Origin is not an issue in a hard Brexit. Origin would be an issue and 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. Sometimes it is found in practice that the cost of compliance with the origin requirements is such that traders sometimes find it cheaper and / or more convenient to pay the duty.
Compliance with rules of origin can be burdensome. One of the most important aspects of origin is that it requires to be certified in order to procure what is likely to be a zero rate of duty. It is possible in principle to waive proof of origin and simply pay the full third country duty.
In order to claim zero duty, it would be necessary to show that trader’s goods are of EU origin for UK sales in accordance with the rules in the future EU/UK trade agreement. In modern trade agreements the provisions in relation to the method for proving the goods are of qualifying origin can be complex and detailed. There are certain international WCO derived principles of origin generally. However, the precise test of origin varies from agreement to agreement.
Agreements for preferential duties in trade agreements are usually reciprocal. (There are unilateral preferences for developing countries). The basic rule is that the imported products must qualify as originating in the other country party to the free-trade agreement. Generally, there is cumulation whereby origin in either state party or in other listed states qualifies.
Origin can also be an issue in other cases such as where there are anti-dumping rules or in the context of the general system of preferences for certain developing countries. By way of illustration te EU customs rules for non-preferential origin refer to the last substantial economically justified processing or working in an undertaking equipped for that purpose and resulting in the manufacture of a new product or representing an important stage of manufacture.
The particular rules of preference specified in the trade agreement may contain specific rules for particular products which define exactly what constitutes origin for the purpose of the agreement in relation to them. The agreement may set out examples of processing and working operations that are deemed not economically justifiable or insufficient to meet the test of origin.
There is provision for a binding origin information similar to that in respect of a binding tariff information.
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 materials 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 in 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 may interact with those on tariff classification. Sometimes for some goods, 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.
Common Test in EU Agreements
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.
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. This may happen in non-trade agreement contexts.
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.The second principle applies where more than one country is involved in the production of goods. The fundamental test is 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.
What is required is based on is based on a risk based and pragmatic type approach to what is requires and in particular, 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 be set out in the future EU -UK trade agreement itself.
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. 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 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. There is increasing use of trusted trader’s self-certification in EU and other agreements the registered exporter (REX) scheme.
There is a standard form of application for a preferential origin certificate. Application is made to the relevant authority for a certificate which is based on the information furnished. The requirements might be specified by a free-trade agreement. Suppliers declarations may be required in relation to materials used in the manufacture of the product. Long-term declarations may be accepted in some cases which are valid for a period.
The EU and UK may endeavour to provide streamlined means of certification of origin. The exact requirements will depend on a risk analysis. Once traders satisfy Revenue and HMRC in that regard, an internal certification procedure might be sufficient, undertaken by traders or at group/ manufacturer level.
Simplified procedures may be allowed by which the commercial invoice or other document contains a certificate signed by the exporter which meets the origin requirement. The simplification may apply below a certain threshold. For example, under some agreements, traders claiming preferential origin for consignments of over €6000 must apply for approved exporter certificate.
Traders claiming preferential origin for consignments whose total value is in excess of €6,000 might be enabled to apply for approved exporter status.
- Approved Exporter is used by exporters who make frequent shipments to countries under which they could claim preferential origin on import.
- By holding Approved Exporter status, the trader can make a number of invoice declarations for consignments with a value over €6,000.
- An Approved Exporter may receive an extra simplification where no signature is required on the commercial declaration. However, a responsible person must still be named.