The Trade Cooperation agreement states that Bilateral cumulation applies, but was it Bilateral cumulation?
§ Bilateral cumulation operates between 2 countries where a preference agreement contains a provision allowing them to cumulate origin. Materials originating in either country in the preference agreement will be considered as materials covered by the rule of origin.
§ If the value-added rule applies, cumulation allows the value of materials originating in the UK or in the EU to be excluded from the percentage maximum threshold.
§ If the change of tariff classification rule applies, there is no need to verify if there was change of tariff classification of any materials originating in the UK or in the EU.
§ If the manufacture from certain products rule applies, there is no need to verify if the materials originating in the UK or in the EU if they meet the stated requirements.
EU goods and materials will be counted as UK input for origin purposes when exported to the EU.
Cumulation is an important facilitation found in modern free trade agreements, which – at the most basic level – provides a system that allows originating products from one party to be treated as if they are originating in another when determining whether a good can meet a Product-Specific Rule.
For example, this means products or materials originating in the EU can be considered as originating in the UK if those products are further processed in the UK or incorporated into another product prior to re-export to the EU.
Under the TCA arrangements, exporters are not only able to cumulate originating materials or products, as mentioned, but also processing or production carried out on non-originating materials (also known as” full bilateral cumulation”). This means that all operations carried out in the UK or EU are considered when determining whether a good can meet a Product-Specific Rule.
Full bilateral cumulation applies to both specific production processes (e.g., ’combing’ or ’making up’ in the manufacture of textiles products) and the value associated with such processing (e.g., in Product-Specific Rules with value-add requirements).
Traders must be aware of what is considered as insufficient working or processing, these are laid out in Article ORIG 7 under insufficient processing.
This clause lists several processes, which cannot count towards the production of an originating product, such as
§ Preserving operations such as drying, freezing, or keeping in brine
§ Repackaging
§ Relabelling
§ Washing, cleaning, removal of dust etc
§ Ironing or pressing of textiles.
§ Simple painting or polishing - To help illustrate the dividing line between insufficient production and something more substantial, this TCA draws a distinction between preserving and “operations such as pickling, drying or smoking that are intended to give a product special or different characteristic.” If the process sufficiently changes the nature of the product, it may therefore qualify as an originating product for the purposes of tariff free movement between the UK and EU.
Generally, where a UK/EU process would change the Tariff Heading of the raw material or component (either by manufacturing or assembly onto a finished product), this would be sufficient.
For example, ‘simple painting and polishing operations’ or ‘peeling, stoning, and shelling, of fruits, nuts and vegetables’, re-packaging or re-labelling finished goods are not considered to be significant manufacturing and as such do not confirm originating status by themselves.
Another example is cheese that is imported from the EU and grated in the UK. The ‘cutting’ process is qualified by the word ‘simple’ in the insufficient processing text. Therefore, if the only operation that is performed on the cheese is grating in a manner that does not require special skills or a machine especially produced or installed for the processing, then the grated cheese would not be originating in the UK. This is true even though the input cheese would otherwise be considered originating by virtue of bilateral cumulation.
Same principle applies for UK inputs and processing being counted as EU inputs when exported from the EU to the UK.
When discussing the rules of origin, one of the important elements of the trade agreement refers to is the concept of bilateral Community accumulation. Now this was expected but effectively allows EU inputs and processing to be counted as UK input when or if when you import products or if UK products are exported back to the European Union, so that is the concept of bilateral.
This means that all operations carried out in the UK or EU are considered when determining whether a good can meet a product-specific origin rule.
The arrangements within the TCA include facilitations on average pricing, accounting segregation for certain products, as well as all materials, and tolerance by value. The rules are also supported by predictable and low-cost administrative arrangements for proving origin.
Procedure for applying full Cumulation.
Where an exported good has obtained its originating status through the application of full bilateral cumulation (for example where a UK exporter has met a product-specific rule through counting production carried on non-originating materials in the EU), the exporter of those goods must obtain a ‘Supplier’s declaration’ from the supplier of the non-originating materials.
This declaration could either be in the form set out in Annex ORIG-3 (Supplier’s declaration) of the TCA, or an equivalent document that contains the same information, describing the non-originating materials concerned in sufficient detail for their identification.
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