The following is a high level overview as the origin rules are detailed and complex, therefore, specific advice should be taken, as the circumstances for each business and the goods involved, are different.
The TCA rules of origin requirements outline the provisions in order to ensure zero tariffs apply when trading with the EU, for both exports to and imports from the EU. However, businesses should refer to the full rules of origin under the TCA, to understand all the obligations for the export or import of goods between the UK and EU and take advantage of the preferential treatment.
Only goods that originate in the UK or EU will be tariff free and businesses will need to claim preference on declarations, including holding proof that the goods meet the rules of origin.
The guidance is not relevant to businesses not wanting to claim preferential treatment on imported or exported goods from or to the EU. These goods will be subject to the importer’s non-preferential tariff and payment of tariffs and duties will be due as per the UK and EU’s import requirements.
To benefit under the TCA, goods will have to be of UK or EU origin, meaning they must meet the UK-EU preferential rules of origin. The rules are set out in the TCA and determine the origin of goods based on where the products or materials used in their production come from. The rules ensure that preferential tariffs are only given to goods that originate in the UK or EU and not from third countries.
Goods that do not meet the rules of origin, will not be able to benefit from preference under the TCA. For exports to the EU, this will be their Common External Tariff and for imports, the UK Global Tariff.
It is worth noting that, the rules of origin under the TCA may well give rise to an issue where EU origin goods delivered to the UK, tariff free, for redistribution back to the EU, may be subject to duty on re-entering the EU. If the goods are UK origin and move UK to EU, or EU origin and move EU to UK, then these goods will generally be tariff free for these movements. However, if the product is delivered to the UK for storage and redistribution only, without any kind of processing, then they will not then be classified as UK origin and duties may well be due when the product is subsequently redelivered to the EU.
Similarly, goods imported to the UK from outside the EU, import VAT and duty paid, must also undertake some form of processing, in order to become UK origin first, if they are to then move to the EU tariff free.
Therefore, it is not as simple as UK-EU area goods can move freely between the EU and the UK, as a problem presents itself for certain goods, once they have left the EU or UK. The goods must then become either UK or EU origin goods, before being moved again.
There may be ways round the problem, for example, use of customs warehousing or inward processing. There is also transit available, for goods passing through the UK, but for storage and onward distribution of goods coming to the UK first, this issue will arise on redelivery.
The question here is, how much processing is required to reclassify the goods as either UK or EU origin, prior to redelivery. The TCA talks about the goods having been ‘substantially transformed’ under three rules, the ad-valorem, or ‘value added’ rule, change of tariff classification and manufacture from certain products, or through specific processes. Cumulation is also relevant.
Please see below for further detail.
TCA rules of origin
The rules are in two parts:
rules that apply to all products being traded under preference
Product specific rules of origin (PSRs)
specific rules that set out, for every product with a Harmonized System (HS) code, the requirements for that product to be considered ‘originating’
To be considered ‘originating’, products must be sufficiently worked or processed within the parties to the agreement. ‘Non-originating’ materials are materials imported from third countries and may also refer to materials with unknown origin, or where origin is not possible to determine.
Goods can be considered ‘originating’ in two ways:
- The goods can be ‘wholly obtained’ – exclusively obtained or produced in the territory of one country, without using materials from any other country. The goods must not have been manipulated or changed in another country, apart from certain minimal processes to keep them in good condition. Examples include minerals extracted from the soil of a single country, live animals born and raised in a single country, or goods produced in a single country from materials sourced exclusively from there i.e. all materials used in a product are ‘wholly obtained’ (see below)
- The goods have been substantially transformed in line with the relevant PSRs. There are three rules used to decide if goods are sufficiently transformed:
- The ad-valorem, or ‘value added’ rule
- The change of tariff classification
- Manufacture from certain products or through specific processes
Under the TCA, materials originating from the EU, as well as production carried out within the EU on non-originating materials, may be considered as originating in the UK and vice versa. This is known as bilateral cumulation.
Once goods have gained originating status, they are considered 100% originating. Therefore, if incorporated in the production of a further product, the full value is considered originating and no account is taken of non-originating materials within it.
Claiming preferential treatment
When importing into the UK or EU, importers must claim preference on the customs declaration and declare that proof is held of the goods meeting the rules of origin. Proof can be a Statement on origin, completed by the exporter on a commercial document, or knowledge obtained and held that the goods are originating.
- Have proof of the originating status of the goods, before claiming preference and this may be:
- Statement on origin provided by the exporter on a commercial invoice, or other commercial document that describes the goods. The text of the Statement would be included in the agreement. This is known as an invoice or origin declaration
- supporting documents and records, if claiming preference using ‘importer’s knowledge’. If using importer knowledge, sufficient evidence that the goods qualify as originating, must be obtained. This may involve the exporter providing various supporting documentation and if this cannot be obtained, the exporter may be able to provide a Statement on origin
- Claim for preference by completion of and declaring proof of origin on the customs declaration
- If requested, provide proof of origin to the customs authorities
- Maintain records for at least 4 years
- Hold evidence that the goods meet the relevant rules of origin before issuing a Statement on origin
- Understand whether a declaration from the supplier needs to be obtained
- Provide the customer (importer) with one of the following:
- Statement on origin on a commercial invoice, or other commercial document that describes the goods. The text of the Statement would be included in the agreement. This is known as an invoice or origin declaration
- supporting documents and records, if your customer is claiming preference using ‘importer’s knowledge’
- Maintain records for at least 4 years
A claim for preference and proof of origin, is normally included on the customs declaration to enter the goods. However, a claim can be made after import, using form C285, but must be made within three years of the date of import and accompanied with proof of origin. Any duties would be repaid to the importer.
Statement on origin
A Statement on origin is not a document, but a prescribed text which the exporter should add to the invoice, or any other commercial document, describing the originating goods in sufficient detail to enable its identification.
An exporter making a Statement on origin must hold information demonstrating that the goods are originating, including information on the originating status of materials used in production. This may include declarations obtained from suppliers.
A Statement on origin may apply to a single consignment, or to multiple shipments of identical goods, for a period specified in the statement, but not exceeding 12 months from date of first import. For UK imports, the statement will be valid for two years from the date it was made out and for exports to the EU, it will be valid for 12 months. Statements must be retained for at least four years.
‘Importer’s knowledge’ is an option allowing the importer to claim preferential treatment, based on own knowledge about the originating status of imported goods. It can be used as an alternative to a Statement on origin. As this requires the importer to have knowledge that the goods meet relevant rules of origin, the exporter or producer may have to provide information about production, to the importer. This may be in addition to other information already in possession of the importer, such as the HS code of the goods and origin criteria used and a description of the production process.
Verification of claims for preferential treatment
In order to verify whether goods imported under preference are originating, the importing customs authority may undertake verification checks. This may include a request for information from the importer who made the claim for preferential treatment. Verification can be before or after release of the goods.
If conducting a verification before release of the goods, the customs authority may suspend the granting of preferential treatment. Where this is the case, release will be offered, subject to a security or guarantee cover the difference between preferential and full tariff.
Preferential treatment claims for both Statement of origin and importer’s knowledge, are two step, based on initial and subsequent information, if required.
Cumulation provides a system allowing originating goods from one party, to be treated as if originating in another, for determining whether goods are able to meet a PSR. This means goods originating in the EU, can be considered as originating in the UK, if further processed in the UK, or incorporated into other goods, prior to re-export to the EU.
Wholly obtained goods are those obtained entirely in the territory of a party, without the addition of any non-originating materials. Wholly obtained goods automatically qualify for preferential treatment and these are specified under the wholly obtained article in the TCA. Example of wholly obtained goods include minerals, plants, vegetables and fruit, livestock, meat and dairy, fish and waste and scrap.
Product Specific Rules (PSR)
For all goods within a free trade agreement, there is a corresponding PSR that must be met in order to demonstrate the goods originate in the free trade area and qualify for preferential treatment. Each rule describes the nature or value of processing, that must be carried out on any non-originating materials, so that the final goods meet the origin requirements.
There are four types of rule that goods may be required to meet, either on their own, or in combination, in order to confer origin:
- Wholly obtained
- Change of tariff code
- Value added/percentage rule
- Specified processes