What the Free Trade Agreement says
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
Rules of Origin are based on tariff codes, that makes the tariff classification process so important.
Goods ‘wholly obtained’ in either the EU or UK benefit from tariff free access.
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 (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
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 Traders understand how to conform to Rules of Origin, especially within a post Brexit world. Should customs procedures be used? Are my tariff classifications correct? How should I apply rules of origin for my business?
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