Rules of Origin and the role they play in Trade Agreements:

What Every UK Importer and Exporter Needs to Know – (But Often Gets Wrong)

Whether you are new to international trade or have been navigating customs since the days of the telex machine, there is one topic that causes confusion and often, costly mistakes:  Rules of Origin.

Often misunderstood, mis-documented or ignored completely, Rules of Origin cause real pain for business. Some end up paying duty on goods that could qualify for duty reductions – others wrongly claim preference when the goods do not meet the strict origin criteria, risking penalties and delays.

What Are Rules of Origin?

Rules of Origin are used to determine where a product is from, where it is either:

1. Wholly Obtained – it has been produced or obtained from one country only with no other materials used from other countries examples include:
   1. Cattle
   2. Plants
   3. Minerals
   4. Fish
   5. Food products made using only domestic supplies

OR

1. Significantly transformed – the product contains parts/ingredients from more than one country, and the country of origin will be named as the country where the largest attributable transformation took place. 

Why Rules of Origin Matter to Exporters and Importers

If you are using a trade agreement to claim zero or reduced duty, you must prove your product’s origin.  For UK exporters using trade agreements, this is a great selling point because it allows their customers to benefit from the duty reductions when importing into their country.  UK importers benefit by reducing their landed costs enabling financial savings and an increase in their margins.

Non-Preferential vs Preferential Origin

Non-preferential origin is used for goods which do not qualify for the duty reduction.  This can be due for a number of reasons including no trade agreement in place or the goods do not meet the criteria of a trade agreement to benefit from a reduction, there are trade embargoes or sanctions in place, you want your goods to be known as “Made in the UK”, anti-dumping duty and quotas are in place.  Non-preferential origin means the importer cannot reduce the duty applicable to the products when they are imported.

Preferential origin is used to import goods which do qualify for a full or partial reduction in import duty.  The duty reductions are usually agreed between the parties of a trade agreement and there are specific rules, criteria and paperwork to be met before the products are allowed to be classified as preferential origin.

How To Prove Origin

You cannot claim a product is of “UK Origin” by writing a statement on an invoice.  You must be able to prove, if customs request evidence, the goods meet the required preference conditions.

For Importers

Depending on the trade agreement you are using, this can be:

• A statement of origin signed and dated on the invoice.  
• The supplier must hold evidence to establish the origin including details of any parts used, where they came from, costs and what percentage of the cost they account for. 
• Importers may be required to obtain Bills of Materials, copies of invoices for the parts or proof of payment by the supplier to their supplier. 
• Importers can import goods under preference using “Importers Knowledge”, however, they will need to be in possession or able to obtain proof to confirm the goods are preferential goods.

For Exporters

UK exporters will need:

• To print the Statement of Origin on their invoice and must sign and date it for trade agreements which allow invoice statements
• There are some countries such as Egypt and Morocco where the exporter will need to provide a physical paper EUR.1 preference certificate in order for the importer to benefit from duty free imports.  
• Long-term supplier declarations can be issued, again depending on the trade agreement.  This allows for a signed statement with a list of qualifying products on it to be issued once a year and negates the need for an invoice statement each time goods are exported.
• The exporter must ensure the products are correctly classified and they completely understand the rules of origin of the trade agreement they are using in conjunction with product commodity code.

What Trade Agreements Apply?

There are currently 39 trade deals which cover 102 countries and regions spanning the five continents of:

• Europe
• Asia
• The Americas
• Oceania
• Africa.

The trade deals can be classified as:

• Unilateral – These only operate one way.  Notable example of this is the UK’s Developing Countries Trading Scheme (DCTS) which allows developing countries to export goods to the UK, and the products benefit from either partial or full duty reductions
• Bi-lateral – Only two countries are party to the trade deal.  The EU UK Trade and Cooperation Agreement (TCA) is a prime example of this
• Multi-lateral – Three or more countries participate in the trade deal and each member benefits from preferential rates.  The UK recently joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which boasts an impressive 12 countries as members including the UK.

The top five trade deals according to information from the Office for National Statistics and UK Government, are:

1. CPTPP 
2. Canada-UK Trade Continuity Agreement
3. Australia-UK Free Trade Agreement
4. Singapore-UK FTA 
5. Japan-UK Comprehensive Economic Partnership Agreement (CEPA)

Each deal is unique and has its own origin rules.  A product that qualifies under one agreement may not meet the conditions under another.  Traders must be sure they are applying the correct rules or adjust the product or sourcing accordingly.  

Final Word: Make Origin Work for You

As the importer, exporter or both, it is your responsibility to ensure you understand the origin rules which apply to your products, not just for compliance reasons but also for strategic reasons.  You must know when and how to use the trade agreements to help reduce your landed costs, open new markets to you and to make your business more competitive.

Please do not guess.  Guessing can lead to underpayment or overpayment of duties, which may cause not just financial pain but non-compliance pain and scrutiny from customs.  

Saying “We have always done it this way” or “the supplier said it is fine” is not a defence, you, the trader, are responsible for the origin declaration and have an obligation to get it right.  

If in doubt seek help, it could save you more than duty.