Rules of Origin Guidance: Why a trade deal is good but not as good as a customs union

Rules of Origin Guidance: Why a trade deal is good but not as good as a customs union

BLOG · BY NICK BOULTON, HEAD OF TECHNICAL AND TRADE · 05 January

With the signing of the UK-EU Trade and Cooperation Agreement, the vast majority of traders moving goods between the UK and EU will avoid paying tariffs on that trade. However, TTF members should be aware this trade agreement only applies to goods that originate in the UK or EU.

Unlike the customs union where “third country” goods imported into the UK could move freely and duty-free from here to other EU member states. Under the new trade agreement such “third country” goods may now need to pay further duty when crossing the border into the EU or visa versa.

To quote the detailed government guidance:

“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.”

Fortunately, most wood products are traded duty-free on a global basis so while it will be necessary to list country of origin on customs entries, there is no need to claim preferential duty rates and undertake the additional administration necessary to comply with the rules of origin requirements when importing or exporting such goods between the UK and the EU.

In order to avoid paying tariffs on the remaining wood products which qualify under the UK-EU Trade and Cooperation Agreement all traders must – from 1 January – ‘claim preference’ by way of meeting the relevant rules of origin (RoO) for their products and making a declaration to that effect.

The UK Government has produced guidance on Rules of Origin which can be found HERE

The following extracts from this information cover some of the most critical points, but members are recommended to consult the full detail of the new agreements. 

Claiming preferential treatment under the TCA

After the end of the transition period, from 1 January 2021, in order for businesses to benefit from preferential tariffs when importing into the UK or EU, they will need to 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:

  • A statement on origin completed by the exporter on a commercial document, or
  • Knowledge obtained and held by the importer that the goods are originating.

 

More detail is provided in section 2 (Origin procedures).

If you are an importer, you must:

  1. Have proof of the originating status of the product before claiming preference. This may be:
  • 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;
  • 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.

 

  1. Claim for preference by completing the relevant part and declaring the proof of origin on your customs import declaration.

 

  1. If requested by the customs authorities, provide the proof of origin to the customs authorities.

 

  1. Maintain records for at least 4 years.

 

If you are an exporter, you must:

  1. Hold evidence that the goods meet the relevant rules of origin before issuing a Statement on origin.
  2. Understand whether a declaration from your supplier needs to be obtained. See here for information. 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.

 

3. Provide your customer, the importer, with one of the following:

  • 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;
  • Supporting documents and records if your customer is claiming preference using their “importer’s knowledge”.

 

  1. Maintain records for at least 4 years.

What are ‘originating’ products?

There are two 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. See section 3.2.2 (Wholly Obtained) for more detail.

 

  • It has been substantially transformed in line with the relevant Product-Specific Rule (PSR). There are three basic rules used to decide if goods are sufficiently transformed (explained in more detail in section 4 (Product-specific rules).
    • 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. See section 3.2.1 (Cumulation of Origin) for more detail.

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.

Details for the wood sector:

Extract of Product-Specific Rule (PSR) for wood products

This means there are two possible routes to show “third country” wood products have been “substantially transformed” and therefore meet UK rules of origin

The ad-valorem, or ‘value added’ rule:

  • “MaxNOM 50% EXW” means the maximum value of non-originating materials cannot exceed 50% when calculated according to the following formula:
  • “VNM” means the value (CIF) of the non-originating materials used in the production of the product
  • “EXW” means the ex-works price being charged for the product.

OR

The change of tariff classification:

‘CTH’ means production from non-originating materials of any heading, except that of the product; this means that any non-originating material used in the production of the product must be classified in a heading (4-digit level of the Harmonised System) other than that of the product (i.e. a change in heading).

For example, this means sawn wood – 44 07 would not be “substantially transformed” if simply planed as it is still classified under 44 07. Whereas if continuously shaped into a decking or T&G profile would meet UK rules of origin as it would be reclassified within section 44 09.

Duty Relief Schemes

For goods that do not meet the “rules of origin” requirements under the UK-EU Trade and Cooperation Agreement there are other duty relief schemes available through HMRC which may help in specific circumstances. Some examples would be:

  • Customs warehousing; customs warehouses allow you to store goods duty and VAT free until they leave the warehouse.
  • Temporary admission; when you bring goods into the UK for designated, short-term use. (For example, an exhibition.)
  • Inward processing; when you are importing goods from outside of the EU to process then export (either to outside the EU or within the EU) you can claim duty relief.
  • Outward processing; this allows you to export your goods to another (non-EU) country for repair or processing and then bring them back into the UK with full or partial duty relief.
  • Community system of duty relief; if you’re importing products “for educational, scientific or cultural purposes; to encourage trade (for example, goods for test and commercial samples); for other purposes, for example, awards and decorations, when inherited, received as private gifts” (source: HMRC) you can claim duty and VAT back.
  • Duty suspensions and tariff quotas for raw materials, parts, and unfinished products; if you’re importing goods to finish or use as materials in the UK (goods/materials that are unable to be bought or bought in sufficient quantities from within the EU) you can claim duty relief.

For more information on Brexit, visit our Brexit page

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