Overseas companies seeking to import goods to the UK, and UK companies seeking to export goods abroad, are subject to specific trade rules depending on their methods of selling, the goods they sell, and the destination of those goods. An important consideration within domestic and international trade law is the area of rules of origin. Rules of origin are the way in which the nationality, or location of origin, of individual goods is determined. They have a broad impact on the way countries implement trade policy on goods from sellers.
This article will define and explain rules about rules of origin in British and international trade regulations. It will also outline how to determine rules of origin for your goods and how to prove the rules of origin for your goods prior to engaging in international trade. This is of increased importance for your business or company in the post-Brexit trade environment. Some rules will differ between Great Britain (England, Scotland, and Wales) and Northern Ireland due to the retained membership of Northern Ireland within the European Economic Area (EEA) single market.
What are the rules of origin?
Broadly, the rules of origin are the way in which the economic nationality, or original location of origin, of individual goods is determined. They establish how customs officials determine the economic nationality based on where the products and their components were grown, produced, manufactured, or created. The definition of rules of origin is outlined by the World Customs Organisation (WCO) International Convention on the Simplification and Harmonisation of Customs (Kyoto Convention). The Kyoto Convention entered into force in 1974 and was amended in 1999. The Convention defines rules of origin as follows:
Rules of origin means the specific provisions, developed from principles established by national legislation or international agreements (“origin criteria”), applied by a country to determine the origin of goods.
The rules of origin are used to determine important factors related to international trade, including the following:
- Regulations regarding governmental procurement of goods
- Regulations around marking and labelling requirements for applicable goods
- Implementation of national and international trade statistics
- Determinations regarding the applicability of most-favoured-nation (MFN) treatment and preferential treatment on imported products
- Implementation of commercial policy regulations and legislation on safeguarding measures and anti-dumping duties
The rules of origin are broadly split into two categories: preferential rules of origin and non-preferential rules of origin. These two categories outline what happens to the treatment of goods once the origins of the goods have been determined.
Rules of origin are a complex and technical area of international trade and customs law that determine the treatment of imported and exported goods. In the United Kingdom, these rules have become more complicated due to Brexit and the exit from the European Economic Area single market. It is important that your business or company understands how to determine the rules of origin for your goods to be prepared for the administrative process and customs declarations forms.
How can I determine the rules of origin?
Determining the rules of origin varies in complexity, depending upon the category of goods, how much manufacturing has gone into the product of the goods, and the various components within those goods. The process of determining rules of origin can be simple and straightforward for products that were created in one country. However, today’s international manufacturing and global supply chains entail that products and their components often come from around the world. This can complicate the process of determining rules of origin and make such determinations challenging. It is important to determine the rules of origin for your goods as this process can be required by trade agreements in order to benefit from preferential tariffs for customs purposes.
Your business or company will need to undertake a three-step process to determine the rules of origin for your goods. You will need to provide documented proof that you have undertaken this process for customs declarations purposes.
First, you will need to determine the classification and categorisation of your goods by finding the applicable commodity code for your goods. Commodity codes are sequential strings of numbers that identify the specific type of goods on customs declaration forms within the international trade system. Commodity codes quickly identify important information about the imported or exported goods to customs agents, such as the relevant customs duties and other relevant charges, preferential trade treatments, and potential prohibitions and restrictions against a shipment in line with national trade policies. Customs declarations forms are an important regulatory requirement of businesses and companies in order to share information on taxation, customs, and movement of restricted goods.
You can look up a commodity code for your goods by using the Trade Tariff tool from the UK Government. The Trade Tariff tool will provide you with the relevant commodity codes for importing, exporting, tariff duty calculation assistance, and the Value Added Tax rate for the specific product if destined for the UK. This tool includes valuable information on import measures and restrictions from countries around the world in one webpage. You can use the Trade Tariff tool for all products traded by your company in order to ensure accurate and up-to-date information. In order to look up the commodity code for your goods, you will need to know and submit some information about your goods such as the following:
- What is the type of product?
- What is the purpose of the product?
- What materials were used to make the product?
- How is the product packaged?
- What were the production methods used to make the product?
Second, you will need to determine if your goods meet the rules of origin for import to a given country. Once you have determined the commodity code for your goods, you can research the Product Specific Rules for those goods to establish origin. You will need to understand your supply chain in relation to the Product Specific Rules. There are four categories of rules that your goods may be required to demonstrate either on their own or in combination in order to be granted origin in a given country. These rules include:
- Your goods must be wholly obtained from one country
- Your goods have undergone a change of tariff code due to the manufacturing process
- Your goods contain a certain percentage of their value originating or non-originating in one or more countries
- Your goods must have undergone specified processes in line with the type of product
You will find the specific rules for your products by using the online UK Government ‘Check duties and customs procedures for exporting goods’ tool. It will list all relevant rules for your goods that can then help you to prove the origin of your exports.
Third, you will need to prove that your goods meet the rules of origin of the country of import. You will need to provide written evidence to demonstrate the origins of your goods.
How can I prove the rules of origin?
Once you have determined the relevant rules of origin for your goods, can prove these rules for your products by providing documentation evidence. You will need to clearly demonstrate the origins of your products. The type of proof you will need for your goods will depend upon the type of goods you are trading and where you seek to export or import them from. You will need to determine the relevant documentation in advance. The following pieces of documentation are used to prove the relevant rules of origin for your products:
- Generalised Scheme of Preferences Form A
- EUR1 or EUR-MED movement certificate
- Self-certified origin declaration
- Importer’s knowledge declaration
You will need to identify the proof of origin type on your customs declaration forms. If requested, you may be required to provide this evidence to officials from Her Majesty’s Revenue and Customs (HMRC).
What is preferential treatment within the rules of origin?
Preferential rules of origin arise from trade agreements that allow signatories of those trade agreements to gain access to domestic trading markets at preferential tariffs. Preferential tariffs permit partner nations to charge lower tariffs or zero-rated tariffs when compared to those available to other nations.
Preferential rules of origin require that businesses and companies are able to determine and prove the origin of their goods and that those goods are economic nationals of a country for which preferential tariff rates exist. An example of the application of preferential rules of origin is the trade of duty-free goods that originated in the United States of America, Canada, and/or Mexico through the North American Free Trade Agreement (NAFTA) between those countries. Preferential trade agreements require that goods originated in a preferentially treated country for trade purposes in order to benefit from preferential customs and trade treatment.
Conversely, non-preferential rules of origin are utilised to determine rules of origin for the application of trade arrangements that do not demonstrate a preference, thus are non-preferential in nature. One such example is most-favoured-nation (MFN) treatment under international trade laws.
Most-favoured nation status is applied in the customs and trade process to ensure equal trade privileges from one country to another in line with the treatment of countries that have trade advantages. Importing countries that have been granted MFN trade status by a State cannot be treated less advantageously than other importing countries with MFN trade status, in accordance with World Trade Organization policies.
Non-preferential rules of origin are also used to apply certain trade and commercial policy measures. These can include safeguarding measures, anti-dumping duties, trade embargoes, tariff quotas, and other non-preferential methods. An example of the application of non-preferential rules of origin is the export of goods that originated from China to the United States of America through the MFN status granted to China by the United States of America.
What is the harmonisation system?
Harmonisation is an EU process by which similar legal and regulatory processes develop across Europe. This allows for greater integration of the EU regional bloc and allows for the creation of harmonised standards. Whilst harmonisation systems occur in broad legal areas throughout the European Union, it applies heavily to trade and customs due to the necessity of harmonisation as a result of EU free movement and free trade.
One example of harmonisation within trade law and customs procedure is participation within the Harmonised System of commodity codes. A Harmonised System (HS) code is a global commodity code organisational system through the Harmonised Commodity Description and Coding System. It is used to standardise and categorise traded goods for customs and taxation purposes. The Harmonised System has been in place since 1988 and is utilised around the world by the majority of countries. HS codes are broken into three parts:
- HS Code Chapter (2 digits)
- HS Code Heading (2 digits)
- HS Code Subheading (2 digits)
HS codes comprise the first 6 digits of UK commodity codes. The HS code system is regularly maintained and updated by the World Customs Organisation (WCO) in line with developments within the international trade system and changing needs of individual countries. As such, trade harmonisation does not seek to make identical systems of trade within each country but aims to create common standards by which national legal systems can more easily interact in the globalised market.
How has Brexit impacted the rules of origin?
Brexit has impacted the rules of origin due to the exit of the United Kingdom from the European Economic Area (EEA) single market. Under the EEA single market, trade between the UK and the other Member States of the European Union was subject to minimal customs and taxation intervention. This was intended to encourage European trade cooperation and trade harmonisation.
Prior to Brexit, trade between the United Kingdom and the EU Member States did not require customs declaration forms for the majority of businesses and companies engaging in international trade due to British membership in the European Economic Area (EEA) single market. Customs tariff rates were one of the major points of contention throughout the Brexit withdrawal agreement process. Since the end of the Brexit transition period on 31 December 2020, businesses in Great Britain (England, Scotland, and Wales) exporting goods to Europe and European businesses importing goods to Great Britain will be required to lodge customs declarations forms and adhere to regulations around rules of origin, commodity codes, and customs tariffs.
The European Union and the United Kingdom engaged in extensive negotiations surrounding conditions of a free trade agreement for years. The final EU-UK Trade and Cooperation Agreement (TCA) was signed on 30 December 2020 and entered into force on 1 May 2021. The TCA includes many stipulations surrounding trade that are not covered in the EU-UK Withdrawal Agreement. It provides additional clarification regarding tariffs, quotas, and rules surrounding the rules of origin between the EU and the UK after the end of the Brexit transition period.
The TCA established that goods traded between the UK and EU Member States will be subject to 0% tariffs if they meet the stipulated rules of origin. The TCA requires that all goods eligible for the zero-rated tariff must originate within either the United Kingdom or a Member State of the European Union. Businesses will need to demonstrate their adherence to provisions of the TCA in order to benefit from preferential treatment and zero-rated tariffs.
These new rules apply differently in Northern Ireland, as the nation remains part of the EEA single market due to the Northern Ireland Protocol of the EU-UK Withdrawal Agreement. Whilst Northern Ireland will be subject to UK taxation and economic regulations as relevant within the UK, the nation will retain ties to the European Union on many important international trade rules within the EU related to the EEA single market.
Rules of Origin FAQs
What are the rules of origin in trade?
Rules of origin are a way of determining the economic nationality of goods for purposes of taxation and customs procedures.
What are the EU rules of origin?
Within the European Union, preferential treatment under the rules of origin requires that goods originate from a Member State within the European Union. As per the EU-UK Trade and Cooperation Agreement, preferential treatment under the rules of origin requires that goods originate from the UK or from a Member State within the European Union. Goods originating from third countries are not guaranteed preferential tariffs.
What are the rules of origin in free trade agreements?
Rules of origin in free trade agreements are classified as preferential rules of origins. These rules permit partner nations to charge lower tariffs or zero-rated tariffs when compared to those available to other nations. Access to zero tariffs is only permitted for businesses that meet the stipulated rules of origin detailed within an individual free trade agreement.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.