A good understanding of origin matters is likely to help you reduce your import costs and steer clear of some of the most common customs errors that give rise to additional duties, penalties and irate customers.

Does it matter where my goods are from?

The simple answer to this question is YES! It is crucial to determine the "economic nationality" of imported goods for a number of reasons. The EU has entered into Trade Agreements with two hundred states around the world which may allow your imports to attract a greatly reduced rate of duty (or even nil duty in some circumstances). Occasionally, more than one agreement will apply to your goods and it is important that you make sure you are getting the most favourable rate.

In other circumstances, goods from certain may be liable to anti-dumping duty or import-licensing if they are determined to come from certain countries. These measures will either increase your costs significantly or prevent you from importing them.

How do I determine the origin of my goods?

To determine the "economic nationality" of your goods, the Rules of Origin apply.

It is important to note that there is no one unilateral set of rules employed in International Trade. Although the World Trade Organisation "Rules of Origin" provides the template, different states may and do use different rules. For example, if a product satisfies the framework of the USA General System of Preferences (GSP) rules, it cannot be taken for granted that it also fulfils the European Community's GSP rules of Origin and vice versa.

What rules does the European Union use?

The customs code of the European Union (Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code) distinguishes between "Non-Preferential Origin" and "Preferential Origin" of goods.

What is the difference between "Non-Preferential Origin" and "Preferential Origin?"

The rules of non-preferential origin apply to goods that are subject to the rules of the World Trade Organisation (WTO) and facilitate the application of the Customs Tariff, the application of Outward Processing Relief (OPR) and commercial measures such as anti-dumping.

The non-preferential origin rule provides that goods originate in the country in which they are wholly obtained or where they undergo their last, substantial, economically justified working or processing (see below for more detail).

The rules of preferential origin determine whether a product is subject to the preferential measures negotiated between the EC and a third country/group of countries. These origin rules are found in the customs code and implementing regulation or the trade agreement in place with your specific trading partner.

What is the Generalised System of Preferences?

The EC's Generalised System of Preferences is the largest trade arrangement through which the EU provides preferential access to the EU market to 176 developing countries and territories, in the form of reduced tariffs for their goods when entering the EU market. There is no expectation or requirement that this access be reciprocated. There are three separate preference regimes:

• The Standard GSP, which provides preferences to 176 Developing Countries and Territories on over 6300 tariff lines; 
• The Special Incentive Arrangement for sustainable development and good governance, known as GSP+, which offers additional tariff reductions to support vulnerable developing countries in their ratification and implementation of international conventions in these areas; 
• The Everything But Arms (EBA) arrangement, which provides Duty-Free, Quota-Free access for all products for the 50 Least Developed Countries (LDCs).

The basic structure of the EC GSP Rules of Origin

Products originate in a particular beneficiary country if they are:

• Wholly obtained in that country or 
• Sufficiently worked or processed there (in essence this is where two or more countries have been involved in the production of the goods in question).

What are "wholly obtained products?"

Article 68 of the Customs Code Implementing Regulation is an exhaustive list of what is classed as wholly obtained. Below are a couple of examples of wholly obtained products:

• Mineral products extracted within that country;
• Live animals born and raised therein; 
• Products of sea-fishing and other products taken from the sea outside a country's territorial sea by vessels registered or recorded in the country concerned and flying the flag of that country;

What does "sufficiently worked or processed" mean?

A list of processes that are to be considered to be sufficient can be found in Annex 15 of the Implementing Regulation. However, this issue has led to a wealth of case-law at the European Court of Justice and the consensus is that any processing must change the "substance" and not the "presentation" of the goods. The Introduction to Annex D1 and Standard 3 Note 1 of the Kyoto Conventions state that the criterion may be employed by means of 3 methods of application used cumulatively or alternatively (The EC uses all 3)

(a) The rule requires (subject to a list of exceptions) a change of tariff heading in a specified nomenclature in order for substantial transformation to be attained.
(b) Use of lists of manufacturing or processing operations which do, or do not, confer upon the goods the origin of the country in which those operations were carried out
(c) Ad valorem percentage rule which requires either the values of the materials utilised or the percentage of the value added by manufacturing or processing to be used to determine origin.

Alternatively another way of looking at this is to look at what qualifies as "insufficient processing".

What is "Insufficient Processing?"

Article 70 gives an exhaustive list of insufficient or minimal opertions, a few of which are listed below:

• Preserving operations to ensure that the products remain in good condition during transport and storate; ironing or pressing of textiles;
• Simple placing in bottles, cans, flasks, bags, cases, boxes, fixing on cards or boards and all other simple packaging operations;
• Affixing or printing marks, labels, logos and other like distinguishing signs on products or their packaging;

If a product goes through any of the processes listed in Article 70 then the goods will not be able to be classed as "originating" from the country where processing has taken place.

Looking at the Whole Supply Chain (The Cumulation Rules)

There are provisions in some agreements for products to be able to acquire the economic nationality of another country without complying with the criteria set out above. This is known as cumulation. There are four types of cumulation:

• Bilateral Cumulation (an agreement between two parties)
• Diagonal Cumulation (encompassing two or more parties providing they have identical rules governing origin and cumulation for example the Euro-Mediterranean Agreements)
• Regional Cumulation (encompassing regional groups of countries under the GSP system)
• Full cumulation (whereas the other types of cumulation must commence with a product which originates in a state covered by the relevant rules, full cumulation does not. It permits products originating elsewhere to acquire origin so long as sufficient working or processing is carried out, for example, the European Economic Area Agreement)

Necessary Documentation for proof or origin

The Implementing Regulations contain provisions regarding certificates of origin and administrative co-operation regarding both non-preferential (Articles 47-65) and preferential origin (Articles 80-95). Article 80 of the Implementing Regulation provides that products originating in a beneficiary country benefit from preferential tariffs on submission of:

• A certificate of origin Form A (found in Annex 17 of the Implementing Regulation) or,
• In certain cases on submission of an invoice declaration (a "declaration of origin in a specified form.")

In the case of EC's preferential agreements other than the GSP, Article 110 of the Implementing Regulation also states that a EUR1 movement certificate can also be produced as proof of origin provided that the goods have been directly transported into the European Union.
Specific trade agreements will provide for their own rules on documentation requirements but are likely to be similar to those described above.

Likely Future Developments

Amending the Rules of Origin has been on the EU agenda for quite some time now. As far back as December 2003, the European Commission issued a Green Paper concerned with reforming the rules of origin. That Green Paper is now a Proposal for a Commission Regulation and it is anticipated that this will be cleared to come into force from 1 January 2010. Essentially, the revised rules focus on simplifying the rules of origin and the introduction of the "Approved Exporter Scheme".

Simplifying the Rules

The current rules of origin were devised in the 1970's and therefore need simplifying and updating to keep up with the times. The European Commission has proposed a number of simplifications to the present system (for example the rules determining whether goods have been sufficiently processed are adapted to each industry sector) and targeted relaxation of the rules (particularly aimed at the Least Developed Countries).

The Approved Exporter Scheme

The "Approved Exporter Scheme" envisages a clarification and re-balancing of the rights and obligations of both operators and administrators. In particular, the current system of certification of origin by the authorities would be replaced by statements of origin to be given directly by "Registered/Approved Exporters". This is intended to reduce the red tape involved and to free up the authorities of the country concerned on more effective post-export controls.

How can International Trade Solutions help you?

Various conditions must be met before you can benefit from Trade Agreements. Working out whether your product meets the origin rule is often complex and leads to errors.

You may have been put off from using this type of planning in the past because the authorities frequently challenge the use of Trade Agreements and seek to recover your duty savings going back up to two years (but more typically 10 months). However, there are now specific steps you can take to protect any benefits you obtain.

Even if you think you are benefiting under Trade Agreements, we advise you to get someone to check your imports on a regular basis. If the supporting documentation is not available when your goods are imported, then your agents may not know of the potential claim and pay the duty on your imports at the full rate.

ITS has a wealth of experience in complex origin issues. We can provide you with a comprehensive review of your customs operations including a review of the origin of your goods and whether they benefit from trade agreements or preferences thereby so highlight any cost savings, reclaims and compliance risks. Furthermore we can build robust procedures and keep you abreast of changes you need to adopt to remain compliant.

We have access to advanced materials such as a database of previously decided cases and explanatory notes to legislation, case law and deep skills and experience of successful origin projects which you can tap in to and increase the competitiveness of your business.

If you have any queries please email us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or call us today on 01905 619229 to arrange a free of charge discussion and high-level assessment of your customs risks.