What the Free Trade Agreement says
Ø Only ‘originating’ goods can benefit from tariff free access.
So, what are Rules of Origin.
Rules of origin are used to make accurate decisions on trade laws that treats goods differently at import and export depending upon their country of origin and their destination. Origin can also determine if a product can be imported at all, and if there are any reductions duty, quotas, countervailing duties, and antidumping measures that restrict the movement of the goods from producing countries.
There are two rules of origin:
Preferential: To determine whether a product qualifies preferential tariffs offered under a specific Free Trade Agreement.
There are specific origin criteria that each product must comply with that include significant processing or transformation.
Non-preferential: Applied where a trade preference agreement is either not in place or the goods do not qualify for preferential status.
What this means for businesses
Ø Rules of Origin are based on tariff codes, that makes the tariff classification process so important.
There are two ways in which a product can be considered ‘originating’:
1) 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.
2) 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
Goods made exclusively from materials produced in either the EU or UK benefit from tariff free access.
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 as stated on the previous slide.
Goods containing materials imported from countries outside the EU and UK need to meet product-specific rules of origin (listed by tariff heading) to benefit from tariff free access.
So, what are Product Specific Rule?
For every product traded under a free trade agreement there is a corresponding product-specific rule (PSR) that must be met to demonstrate the product originates in the free trade area and qualifies for preferential tariff treatment. Each rule describes the nature or value of processing that must be carried out on any non-originating materials so that the final product meets the origin requirements. The rules agreed by the UK and the EU are set out in ANNEX ORIG-2 [Product-specific rules of Origin] of the TCA.
There are four types of rule that a product may be required to meet (on their own or in combination) to confirm origin.
The types of rule are as follows:
§ Wholly obtained.
§ Change of tariff code.
§ Value added/percentage rule; and
§ Specified processes.
It is critical that Traders should determine the correct tariff code for the exported product to find the relevant rule in the TCA product-specific rules list. If this is not done correctly the incorrect tolerances and origin rules could be applied and put the Trader at risk for non-compliance.
Once a product has gained originating status, it is considered 100% originating. This means that if that product is further used in the production of a further product, its full value is considered originating and no account is taken of non-originating materials within it.
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