Country of Origin Rules - Summary of HMRC Guidance
This is an Annex to Martin Stanley's October 2016 blog about Rules of Origin
Origin is determined using specific rules of which there are 2 types arising from different legal frameworks:
Preferential origin - the EU has entered into reciprocal trade agreements with a number of countries under which goods satisfying certain rules of origin are entitled to preferential tariff treatment. The EU also offers reduced rates of Customs Duty on a non-reciprocal basis to goods originating in several countries under arrangements such as the Generalised System of Preferences (GSP).
Non-preferential origin - is the basis of all other Tariff measures. This includes ADD, eligibility for some Tariff Quotas and licensing requirements.
Useful HMRC Guidance includes: "Trade preference agreements: import and export" - 8 pages; "Rules of origin for imported and exported goods" - 6 pages; and "UK Trade Tariff: preferential trade arrangements for countries outside the EU"- 30 pages
HMRC Notice 827: European Union preferences - export procedures - 41 pages.
This explains how exporters can help their customers in some countries to import your goods more cheaply under ‘preference’. These rules are reciprocal, that is, they will also apply to goods being imported into the EU under preference. The rules of origin are shown in Notices 828, 830, 832 (Mexico) and the South Korea guide.
HMRC Notice 828: tariff preferences - rules of origin for various countries - 149 pages
This is the most important document. It helps
- importers to establish whether their goods have met the rules for preferential tariff treatment, and
- exporters and manufacturers to find rules which must be satisfied for their finished products which are going to be exported under preference, or for components or parts which are going to be used as materials for the manufacturing products which will then be exported under preference.
It explains that there are 2 basic types of percentage rule. They both set a percentage limit on the value of non-originating materials which may be used in relation to the:
- ex-works price of the finished product
- value of all the materials used to make the finished product
To work out a percentage rule, you first need to add up the values of all the non-material costs such as:
- overheads (including cost of power, fuel, catalysts, solvents, plant, equipment, machinery and tools used in production, ignoring the origin of these items themselves)
- profit, research and development etc.
For example, the percentage rule may limit the value of non-originating materials to 40% of the ex-works price. If you find the total non-material costs (which always count as ‘originating’) make up at least 60% of the ex-works price, then the percentage rule has been met, as the total material cost is less than 40%.
However, if the non-material costs are not enough by themselves to fulfill the origin rule, you will need to prove that some of the materials used are originating.
For example, (using a 40% percentage rule as above) you may find that the non-material costs make up only 55% of the ex-works price. This leaves a shortfall of 5%. You will then need to prove that materials to the value of 5% of the ex-works price are originating. You may find it easier to work out the percentage rule in ‘reverse’, by first adding up the value of all the materials used. If this exceeds the percentage allowed, you must prove that the ‘excess’ value of materials is originating.
A number of the countries covered by Notice 828 have been formed into groups for origin purposes. This means that materials, components or parts originating in one or more countries in the group may be further processed or incorporated in a finished product in another country within the group as if they had originated in the country concerned.
This arrangement provides additionally for the working or processing carried out in one country to be carried forward to another and be counted as if it were carried out in the country of production of the final product. It applies in the agreements between the EU and:
- the countries of the EEA
- ACP (MAR)
- Cariforum (EPA) states
- the Maghreb countries of Algeria, Morocco and Tunisia
- the OCT
If the only processing carried out in the EU or partner beneficiary country is among the minimal processes listed by HMRC then the final product cannot be regarded as originating. This applies even if the origin rule does not require non-originating materials to change Tariff Heading.
For instance, the following may not be sufficient in themselves to confer origin:
(a) preserving operations to make sure that the products remain in good condition during transport and storage
(b) breaking-up and assembly of packages
(c) washing, cleaning, removal of dust, oxide, oil, paint or other coverings
(d) ironing or pressing of textiles
(k) simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations
(l) affixing or printing marks, labels, logos and other like distinguishing signs on products or their packaging
(m) simple mixing of products, whether or not of different kinds
(n) simple assembly of parts of articles to constitute a complete article or disassembly of products into parts
(o) a combination of 2 or more operations specified in subparagraphs (a) to (n)
(p) slaughter of animals.
The Rules of Origin Themselves
The good news is that the products that might be subject to Rules of Origin restrictions are divided into 97 'Chapters', so you only need to read the chapters that apply to your business. Further detail, for those interested , is below. But note that there are a number of country exceptions that override the guidance in the detailed chapters.
Notice 830 may also be relevant: Tariff Preference - new General System of Preference rules of origin - 100 pages
This notice explains the rules of origin that must be satisfied if goods are to qualify for:
- tariff preference on importation into the EU under GSP
- export to GSP countries for further processing and inclusion in finished products to be exported to the EU under the GSP - a feature known as Bilateral Cumulation of origin.
An Introduction to the Rules of Origin in Notice 828
Sections 6 and 7 set out the conditions required for those products covered by the various agreements to be considered sufficiently worked or processed to qualify for preference - (other than those that are wholly produced - section 4). In short:-
Only non-originating materials need to be sufficiently worked or processed. If the materials used are already originating (by virtue of being wholly obtained, by having been sufficiently worked or processed, or by arrangements governing the cumulation of origin) they do not have to satisfy the conditions in section 6 or 7. The existence of an origin rule does not necessarily mean that a preferential rate of duty is available in any particular country.
Section 6 lists the general origin rules that apply with a small number of exceptions to goods imported from or exported to all of the countries covered by this notice. The first 2 columns in the list describe the product in question. The first column gives the heading/chapter number and the second column gives the description of the goods. For each entry in the first 2 columns a rule is specified in column 3 (with an alternative in column 4 in some cases).
Where ‘Ex’ precedes the entry in column 1, this signifies that the rules in columns 3 or 4 apply only to that part of the heading described in column 2. All other goods of that heading are covered by the ‘general’ heading rule for that chapter.
Where several heading numbers are grouped together in column 1, or a chapter number is given and the product description in column 2 is given in general terms, then the adjacent rules in columns 3 or 4 apply to all products in column 1.
Where there is a rule in both columns 3 and 4, the exporter can choose to apply either rule.
Unless otherwise indicated, the term ‘material’ means any non-originating ingredient, raw material, component, part etc. used in the manufacture of a finished product.
A qualifying process may say that (non-originating) materials at a certain level of manufacture may be used. It follows that the use of material at an earlier stage of manufacture is allowed and the use of material at a later stage is not. If a product made from non-originating materials has acquired originating status during manufacture and is used as a material in the manufacture of another product, it counts as 100% originating for the purposes of determining whether the finished product is originating.