The rules of origin are important sets of criteria that all businesses that trade internationally must understand, not only to help them legally comply, but also to understand what import rates apply and whether the goods qualify for free trade deals.

Businesses must take time to consider the rules of origin for any products that they import or export.

What are rules of origin?

Rules of origin determine the economic nationality of goods. They establish where a product is considered to originate and are used by customs authorities to determine whether goods qualify for preferential rates of Customs Duty under a trade agreement.

It is important to remember that origin is not necessarily the same as the country the goods are shipped from.

A product manufactured in the UK, for example, may contain materials from several other countries. The rules determine whether the finished product can still be considered to have originated from the UK.

Rules of origin vary between trade agreements, so businesses must check the specific agreement and product rules applicable to each shipment.

If goods do not meet the relevant rules of origin, they can typically still be traded, but they may not qualify for a preferential or reduced rate of Customs Duty.

What are the types of origin?

Two key types of origin apply to products. These are:

• Preferential origin – This is used when claiming a reduced or zero rate of Customs Duty under a trade agreement or preference scheme. The goods must satisfy the specific rules of origin set out in the relevant agreement before a preferential claim can be made.
• Non-preferential origin – This is used for wider customs purposes, including the application of the UK’s standard tariff and other trade policy measures. The rules used to establish non-preferential origin are separate from the preferential rules contained in individual trade agreements.

Businesses must get the origin of their products right and keep in mind that products manufactured and produced in the UK may not automatically have UK preferential origin.

What are the testing criteria?

The exact test to determine origin depends on the product, its commodity code and the trade agreement in place. In most cases, goods will count as originating if they are:

• Wholly obtained or produced in the relevant country or region, for example, certain farm products, minerals or natural resources.
• Made entirely from materials that already count as originating under the agreement.
• Made using materials from outside the area but still meeting the specific rules set out for that product.

If non-originating materials are used, the rules may require things like a change in tariff classification, a minimum level of local value added or certain manufacturing steps to take place.

Some agreements also allow for things like cumulation or tolerance, which can help more products qualify.

Businesses need to know the product code, check the relevant trade deal and look at where the materials and processing come from to be confident that they are following the rules correctly.

It is also important to keep records to support any origin claim. HMRC generally expects these to be kept for at least four years, although some agreements may require records to be kept for longer.

How can we help?

Getting the rules of origin wrong for products can lead to businesses paying more in customs fees than they need to.

Thankfully, our team here at Reanda are here to help. Our accountants can advise businesses on statutory compliance to ensure that your business does not face higher costs or risk non-compliance.

For support with rules of origin, get in touch with our team today!