Rules of Origin
The EU-UK Trade and Cooperation Agreement, now in place, means change. It will require adapting to new trading arrangements, rules and regulations. This information for cross-border SMEs in Ireland and Northern Ireland will introduce rules of origin, important actions and questions and links to further information.
Rules of origin are a complex, intrinsic component of every free trade area. They determine the ‘economic nationality’ of products when these have been produced using components or materials made in more than one country. These rules are necessary to ensure that the products benefiting from the terms of the free trade agreement (in this case, zero tariffs, zero quotas) are either wholly obtained from or manufactured in the free trade area itself (in this case, the EU and the UK), or sufficiently worked or processed there.
WHAT DOES THE FREE TRADE AGREEMENT MEAN
The EU-UK / UK-EU Trade and Cooperation Agreement provides for zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin. Detailed guidance on the rules of origin requirements can be found on the GOV.UK website, this explains the most important provisions which businesses need to understand and comply with, in order to ensure that they pay zero tariffs when trading with the EU. This applies to both businesses that wish to export goods to the EU at zero tariffs, as well as businesses who wish to import goods from EU at zero tariffs.
The free trade agreement benefits the operators inside that free trade area. Under the Agreement, EU and UK traders would have to meet rules of origin comparable to those which the EU and the UK have with other trading partners. These rules and procedures are therefore familiar to respective business operators. The Agreement also includes specific mechanisms aimed at facilitating compliance with these rules of origin, namely, a provision on ‘full cumulation’, which allows traders to account not only for the origin of materials used, but also if their processing took place in the territory of one of the Parties.
Important Information on Rules of Origin
Until 31 December 2021, if you’re claiming preference on the basis of the importer’s knowledge or making out a statement on origin. You do not need to hold a supplier’s declaration at the time you’re claiming preference for goods imported from or to the EU. But the importer must be confident that the goods meet the rules of origin. You must make every effort to obtain suppliers declarations retrospectively. Exporters will also be able to self-certify the origin of the goods, thereby making it easier for traders to prove the origin of their products and reducing red tape. In addition, the operators will benefit from additional flexibility in collecting documentary evidence to prove origin during the first year. This is to allow them to benefit from the preferences despite the little time available between conclusion and application of the Agreement.
Different Trade Route Options
The Northern Ireland Protocol, agreed in December 2020, covers Trade in Goods and this means no customs paperwork for cross-border traders. For businesses trading with GB there will be changes to the way you trade in goods and a potential for additional paperwork requirements, depending on the trade route. However it’s extremely important to know your supply chain as there could be some unknown trade with GB you’re not aware of (for example, through a supplier). Some important information is provided below:
Some important information is provided in the tabs below:
The European Commission’s Rules of Origin Self-Assessment list to see if a product meets the criteria for preferential treatment, a tailored self-assessment report based on the answers selected and an explanation of rules, terms and paperwork.
GOV.UK rules of origin requirements under the UK’s deal with the EU (the Trade and Cooperation Agreement) can be found here. This explains the most important provisions which businesses need to understand and comply with, in order to ensure that they pay zero tariffs when trading with the EU. This applies to both businesses that wish to export goods to the EU at zero tariffs, as well as businesses who wish to import goods from EU at zero tariffs.
Further detail can be found in the following sections of the EU-UK Trade and Cooperation Agreement here, such as:
If a product is wholly obtained in the EU or UK, or produced exclusively from originating materials, it will be considered as originating in the EU or UK. Materials originating in one party of the Agreement can be used when producing goods in the other party (e.g. EU materials in the UK) and still count as originating. This is known as ‘bilateral cumulation’. Products made using any non-originating materials will also need to meet product-specific rules of origin to be considered originating in the EU or UK. For more information, click here.
Goods that do not meet the rules of origin requirements will not qualify for tariff preferences and will have to pay the standard (‘Most Favoured Nation’) tariffs. Each of the EU and UK rules of origin apply to imports from countries with which they have no agreement.
Whilst, for some goods these Most Favoured Nation tariffs will be zero or low, for others they can be much higher. Companies will need to make commercial decisions about whether it’s in their interest to meet (and prove that they meet) the rules of origin. Businesses should note that goods imported from the EU into GB without subsequent processing have been losing their EU status when returned to the EU (e.g. distribution businesses).
Important Questions and Actions
If you do trade with GB, you’ll need to know the following important questions to discover if you could benefit from preferential rates of duty.
Step 1: Important Questions
The first need is to determine what good is being traded. To do this you’ll need a unique code called a commodity code. For the purposes of rules of origin, you may only need the first four digits of the commodity code. But it’s important to note the length of the full code, as these are different for imports and exports:
• Imports have a 10-digit commodity code
• Exports have an 8-digit commodity code
Getting the right commodity code is fundamental and it is the legal obligation of the trader. Invest the time needed to obtain the correct commodity code as getting the code wrong can be considered as fraud and can result in penalties. If you rely on the commodity code from a supplier, you’ll need to check it is accurate. This task can be complex, but there is help at hand to make sure you get the right code for your business needs. In order to find the correct commodity code for your goods, you’ll need to describe them accurately. For example, you must know:
• What the product is?
• What it is made of?
• What it is used for?
• How the product works/functions?
• How it is presented/packaged?
• If it is unassembled or unfinished?
• Its technical specifications?
There are different ways of getting the commodity code, you can choose to find the commodity code by self-assessment. For more information on how to do this, please see the official websites for Ireland or Northern Ireland. Alternatively, you can request a Binding Tariff Information (BTI) ruling. It’s not a legal requirement to have a BTI ruling, but it has advantages. It is the only option which gives you legal certainty for three years about the correct code for your goods. A BTI ruling is free, but you may have to pay the costs of laboratory analysis, expert advice and/or returning samples. For more information please see the official websites for Ireland or Northern Ireland .
This should be straightforward. Once you know this you’ll be able to determine what specific requirements are associated with that country.
There are two main categories of origin in the rules:
1. Goods wholly obtained or produced in a single country. For example, if a product is wholly obtained or produced in a country, it will be deemed to have originated in that country.
2. Goods in which their production involved materials from more than one country. For example, for a product that has been produced in more than one country – the product origins shall be determined where the last substantial transformation took place.
Once a product has gained originating status, it is considered 100% originating. If the product is subsequently incorporated in the creation of a further product, its full value is considered originating and no account is taken for non-originating materials within it. You could apply for binding origin information which is a non-mandatory process that allows businesses to identify the appropriate origin of their goods. It can be particularly helpful where there are complex supply chains, with inputs from around the world. If this is the case, Binding Origin Information decisions are legally binding in that Customs territory. For the GB application process, click here, for Ireland click here and Northern Ireland click here.
Step 2: Important Actions
To benefit from preferential rates of duty, the importer is required to claim this treatment at the point of import and hold evidence that the goods comply with the rules of origin. An importer can do so if it has either a Statement on Origin (from the exporter) or knowledge (obtained and held by the importer) that the product is originating.
The exporter has an obligation to obtain a Supplier’s Declaration when they are not the producer of the goods. The Declaration describes the non-originating materials in sufficient detail to enable them to be identified. Depending on your situation you may need one or both of the documents listed in the tabs below.
The exporter can self-declare the origin of a product by completing a Statement on Origin.
For EU exporters if the value of the consignment is less than €6,000, any EU exporter can self-declare that the product originates in the EU. If the value of the consignments is €6,000 and above, exporters in the EU need to be registered in the Registered Exporter System (REX) – Ireland here and Northern Ireland here – in order to self-declare that the product originates in the EU.
GB exporters are not required to hold an approved authorisation status to provide statements of origin, regardless of the value. They must include their EORI number in any Statement on Origin issued to their EU customer.
The Statement on Origin must be provided on an invoice or any other commercial document (excluding a bill of lading), describing the originating product in sufficient detail to enable them to be identified).
The exporter may need to obtain a Supplier’s Declaration (or equivalent document containing the same information) that describes the non-originating materials in sufficient detail to enable them to be identified. A supplier’s declaration can never be used as a document on origin for claiming preferential treatment at importation.
A Supplier’s Declaration should be made out for each consignment of products and attached to the invoice (or other document describing the products concerned in sufficient detail to enable them to be identified).
Where a supplier regularly supplies a customer with products (for which the production carried out is expected to remain constant for a period of time), that supplier may provide a single Supplier’s Declaration to cover subsequent consignments (the ‘long-term Supplier’s Declaration’). It is normally valid for a period of up to two years. Images are provided below showing samples of suppliers declarations.
There is a grace period of 1 year (until 31 December 2021) for these declarations. During this time, exporters can self-declare the origin of the products even if the supplier’s declarations are not yet collected. Businesses may be asked to provide a supplier’s declaration after this date.