1.1 UK-EU trading relationship
The UK moved to trading based on a new Free Trade Agreement (FTA) – the Trade and Cooperation Agreement (TCA) between the UK and the EU.
To export tariff-free under the TCA, goods must meet the UK-EU preferential rules of origin. This means that there must be a qualifying level of processing in the country of export to access zero tariffs. This applies to EU origin goods imported and moving through the UK from a Member State to another EU Member State, as well as goods imported from the Rest of World.
These rules are set out in the TCA and determine the origin of goods based on where the products or materials (or inputs) used in their production come from. Their purpose is to ensure that preferential tariffs are only given to goods that originate in the UK or EU and not from third countries (those apart from UK and the EU Member States).
For goods that were imported from the EU and are being returned or redistributed in the EU without obtaining UK origin, the importer in the EU may be able to claim Returned Goods Relief.
If goods entered the UK under the internal Transit procedure (T2) and have not been entered into any customs procedure other than Transit or Customs Warehousing, they may be able to retain their Union status. This will mean that EU customs formalities, including duties and taxes, can be avoided.
You can find more information about claiming Returned Goods Relief or Transit on GOV.UK. If you’re re-exporting goods back to the EU, you will need to get guidance from the relevant EU customs authority.
Goods that do not meet the rules of origin can still be traded but they will not be able to benefit from preference under the TCA and may have to pay the standard (‘Most Favoured Nation’) tariffs that the EU and UK apply to imports. 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.
For some goods, these Most Favoured Nation tariffs may be low or zero, but for many other goods they can be much higher. Businesses will need to take a commercial decision on whether it is in their interest to meet (and prove that they meet) the rules of origin in order to benefit from the TCA’s zero tariffs.
1.2 Rules of origin under the TCA
The rules of origin in the TCA are set out in 2 parts:
- General Provisions. These are rules that apply to all products being traded under preference. They include both the primary and administrative requirements.
- Product-specific rules of origin (PSRs). These are the specific rules that set out, for every product based on their Harmonized System (HS) code, what the requirements are for that product to be considered ‘originating’. The HS, or Harmonized Commodity Description and Coding System, was developed by the World Customs Organisation (WCO) to describe and classify groups of goods and is used by more than 200 countries worldwide. The Annex to this guidance provides further detail on how to find out a product’s HS code. The product-specific rules are included under Annex orig-2 (Product-specific rules of origin) of the TCA.
To be considered originating and qualify for preferential tariffs, products must be sufficiently worked or processed within the parties to the agreement. By contrast, non-originating materials are materials imported from third countries. Non-originating may also refer to materials whose origin is unknown or not possible to determine.
1.2.1 Originating products
There are 2 ways in which a product can be considered originating:
- It can be ‘wholly obtained’. These are goods that have been 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 of wholly obtained goods 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.
- It has been substantially transformed in line with the relevant Product-specific rule. There are three basic 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
In 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 mechanism is known as bilateral cumulation.
Once a product has gained originating status, it is considered 100% originating. This means that if that product is incorporated in the production of a further product, its full value is considered originating and no account is taken of non-originating materials within it.
For example, if a UK-manufactured engine contains 30% non-originating content but meets its rule of origin, if that engine is used in the production of a car in the UK or EU, 100% of the value of that engine can be counted towards the originating content of the car.
1.3 Claiming preferential treatment under the TCA
After the end of the transition period, from 1 January 2021, in order for business to benefit from preferential tariffs when importing into the UK or EU, they will need claim preference on their customs declaration and declare they hold proof that the goods meet the rules of origin.
A proof of origin is used by the importer to demonstrate that the goods qualify as originating and are eligible to claim preference. In the TCA this proof can take the form of either:
- a Statement on origin completed by the exporter on a commercial document
- knowledge obtained and held by the importer that the goods are originating
Read more about the different proof of origins for the TCA.
If you are an importer, you must:
- Have proof of the originating status of the product before claiming preference. This may be:
- a) a 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.
- b) supporting documents and records if you are claiming preference using your ‘importers knowledge’. If using importer knowledge, you must obtain sufficient evidence that the goods qualify as originating. This may involve the exporter providing a range of supporting documentation. If you cannot obtain that evidence, then the exporter may be able to provide a Statement on origin.
- Claim for preference by completing the relevant part and declaring the proof of origin on your customs import declaration.
- If requested by the customs authorities, provide the proof of origin to the customs authorities.
- Maintain records for at least 4 years.
If you are an exporter, you must:
- Hold evidence that the goods meet the relevant rules of origin before issuing a Statement on origin.
- Understand whether a declaration from your supplier needs to be obtained. For UK-EU trade, until 31 December 2021, businesses do not need supplier’s declarations from business suppliers in place when the goods are exported. Businesses may be asked to retrospectively provide a supplier’s declaration after this date.
- Provide your customer, the importer, with one of the following:
- a) a 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.
- b) supporting documents and records if your customer is claiming preference using their ‘importers knowledge’.
- Maintain records for at least 4 years.
1.4 Duty Drawback in the TCA
Under the TCA, businesses can currently use duty drawback schemes, such as Inward Processing Relief, as well as benefit from preferences under the TCA.
1.5 Relevant rules of origin definitions
Article ORIG.2 in the TCA lists definitions for important concepts used throughout the rules of origin text. Annex orig-1 (Introductory notes to product specific rules of origin) of the TCA also contains relevant important definitions for the purposes of applying the product-specific rules.
These concepts are introduced in the rules of origin for goods moving between the UK and EU, but you should consult the full agreement for relevant definitions.