Rules of origin for trading with the EU: A guide for SMEs

The government has produced guidance for businesses on rules of origin, which determine the economic nationality of goods under a Free Trade Agreement (FTA). 

It’s important for businesses to understand the guidance on rules of origin because the UK-EU Trade and Cooperation Agreement (TCA) means businesses can trade with the EU without paying tariffs – but only if products meet the relevant rules of origin. 

How do rules of origin impact my business?

To export tariff-free into the EU, traders must check their goods meet the rules of origin requirements set out in the UK-EU Trade and Cooperation Agreement and have the right documentation. If your goods do not meet the rules of origin, they may face a tariff upon export to the EU. 

What action do I need to take?

Watch the new on-demand video that summarise rules of origin processes for businesses.  

Then, if you are a UK exporter and your EU importer wants to claim zero tariffs on your goods, there are three key steps to follow to see if your goods comply with rules of origin: 

1. Classify your goods – all goods have a commodity code and a list is available on gov.uk.

2. Understand whether your goods meet the applicable rule of origin from the TCA (refer to chapter two as well as Annexes ORIG-1 to ORIG-4). You can also use the export checker tool to find out what rule of origin applies to your exports. 

There are two ways a product can be considered originating:

  1. Wholly obtained – these goods have been exclusively obtained or produced in the territory of one country without using materials from any other country.
  2. Substantially transformed in line with the relevant product-specific rule. There are three basic rules used to decide whether goods are sufficiently transformed:
    1. Ad-volarem, or ‘value added’ rule
    1. Change of tariff classification
    1. Manufacture from certain products or through specific processes

3. Understand how to demonstrate origin to the customs authorities.

For help understanding if your goods comply and how to demonstrate this to customs authorities, read the rules of origin guidance on trading with the EU. 

You may choose to use a customs agent to help you with rules of origin and there is guidance available here on how to find one.

Frequently Asked Questions:

Q1.      I trade in second-hand products and can’t provide evidence of their UK origin, what should I do?

A:        Evidence of origin may be difficult to obtain where second hand goods are concerned. Inspection of the goods may be helpful – for example, machinery may carry a manufacturer’s plate, serial number, or some other indication of origin may be stamped or embossed on some part of the machinery. However, if you cannot prove the origin of the goods, the goods can still be traded but they will not be able to benefit from preference, this means such goods will be subject to the importing country’s non-preferential tariffs. For exports to the EU this will be their Common External Tariff.  Likewise for imports to the UK, this will be the UK Global Tariff.

Example: 
To export second-hand toys (commodity code 9503.00.70) to France
with proof of UK origin would attract the Preferential (PREF) Duty rate of 0%. Without proof of UK origin would attract the third country Duty rate of 4.7%.

Q2. I’ve been told I need a ‘proof of origin’ to export my goods to the EU, is this true?

A:        The EU customs authority will grant preferential tariff treatment – based on a claim made by the importer – to goods that originate in the UK that meet the conditions of the TCA. Under the TCA, a claim can be made if the importer has one of the following proofs of origin:

Until the end of 2021, whether you are claiming preferential duty rates based on the importer’s knowledge or on statements on origin, you do not need to hold a supplier’s declaration at the time you are claiming preference for goods imported from or to the EU. But the importer must be confident that the goods meet the rules of origin. And you may be asked to provide the supplier’s declarations retrospectively.

Q3.      Do I still have to prove the origin of my goods if there is no preferential rate?

A:        Rules of origin are primarily used to obtain a preferential rate of duty when trading with countries where a Preferential Trade Agreement has been agreed, e.g. under the TCA, goods of EU origin can be imported into the UK at 0% duty, and goods of UK origin can be imported into the EU at 0%.  If you cannot prove the origin of the goods, then the preferential duty rate cannot be applied.

However, it is sometimes necessary to evidence the origin of goods, even when non-preferential rules of origin apply. Product Specific Rules can be found on the Export Checker tool.  

Q4.      I’ve been told my product will not be classified as UK origin unless the work I do on it increases its value by more than 50% because some of its parts are supplied from the USA. Is this true?

A:        Firstly you should check the Product Specific Rules on the export checker tool for any precise guidance for your particular commodity code. You would need to show the product had been ‘substantially transformed’ in line with the relevant product-specific rule. The ad-volarum (value-added) rule is much more complex than a simple increase in value so professional advice should be sought.

Example:  
Manufactured goods example: Grand pianos (HS code: 920120)
The Product Specific Rule states: MaxNOM 50% (Maximum 50% non-originating material)

This means that the product must contain a maximum of 50% (of the ex-works value) material that does not originate in the UK or EU. This means that if a grand piano has an ex-works value of £1000, no more than £500 worth of non-originating parts may be used in its manufacture.

Q5       If I grow product from seeds sourced from Poland, will the produce be UK-originating or Polish?

  1. One of the four rules of origin is when products are ‘wholly obtained’ – an example being plants.  Plants grown and harvested in the UK are classed as wholly UK originating.

Understanding rule of origin is important for all businesses that import and export. This guide can help.This Insights article was prepared by TFF Consultants Ltd.