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:
1, 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.
2. 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
Rules of Origin are based on tariff codes, that makes the tariff classification process so important.
Rules of origin which is a key aspect and one of the main talking points of the trade deal customs and WTO rules.
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.
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.
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.
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.
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 product-specific rules list. If this is not correctly done 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.
For example, if a UK-manufactured engine contains 30% non-originating content but meets its rule of origin, if that engine is used in the production of a car in the UK or EU, 100% of the value of that engine can be counted towards the originating content of the car.
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