There are various issues you need to consider regarding customs. This page is about the final consideration – where the goods are deemed to "originate".
How can origin can be defined?
It's the "national source" or "economic nationality" of a product.
The rate of customs duty (tariffs) applied to imports depends on four things:
- the customs value of the goods;
- the category the goods fall into;
- the country they are being imported into; and
- where the goods "originate".
This page is about the final consideration – where the goods are deemed to "originate".
The EU rules on origin for trade with non-EU countries are well established, and can be found below:
While an EU-UK Free Trade Agreement is under negotiation, uncertainties remain about how the rules will apply to UK-EU trade. Nevertheless, regardless of the outcome it is clear that origin will be relevant, and exporters need to be ready to comply with rules to evidence the origin of their goods.
It is typically the exporter who is expected to evidence the origin of their goods. If origin is challenged, a higher rate of tariff may need to be paid by the importer and penalties may also apply for incorrect declarations.
When goods arrive in an importing country, the customs authorities (HMRC for the UK) can ask the authorities in the exporting country to carry out further checks and controls. These can be requested even if the goods are already in free circulation. This is called ‘subsequent verification’. The authorities can ask the importer to pay a ‘security’ sufficient to cover the difference in duty, where the goods are not yet in free circulation.
If a verification check shows that the goods do not qualify for preferential treatment, the importer will lose the benefit of it. Duty can be collected from the importer up to three years after import.
- Many businesses and ICAEW members will need to understand the rules around origin, often for the first time. These rules are complex, and traders may need to obtain professional advice.
These pages are intended to help you orient yourself and decide where additional research may be necessary. They do not constitute professional advice.
There are several reasons why origin matters which we explain below.
1. Trade is between economies with a Free Trade Agreement, which provides for preferential tariffs. For example, a lower rate of tariff applies to certain exports from Canada to the EU because of the CETA Free Trade Agreement. Access to the preferential tariffs depends on the origin of the goods.
If a UK-EU Free Trade Agreement is reached, exporters from both the UK and the EU will need to evidence that their goods originate in the UK/EU to qualify for the preferential tariff. It is not yet clear what mechanism will be used to do this, although one possibility may be self-certification through the EU REX system.
2. Trade is from a developing country to a developed economy under the "Generalised System of Preferences" (GSP). Access to preferential GSP tariffs depends on origin.
Normally the World Trade Organisation (WTO) requires the same tariff to be applied to all countries – this is the Most Favoured Nation principle. However, the WTO permits an exception to this rule for trade with developing countries, known as the "Generalised System of Preferences" (GSP). This permits ‘donor’ economies to unilaterally offer preferential tariffs to exports from "recipient" developing countries. There is no requirement for the "recipient" to reciprocate. GSP schemes are not standardised so, for example, although both the US and the EU operate GSP schemes, the conditions for each are different.
The UK will be operating its own GSP system from 1 January 2021 (see trading with developing nations). This will provide market access to the same countries as the EU GSP and will replicate the three EU GSP "frameworks".
3. Trade defence measures apply. WTO rules permit countries to take measures to defend themselves against subsidies other countries may provide to exporters. These measures include supplemental tariffs - ‘anti-dumping duties’ - and quotas. Customs authorities use origin to determine whether these measures apply to imports.
The EU’s trade defence mechanism is well established. After transition the UK will make its own decisions on trade remedies. Further detail is available from the Trade Remedies Investigations Directorate.
Because trade defence measures may apply to goods from certain countries, declaring origin is an integral part of customs procedures for all exports. All traders will therefore need to prepare to comply with this requirement. Those completing customs declarations will need to have knowledge of the ‘processing’ of the product, that is how and where it was manufactured and from what components. They will need to ensure they have access to adequate documentation to enable the origin to be determined. That could include details on the original "wholly obtained product" (ie, the raw input materials), on the exact production process and on the tariff classification, value and origin of the input materials.
4. Public procurement rules may specify origin. The EU, US and 18 other parties have signed the WTO Government Procurement Agreement (GPA) and are therefore committed to open international markets for government procurement. The UK is now also a signatory and therefore has access to government markets in these economies, as far as the GPA affords. Nevertheless, some protectionist or discriminatory measures still persist and therefore rules of origin can be relevant in supplying goods to governments and other public bodies.
For example, EU Directive 2014/25/EU (article 85) regulates procurement for the water, energy, transport and postal services. It allows tenders to be rejected if the proportion of third country products exceeds 50%. This provision is part of the EU/UK negotiations.
What does "originating" mean?
There are two ways that goods can "originate" in a country:
- wholly obtained: goods wholly produced in the exporting country without incorporating inputs from any other country. Typically, this applies to plants, animals or minerals; or
- sufficiently transformed: applies to products produced with materials of other countries, or partially processed abroad. Due to the nature of manufactured products they are unlikely to quality as ‘wholly obtained’ and the onus is therefore on evidencing that they have been "sufficiently transformed’.
These rules are complex and vary depending on the context. Free Trade Agreements will typically define "sufficient transformation", often in great detail, as do the different GSP regimes. The rules are particularly complex for products processed in several different countries, what is known as "cumulation" - although these situations may be frequently encountered in business. These detailed rules are beyond the scope of this article and you may need to obtain professional advice. For further information see:
Proof of origin
A certificate of origin may be required to claim preferential origin.
Individual Free Trade Agreements may specify how preferential origin is to be proved. For shipments above a certain value (often €6,000), many of the EU’s FTA require form EUR.1 to be submitted. The exporter must get this form signed by their customs authority or a Chamber of Commerce.
Another example is the EU-South Korea FTA. In order to benefit from a preferential rate exporters must be authorised by EU customs authorities (except for shipments below €6,000 in value). They then need to self-certify origin on their invoice. The EU-Japan FTA allows preferential origin to be claimed by the importer based on their ‘knowledge’ of the product’s origin. This knowledge should be based on supporting documents or records provided by the exporter or manufacturer of the product, which must be in the importer’s possession.
To gain preferential origin for imports from developing countries under the EU GSP, the exporter must make a self-certification using the EU’s 'Registered Exporter system’ (REX). REX has been progressively introduced since 2017 and replaces the ‘Form A’ that had previously been issued by the exporter’s customs authority.
Binding Origin Information
Because a challenge of origin by customs can have significant financial implications, traders may wish to gain certainty by seeking a ‘Binding Origin Information’ (BOI) decision from customs authorities. A BOI is a written statement confirming the origin of a particular product. EU BOIs are recognised across the EU.
Only the ‘owner’ of a BOI can use it, so a customer cannot share a supplier’s BOI. The proof of origin forms referred to above will still need to be submitted.