The origin of goods is likely to be an issue if and when there is a future trade agreement between the EU and the UK. There is a distinct possibility in a longer free trade agreement between the EU and UK, that there will be zero duties on all or nearly all goods. In order to claim zero duty, it would be necessary to show that the goods are of UK origin in accordance with the rules in the future EU/UK trade agreement.
Origin will be an issue in the Republic of Ireland for imports from the United Kingdom and in Ireland/EU in respect of imports from the United Kingdom. One of the most important aspects of origin is that it will require to be certified in order to procure what is likely to be a zero rate of duty.
The point of origin is that it must be proved in order to claim the favourable or preferably zero duty, under a trade agreement relative to the higher general third country duty rate. It is possible in principle to waive proof of origin and simply pay the full third country duty. This is not usually desirable. In a hard Brexit, origin issues would not apply. No preferential duty would be involved
Compliance with rules of origin might become burdensome in the longer run. Basically, the issue relates to risk analysis and a pragmatic type approach is taken as to whether certification of origin can be taken from the trader itself or requires a confirmation from a governmental or often a trade body. The exact terms as to how traders prove this to be the position would only be set out in the future EU -UK trade agreement itself.
If a traders’ goods are sourced from outside the EU and are not further processed within the EU, it may not be able to satisfy the requirements for EU/ UK origin in the case of an import or export from the UK/ EU and vice versa. This may mean that there is a double charge to customs duties.
There is a distinct possibility that the UK EU agreement may go further than any other agreement, in terms of simplification of certification of origin. Certification of origin may be required from the manufacturer in respect of finished sophisticated products.
The requirements for proof of origin may be themselves simplified. This itself may be reasonably expected to be a key objective of the EU and UK. The two broad methods of certification involve self-certification or certification by a governmental body or established bodies such as the Chamber of Commerce on foot of an application made. The regularity of certification and the exact procedure will depend on the circumstances.
The key issue is one of risk management in terms of affording the lower duties. It would be reasonable to assume that the EU and UK will endeavour to seek to provide streamlined means of certification of origin. The exact requirements will depend on a risk analysis and once traders could clearly establish and satisfy Revenue and HMRC in that regard, an internal procedure might be sufficient undertaken by traders or at group/ manufacturer level.
If traders’ goods were clearly and demonstrably EU origin and qualified for relatively light touch treatment, traders’ certification of origin may be accepted on an ongoing basis. Traders’ status as a well-established group and traders’ customers as trade buyers would assist the acceptance of streamlined procedures.
Possible Tests of Origin
In the case of simple goods which are processed and comprise raw materials from one country, the origin is easily defined. Where goods involve material or processing involving more than one country, one or more tests are used to designate the origin
Under the value-added percentage test, there may be a minimum or maximum percentage of value required for the goods to be treated as having the origin of the particular country. Where the added value of the most recent processing exceeds a defined percentage, it may be deemed to have the origin of the country on which that processing took place.
The origin may be designated on the basis of the substantial transformation of the goods. The country in which the most recent substantial processing has occurred may be deemed the country of origin. In some cases, certain specific significant processes may be defined as conferring a new origin.
The rules interact with those on tariff classification. Sometimes where the processing must be such as to change the tariff classification at a particular level (four digits or six digits) that may be deemed to be a change sufficient to attract origin in that place.
The European Union usually treats goods in the case of non-preferential origin, by reference to the country in which they undertook their last substantially economically justifiable processing or working.
Preferential rules of origin are defined in the relevant trade agreement. The origin criteria typically involve “wholly obtained” goods and “substantial sufficient transformation” criteria. Some exceptions to substantial transformation criteria may be provided.
Generally, the rules require the direct consignment of goods from the place of production to the place where it is preferred. This is to ensure that the bulk cargo, which may be difficult to identify is identical of the goods leaving the export country and to reduce the risk of intermixing with non-eligible goods which may be transitting to other countries.
The Kyoto Convention annex provides that the “wholly produced” basis applies mainly to natural products and goods made entirely from them. Goods containing imported products which are of undetermined origin and not dealt with under this principle.
The second principle applies where more than one country is involved in the production of goods. The fundamental test is a substantial transformation. Goods whose production involves more than one country, are deemed to originate in the country where they underwent their last substantial economically justified processing, working in an undertaking equipped for that purpose and resulting in the manufacture of a new product or representing an important stage of manufacture. Whether or not the process is the last relevant process is a technical question which is defined with reference to the product itself, the operations resulting in its manufacture or its creation.
The recommended practice under the revised Kyoto Convention is that in applying the substantial transformation criteria, use should be made of the international convention on harmonised commodity design and coding.