At the end of 2020, the UK and the EU agreed a zero-tariff free trade agreement after months of tense negotiations. As a result, rules of origin were introduced for businesses importing or exporting goods between the UK and the EU. Meeting the rules of origin in the Trade and Cooperation Agreement (TCA) is optional, but it is required to unlock tariff-free treatment for goods exports and imports to or from the EU.
We answer your most frequently asked questions about rules of origin, how you can prove your products meet them and where to go for more guidance.
What are rules of origin?
Rules of origin are a common feature of free trade agreements (FTAs). Usually set out in the text of an FTA, they help determine the “economic nationality” of imported and exported goods and whether they qualify for reduced or zero tariffs.
Rules of origin are normally deliberately designed to ensure that only businesses based in the countries party to any given agreement (for instance, the UK and the EU in the case of the TCA) can benefit from reduced tariffs.
How do I prove this?
In order to qualify for zero tariffs under the TCA, exporters must be able to show that the goods have originated in the UK. Goods that achieve this classification are in two groups:
- Products that are, or are made from goods that are, wholly obtained in one country
- Products that are made from materials originating from different countries that are sufficiently worked or processed
The rules agreed by the UK and the EU are set out in ANNEX ORIG-2 (Product-specific rules of origin) of the agreement and should always be consulted before taking any action.
1. Wholly obtained Goods
These have been produced or obtained exclusively from the UK. This category includes products such as live animals born and raised in the UK or minerals extracted from the soil of a country. A full list of these products can be found here.
Example:
A Welsh farmer could claim that wool sheared from his sheep, cheese made from the milk of the sheep and lamb from the sheep are all classed as wholly obtained from the UK.
2. Sufficiently worked or processed goods
Imported goods are considered originating if they are ‘substantially transformed’ in line with the product-specific rules laid out in the TCA. This normally requires further manufacturing or processing activity being carried out on the imported goods, or for them to be used as an ingredient or component in producing another product.
There are three basic rules to determine whether a good has been sufficiently worked or processed:
- the ad-valorem, or ‘value added’ rule: work undertaken in a party (i.e. the UK) must contribute a minimum percentage of the value of a product. Typically, 50 per cent or more has to be added to claim origin.
- the change of tariff classification rule: work undertaken on a product in a party results in a change in classification. For instance, the commodity code for cotton will be different to that of a finished t-shirt.
- manufacture from certain products or through specific processes: finished products can qualify if they have undergone specific processes detailed in the agreement.
More information and guidance on these rules as laid down in the TCA can be found here.
What is cumulation?
The TCA allows for full bilateral cumulation of origin. Cumulation of origin allows for products from qualifying parties to be considered as ‘originating’ in another.
In the case of the TCA, this means that materials originating in the EU, as well as processing activity carried out in the EU on non-originating products, may be considered as originating in the UK and vice versa. More information on this can be found here.
In the case of the ad-valorem rule detailed above, this can mean that EU originating material may count towards the overall added value when calculating whether a product meets the origin threshold.
What is the tariff classification code?
A tariff code is a product-specific code as documented in the Harmonised System (HS) maintained by the World Customs Organisation (WCO) and exists for most products.
These codes can range from six to ten digits long with longer codes identifying more specific products. A full searchable list of these codes can be on the Trade Tariff tool on gov.uk here.
What is a suppliers’ declaration?
A suppliers’ declaration is where your UK supplier provides you with information needed to prove the origin of your goods for preferential rates of duty between the UK and other countries.
Businesses do not need supplier’s declarations to be in place when goods are exported until 31 December 2021, however this paperwork can still be requested and checked retrospectively, so it’s important that you still meet the requirements.
If you export goods, the declaration is used to prove that the goods meet the rules of origin or that you’ve processed or added value to the goods.
My product meets the rules of origin, what’s next?
Once a product has gained originating status, it is considered 100% originating. The TCA allows UK businesses to use a self-certification instead of purchasing a certificate of origin for each product. You can find more information and a template on the gov.uk website.
Once the product is considered 100% originating, it can be incorporated in the production of a further product, with its full value considered originating. No account is taken of non-originating materials within it. This means that an engine which contains non-UK components, but meets originating status, is considered wholly obtained for any vehicle in which it is used.
What if my product doesn’t meet these rules?
Rules of origin are product and process specific. If you’re importing and storing a finished product and not manufacturing with it or engaging in further processing of it, then your goods will likely incur a tariff on re-export.
If you good does not meet the rules of origin, you’ll pay the Most Favoured Nation (MFN) Tariff. In the case of goods imported into the UK, this is the UK Global Tariff. For goods exported to the EU, this is the Common Customs Tariff.
There’s the potential to absorb this tariff cost or pass it to your customers, but this can be costly. Some businesses are using customs warehouses or looking at their supply chains to understand how the new rules impact them.
This sounds complicated, can I get help?
The rules can be complicated for businesses not used to dealing with them. You can find detailed government guidance here for more support. There is also a general enquiries helpline which can help with questions about importing, exporting and customs relief.
You can speak to an HMRC advisor online or phone 0300 322 9434. Lines are open until 10pm weekdays and 4pm on weekends.