UK-EU Trade Deal Rules of Origin: A wee Q and A

Are you sitting comfortably? Chapter 2, UK-EU Rules of Origin is about to begin.

Figuring out rules of origin is like a treasure hunt – where the treasure is zero tariff on your incredible product, and everything else is a tax that will make it more expensive. As an exporter to the EU, until official HMRC guidance is updated, you can get ahead by reading Chapter 2 of the UK-EU trade deal on Rules of Origin, followed by the product specific rules set out in Annex 1 to determine if your product will still enter the EU duty free. If you haven’t exported to a country with a free trade agreement with the UK before, don’t panic. As long as you know your supply chain, your production process and your product code, you’ve got this.

Below is a summary of the general UK-EU trade deal rules (if you need help with products specific rules, do get in touch). Let’s start with the easy bit.

Q: Which products are considered ‘originating’ from the UK and don’t need further rules to be applied to receive 0% tariff?

A: If your product is grown (e.g apples), born, bred (slaughtered or live or a product of it, e.g. milk) or mined in the UK, or made up of only UK materials (e.g apple juice, using UK grown apples and local water), or made up of only EU and UK materials (remember for later that that part is called ‘full cumulation’) then hurray! Your product is originating and can be exported duty free to the EU (provided it meets the agreed product standards, but that’s for another day). But don’t go home yet, you still have to prove it!

Trade negotiators recognise that such products do not make up much of today’s exports so a function of rules of origin is to encourage trade by allowing some global production processes to still take place and be considered originating. Product specific rules set out what level of processing or ‘transformation’ of non-EU or non-UK originating materials is required to have taken place in the UK for your product to be classed as ‘originating’.

Q: How is this done?

A: It is standard in trade agreements to do this by specifying either a change in product classification code or the local content by weight, or the local content by value, or a combination of these. In the same vein, all agreements will set out what level of processing is not considered as sufficient ‘transformation’. As you expect, these include things like re-packaging, painting an item, ironing fabrics, sharpening, peeling, washing etc of imported items. You get the idea. If this is your product’s level of processing of non-EU or UK, DO NOT start the treasure hunt. There will be no treasure. Your product will be considered as originating from the country you imported it from and taxed accordingly.

I’m going to post a wee ‘brush up on your rules of origin before the shit hits the fan 1st January 2021’ webinar soon that covers this in more detail so stay tuned.

Q: What about if your product is sufficiently processed and mostly meets the general and /or product specific rules? Does that still count?

A: Well, actually yes! There is a ‘tolerance’ rule, I call it the ‘eh’ rule (said with a shoulder shrug, gentle flick of the hand and upturned mouth), where actually, if the non-EU or non-UK content does not exceed 15% of the weight of the product, or if the total value of those materials doesn’t exceed 10% of the final price of the product, then, hurray again! Your product is originating. There are a few products which are excluded from the ‘eh’ rule - e.g. fishy things and other categories in the weight exception (yes, it is still all about fish) and textiles in the value exception.

Gotcha moment: Be aware that the ‘eh’ rule doesn’t apply if the percentage is above the product specific thresholds on weight and value so do check the product specific rules alongside tolerance calculations. Still, it can be a helpful exception especially when taking the value of currency fluctuations into account when using products imported from non-EU countries.

Q: How to prove origin?

A: You will need to fill in a statement of origin, to be included in the customs declaration. Fear not, no translation or certification is required as it is a self-assessment, but random checks can be carried out by EU member states’ customs officials. If you are an importer, keep these records for at least 3 years, if you are an exporter, at least 4 years. If your goods are currently in storage or in transit, you have 12 months to make a claim for originating status. You can find the suppliers’ declaration form on p.478 of the draft text here.

Q: What if, at the end of the treasure hunt, your product is not considered originating?

A: You now need to find out what tariff your product will face. You can do that here. From there, you can decide the best course of action for your business. Market research can help you determine whether you can absorb the cost, offset the cost, or whether you need to re-structure your supply chains to include more originating inputs.

Q: How does this impact exports to non-EU countries that were classed as originating under the UK’s membership of the EU?

A: The UK rules of origin strategy has been quietly implemented since the UK began rolling over its existing trade agreements in February of this year. In case you missed it, it essentially boils down to: ‘We don’t need to ask the EU for anything more than full cumulation if we just extend EU cumulation into our other trade agreements.’ So if the UK has rolled-over a trade agreement with your non-EU export market, then it possibly includes a provision to consider EU materials as ‘originating’ when used in UK processing. You can check that here.

Rules of origin are a tiny but critical part of exporting your product. There are many other rules around product specific standards, labour and environmental standards, labelling and content requirements as well as customs procedures that you may have to comply with. All these are considerations when determining if and how you can export your product to the EU. As will all things in life, if you are unsure, ask for help. HMRC or your local chambers of commerce are on hand to support you.