Businesses breathed a sigh of relief when the UK and the EU signed a Trade and Cooperation Agreement (TCA) in December 2020. The agreement allows for tariff- and quota-free trade between the UK and the EU – but only if goods comply with the rules of origin.
But what are the rules of origin? What do they mean for your business? How do you make sure your goods comply?
Our commercial and tax lawyers have answered some of your most pressing questions to help your business continue trading between the EU and the UK.
This is only a high-level overview - the rules of origin are complex and will affect every business differently. Contact us today for in-depth advice tailored to your situation.
What are the rules of origin?
In general, the TCA rules of origin state that a product must ‘originate’ from either the UK or EU to benefit from tariff-free trade between the two jurisdictions.
The rules set out what ‘originating’ means for different products, and what importers and exporters must do to avoid tariffs. The rules are divided into general provisions and product-specific rules (PSRs).
General provisions apply to all tariff-free products being traded between the UK and the EU.
Product-specific rules (PSRs) set out how to determine the ‘origin’ of different types of products. There’s a separate PSR for every different Harmonised System classification.
The exact rules you must follow to benefit from tariff-free trade depend on whether you’re importing or exporting, and the type of product you’re trading.
What does ‘originating’ mean?
According to the rules, goods ‘originate’ in a country if they are either ‘wholly obtained’ or ‘substantially transformed’ in that country.
‘Wholly obtained’ could include raw materials extracted from a country (e.g. iron ore) or products manufactured exclusively from those raw materials (e.g. sheet metal). These goods automatically qualify for tariff-free trade without PCRs applying.
‘Substantially transformed’ involves taking non-originating goods and doing one or more of the following:
- Adding value (the ‘ad-valorum’ rule)
- Changing their harmonised system classification
- Producing certain products or using certain processes.
The PCRs determine how to apply these rules for each product classification. One product may need more added value to count as ‘substantially transformed’ than another. It’s vital to consult the relevant PCRs for your products to make sure they originate in the UK or EU before trading.
Under the TCA, EU-originating goods are considered as UK-originating and vice versa.
How do I benefit from zero-tariff trading?
In order to trade tariff-free, you need to follow different processes depending on whether you’re importing or exporting.
Rules For Importers
- Have proof that the goods “originate” in the UK or the EU, as defined by the rules
- Claim the preferential tariffs on their customs declaration
- Provide their proof of origin if requested by the customs authority
- Keep proof of origin for imports on record for at least four years.
If you don’t claim the correct tariff at the time of import, you have up to three years to claim a rebate on any duty paid. You’ll need proof of origin to claim a rebate as well.
Rules For Exporters
- Have proof that the goods “originate” in the UK or the EU, as defined by the rules
- Give supporting documents to the importer
- Keep proof of origin for exports on record for at least four years.
How do I prove my product’s origin?
Importers have two ways to prove their product’s origin: a statement of origin or ‘importer’s knowledge’.
You can get a statement of origin from the exporter on invoices or other commercial documents. This is specific wording that describes the relevant goods and their originating status.
To supply a statement of origin, exporters must themselves have evidence of the origin of the goods and any raw materials or parts used in production. This can be done in two ways:
- Self-declaration by the exporter - This is done by the exporter making a simple statement on the commercial invoice or other commercial document accompanying the shipment. There is standard wording for the declaration. In this case the importer would not be expected to hold further evidence that the goods satisfy the origin requirements. The onus would be on the exporter to provide this evidence to the customs authorities, should it be asked to do so
- Importer's knowledge - The importer can alternatively rely on information they have received that evidences the origin of the goods. This information must be kept for four years.
Statements of origin are valid for two years on imports to the UK and for one year on imports to the EU.
Proving origin with importer’s knowledge lets you trade tariff-free without an official statement of origin. You’ll need your own evidence of the product’s originating status in your possession and available for inspection by customs authority.
What if my goods don’t originate in the UK or the EU?
You can still import or export goods between the UK and the EU if they don’t meet the rules of origin. But you will have to pay tariffs or duties and you may be impacted by quotas.
Tariffs and quotas also apply if you simply can’t prove the origin of your products or don’t have the correct documentation.
However, remember that you may be able to trade your goods tariff-free if you ‘substantially transform’ them first.
How can Irwin Mitchell help?
One of the aims of rules of origin is to ensure neither side can buy cheap products overseas, then simply change the label and export tariff-free. The reality is causing a headache for legitimate manufacturers. Not only do they need to prove where components or ingredients come from, but demonstrate what proportion of any product is made up of them.
With over 5000 different product-specific rules, the rules of origin are extremely complicated. Our lawyers will cut through the noise to explain what they mean for your business and how you can take advantage of tariff-free trading.
We’re focussed on giving practical, commercial advice that’s aligned to your specific goals and market situation. We can advise on:
- Which product-specific rules affect you, and how
- Turning non-originating goods into originating ones eligible for tariff-free export
- Developing new products for tariff-free export
- Preparing evidence for the origins of your goods
- Managing audits and customs authority investigations
- Minimising tariff and quota exposure when unavoidable.
Our team will work closely with you to understand what makes your business tick and help make these new rules an opportunity for success.
See our Commercial and Tax sections for more information about how our lawyers can help your business with the issues covered on this page.
