the name of the relevant Party] to produce those products originate in a Party [indicate the name of the relevant Party]; This declaration is valid for all subsequent consignments of these products dispatched from ....................................................................................................................... to ....................................................................................................................... ( 5 ) I undertake to inform ...................................................................................................................... ( 4 ) immediately if this declaration ceases to be valid. …………………………………………………………………………………………………………………… (Place and Date) …………………………………………………………(Name and position of the undersigned, name and address of company) ………………………………………………………………………………………………………………………… (Signature) (6)
Footnotes
(1) Where the invoice or other document to which the declaration is annexed relates to different kinds of products, or to products which do not incorporate non-originating materials to the same extent, the supplier must clearly differentiate them.
(2) The information requested does not have to be given unless it is necessary. Examples: One of the rules for garments of HS Chapter 62 provides “Weaving combined with making-up including cutting of fabric”. If a manufacturer of such garments in a Party uses fabric imported from the other Party which has been obtained there by weaving non-originating yarn, it is sufficient for the supplier in the latter Party to describe in his declaration the non-originating material used as yarn, without it being necessary to indicate the HS heading and the value of such yarn. A producer of wire of iron of HS heading 7217 who has produced it from non-originating iron bars should indicate in the second column 'bars of iron'. Where that wire is to be used in the production of a machine for which the rule contains a limitation for all non-originating materials used to a certain percentage value, it is necessary to indicate in the third column the value of non-originating bars.
(3) ‘Value of non-originating materials used’ means the value of the non-originating materials used in the production of the product, which is its customs value at the time of importation, including freight, insurance if appropriate, packing and all other costs incurred in transporting the materials to the importation port in the Party where the producer of the product is located; where the value of the non-originating materials is not known and cannot be ascertained, the first ascertainable price paid for the non-originating materials in the Union or in the United Kingdom is used.
(4) Name and address of the customer
(5) Insert dates
(6) This field may contain an electronic signature, a scanned image or other visual representation of the signer’s handwritten signature instead of original signatures, where appropriate.
This article is a chapter from Business after Brexit: A Guide Trading with the European Union in 2021. To download the full report, please follow the link below.
[1] Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, Article Orig-18, TCA, pp.33 available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948119/EU-UK_Trade_and_Cooperation_Agreement_24.12.2020.pdf
[2] Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, Chapter 2: Rules of Origin, p.27 - 41 available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948119/EU-UK_Trade_and_Cooperation_Agreement_24.12.2020.pdf
[3] Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, Chapter 2: Rules of Origin Article ORIG-5, pp.28-29 available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948119/EU-UK_Trade_and_Cooperation_Agreement_24.12.2020.pdf
[4] HM Revenue and Customs, The Product Specific Rules, available from: https://www.gov.uk/government/publications/rules-of-origin-for-goods-moving-between-the-uk-and-eu/product-specific-rules
[5]The Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of thw one part, and the United Kingdom of Great Britain and Northern Ireland, Note 6, 7 and 8 of ANNEX ORIG-1 [Introductory Notes to the Product-Specific Rules of Origin, available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948119/EU-UK_Trade_and_Cooperation_Agreement_24.12.2020.pdf
[6] Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, ANNEX ORIG-2 [Product-specific rules of origin], p.423 -476 available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948119/EU-UK_Trade_and_Cooperation_Agreement_24.12.2020.pdf
[7] Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, Article ORIG-7 p.30 available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948119/EU-UK_Trade_and_Cooperation_Agreement_24.12.2020.pdf
[8] Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, Chapter 2: Rules of Origin, p.27 - 41 available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948119/EU-UK_Trade_and_Cooperation_Agreement_24.12.2020.pdf
[9] Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, ANNEX ORIG-4 p.482 available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948119/EU-UK_Trade_and_Cooperation_Agreement_24.12.2020.pdf