What are Rules of Origin? They are international trade rules that determine the economic nationality of a product. Just because something is manufactured in Britain, doesn’t necessarily mean its origin will be classified as British when it’s traded internationally.
Currently inside the EU Single Market (of which the UK is part) Rules of Origin don’t apply.
Post-Brexit, when the UK becomes an external trading partner with the EU, Rules of Origin will have to be agreed between Britain and the EU. It will be important that British products meet the negotiated origin criteria, so they can enter the EU market at a reduced tariff rate, if this is agreed.
For example, the tariff the EU puts on goods originating in China are likely to be different from those applied to British products.
In addition to applying the correct tariffs, Rules of Origin can also be used to charge anti-dumping duties and put safeguard measures in place. They can also be usedfor labelling and marking requirements, as well as Government’s procurement or for gathering trade statistics.
How are Rules of Origin Determined? There are different origin criteria which need to be considered when using Rules of Origin to determine the (economic) country of origin of a good.
- Is a good ‘wholly obtained’? – A good can be considered to have origin if it occurs naturally in a country.
Good examples are live animals reared in a particular country, plants that are grown and natural minerals that are extracted there. Also goods made from manufacturing scrap or waste in a country can give the good origin there.
- Has the good undergone a ‘substantial transformation’ – dramatic and significant change during the manufacturing process e.g. Spanish oranges being processed into marmalade. This is likely to mean the marmalade can be classed as produced in the country where it is manufactured.
What types of Rules of Origin exist? They can be preferential, or non-preferential. Non-preferential Rules of Origin are the most common, where there are no preferential trade agreements in place between two or more countries; WTO terms must be used to work out the origin.
Preferential Rules of Origin are agreed between two or more countries as part of a trade agreement. Inside a preferential trade agreement, countries can share production and jointly comply with the Rules of Origin provisions – known as Cumulation. If a good is produced in more than one country during the production process, and the countries have a free trade agreement (FTA) in place with each other, then the good can be thought of as “originating” in the last country in that production process.
Current compliance with Rules of Origin involve businesses:
- identifying, including with HMRC, the origin requirements of a particular market
- working with overseas customs authorities
- preparing documentation to prove origin prior to exporting goods as they must be certified before leaving the UK.