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Rules of Origin and Trade and Cooperation Agreement (TCA) between the UK and the EU

UK exports to the EU are subject to a "rule of origin" clause

2 Oct 2021

As part of the Brexit deal, UK exports to the EU are subject to a “rule of origin” clause. This means that import duties are payable if some or all of the product has originated from outside the EU and the UK, along with VAT.

As there has been a lot of talk about the “Rules of Origin” lately, here I look at some requirements.

Under the Trade and Cooperation Agreement (TCA), the preferential tariffs are only given to goods that originate in the UK or EU and not from third countries (those apart from UK and the EU Member States).

Goods that do not meet the rules of origin can still be traded but they will not be able to benefit from preference under the TCA and may have to pay the standard “Most Favoured Nation” (MFN) tariffs that the EU and UK apply to imports under the rules of the World Trade Organization (WTO).

For exports to the EU, this will be the Union’s Common External Tariff (CET). For imports to the UK, this will be the UK Global Tariff.

These rules are set out in the TCA and determine the origin of goods based on where the products or materials (or inputs) used in their production come from.

The rules of origin provisions in the TCA are set out in two parts:

  • General – These rules apply to all products being traded under preference. They include both the primary and administrative requirements.
  • Product-specific rules of origin (PSRs) – These are specific rules that set out, for every product based on its Harmonised System (HS) code, what the requirements are for that product to be considered “originating”.

To qualify for preferential tariffs, products must be sufficiently worked or processed within the parties to the agreement. Non-originating materials are materials imported from third countries. Non-originating may also refer to materials whose origin is unknown or not possible to determine.

Originating products

A product can be considered originating in two ways:

  • Wholly obtained – exclusively obtained or produced in the territory of one country.
  • Sufficiently transformed – this is based on three basic rules Value added rule, the change of tariff classification and manufacture from certain product or trough specific process.

Under bilateral cumulation mechanism, materials originating from the EU, as well as production carried out within the EU on non-originating materials, may be considered as originating in the UK (and vice versa).

Once a product has gained originating status, it is considered 100% originating. This is very useful because if that product is incorporated in the production of a further product, its full value is considered originating. Non-originating materials within that product are not taken into account.

There is an example in the Government guidance on TCA that, 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.

How to claim the preferential treatment

To enjoy preferential tariffs, the importer will have to claim preference on their customs declaration and provide a statement they have documentary proof that the goods comply with the rules of origin. The wording of the statement is contained within the Trade and Cooperation Agreement. It should be included on the sales invoice or similar commercial document, including a description to identify the goods to enable identification.

A proof of origin can be in the form of

  • a Statement on origin completed by the exporter on a commercial document
  • the importer’s own confirmation that the goods are originating from the EU or UK based on ‘importer knowledge’

Temporary easements available to business

For goods imported from the EU to GB (but not vice-versa) between 1 January 2021 and 30 June 2021, GB traders will have up to six months to submit a full customs declaration and pay any necessary tariffs. This also includes declaring any proof of origin.

UK exporters have been given a year’s grace period on certifying the origin of components that make up their manufactured goods. Until 31 December 2021, businesses do not need suppliers’ declarations from business suppliers in place when the goods are exported but they must be confident that the goods do meet the TCA preferential rules of origin. Businesses may be asked to retrospectively provide a supplier’s declaration after this date.

More details can be found in the guidance the Government has published on the rules of origin requirements for trades moving goods between the UK and the EU

If you have any questions on this matter please contact us.

For further information on trading post Brexit, please visit our knowledge hub.

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