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Rules of Origin – Non-Preferential Origin



What is Origin?


Product Origin in International Trade has little to do with the country of dispatch or even in some cases the country of manufacture. In general, a certificate of origin is essential in international trade transactions, because it is the proof certifying the origin of the product, which is in turn the basis to determine the tariffs and other trade measures that will be applied.


In conclusion the basic role of the rules of origin is the determination of the economic nationality as opposed to the geographical nationality of a given good.


For instance, free circulation does not confer origin for example, if Chinese goods were entered into Japan and were duty paid in Japan then re-exported it doesn’t mean they’ve become Japanese origin.



Who Makes the rules of Origin?


  • WTO members agreed to negotiate harmonized non-preferential rules of origin. The Rules of Origin Agreement requires WTO members to ensure that their rules of origin are transparent; that they do not have restricting, distorting or disruptive effects on international trade.


In the EU


  • A committee made up of the 28 member states of the European Union (EU) decided what rules should apply. They based their decisions on the origin rules in the Kyoto Convention which were then enshrined into the Union Customs Code.


  • Post Brexit the UK will follow the origin rule structure in the Kyoto Convention but will be able to apply those rules to whatever products and agreements it chooses to make. The Department for International Trade (DIT) is responsible for the rules.



The 2 Types of Origin:


  • Non-Preferential Origin

- otherwise known as an ordinary or generic certificate of origin.

- Non-preferential origin merely confers an "economic" nationality on goods and does not confer any special benefit on them.


  • Preferential Origin

- Applies to goods from particular countries where they fulfill the rules of origin for the relevant preferential arrangement to benefit from reduced or zero customs duty.


- Qualifying the ‘right’ origin can bring significant reductions in the import Duty and VAT payable at import. It can also open the door to the use of the so called ‘Free Trade Agreements’ which not only bring the benefit of reduced import Duty and Tax but can open up markets that are not available to your competitors.




What is Non-preferential Origin Used For?


There are several countries outside of the EU that require a certificate of origin for goods entering that country. They may want to limit imports from certain countries for political or commercial reasons.


Non-preferential rules of origin are used to determine the country of origin of goods for the application of the most-favoured nation treatment (MFN) but also for the implementation of a number of commercial policy measures such as:


  • Anti-dumping measures

  • Countervailing duties

  • Trade embargoes

  • Quantitative restrictions (quotas)


Certificate of Origin (CO)* are requested by customs, banks, private stakeholders, and importers for several purposes. Almost every country in the world requires CO for customs clearance procedures: when determining the duty that will be assessed on the goods or, in some cases, whether the goods may be legally imported at all.


* Not all non-preferential trade requires a CO, and sometimes it is a commercial requirement rather than a customs requirement. A Certificate of Origin may, for instance, be needed at a buyer’s request, or to prove that goods do not originate in countries that face sanctions in the importing country, or for anti-dumping enforcement, or for regulatory or statistical purposes.



Proving Non-Preferential Origin


There are two basic concepts to determine the origin of goods namely;


  • wholly obtained

If only one country is involved in producing a good the wholly obtained concept will be applied. In practice this will mostly be restricted to products obtained in their natural state and products derived from wholly obtained products.


  • last, substantial transformation

If two or more countries are involved in the production of goods, this concept determines the origin of the goods.




Wholly Obtained


When only one country is involved in the manufacture of a product.


  • The term "wholly obtained" covers such things as fresh produce e.g. (fruit and vegetables) grown and harvested in the country of exportation or mineral products mined there.

For example, tomatoes grown and harvested in Morocco have non-preferential origin Morocco when they are released for free circulation in the EU.


  • Goods produced in one country entirely from products wholly obtained in that country or territory are themselves wholly obtained products.


  • Even the smallest amount of materials or processing from another country will disqualify that product from being wholly produced.


Sources:



https://ec.europa.eu/taxation_customs/customs-4/international-affairs/origin-goods/non-preferential-origin_en


Wholly Obtained Examples:


  1. Wine bottle corks manufactured in Portugal using natural cork or waste cork produced in Portugal. – Non-preferential origin Portugal

  2. Basketwork and wickerwork manufactured in Switzerland from willow, reeds, rushes etc., harvested in Switzerland. – Non-preferential origin Switzerland

  3. Articles of non-treated natural wood manufactured in Morocco using wood from trees felled in Morocco. – Non-preferential origin Morocco

  4. Fish are caught in Norwegian territorial waters by Spanish fishing vessels and are landed in Spain. – Non-preferential origin Norway


If your goods cannot meet the wholly obtained criteria it will be determined by the last, substantial economic process. In example 4, If the fish were further prepared (gutted, descaled), processed and frozen on board the vessel flying the Spanish flag and landed in Spain. The fish will now have non-preferential origin Spain.






Last substantial, economically justified processing or working


When two or more countries are involved in the manufacture of the product.


European Court of Justice ruling established that:


“the last process or operation is only 'substantial' if the product resulting therefrom has its own properties and a composition of its own, which it did not possess before that process or operation”


The Union Customs Code Article 60(2) states the following rule:

https://www.legislation.gov.uk/eur/2015/2446/title/II/chapter/1/section/1



In general, the criterion of last substantial transformation is stated in 4 ways


  1. Last - The very last place that processes took place.

  2. Substantial - The processing done is of a reasonable level, above that detailed in the minimum lists (Section 9 of Notice 828).

  3. Economic - The processing involved should add value to the finished product.

  4. Process - The product should undergo a level of manufacture which transforms the combined materials to that of the finished product often changing tariff heading.


If your product has passed those 4 rules, the ‘nationality’ (non-preferential origin) of your product will be listed in 1. ‘Last’. i.e. GB, FR, IE. This is your country of origin.


Last substantial, economically justified processing or working Example:

Sugar from country A, flour from country B, dairy products from country C, and nuts from country D are taken to country E and undergo manufacturing to result in cookies. (The inputs were substantially transformed into a product of country E; Substantial transformation means that the good underwent a fundamental change in that a new type of goods resulted from processing). The tariff has changed, therefore the country of origin would be of country E.



What would not qualify for last, substantial, economic process or working?


  • Preservation

  • Simple operations e.g., Sorting or Cutting

  • Changes of packing

  • Putting up of good in sets

  • Affixing labels

  • Simple assembly of parts

  • Disassembly or change of use

  • A combination of the above


Example

Fresh vegetables grown in various countries are taken to another country to be mixed together and frozen. The vegetables were NOT substantially transformed into products of the country where mixing and freezing occurred, so the mixture must be labeled with the origin of each ingredient.



Non-preferential origin documentation: Certificates of Origin


Certificates of Origin are issued by the Chamber of Commerce (CoC). The Chamber of Commerce checks the origin on the basis of the submitted evidence. This evidence could be the following:


  • If you are a manufacturer, an overview of your production process.

  • If you are a trader and buy goods with European Union origin, a supplier's declaration for goods of non-preferential origin can serve as proof of origin.

  • If you are a trader and purchase goods from a supplier outside the European Union, a Certificate of Origin from the country in question would serve as proof.



Obtaining a Paper Certificate of Origin


  1. Fill an appropriate affidavit and have it notarized.

  2. Provide a manufacture invoice or commercial invoice.

  3. Complete the certificate of origin document.

  4. Take your notarized affidavit, certificate of origin document, and corresponding invoices to your chamber of commerce.

Chambers of Commerce usually charge a fee for stamping certificates of origin—however, if you’re a member, that fee may be reduced.


There is no standardized certificate of origin form for global trade, but a Certificate of Origin, normally prepared by the exporter of goods, has at least the basic details;


  • Country of origin

  • Shipper’s name and address,

  • Consignee name and address

  • Transport detail

  • Product description and quantity

  • HS code

  • Airway bill number

  • Commercial invoice number and dates

  • Any further remarks

  • The issuing body's stamp and signature


Normally the issuing and verifying body would be the international chamber of commerce but can be a customs authority or government body assigned by the agreement.


Certificate of Origin are one-time documents, you'll need 1 for every shipment sent.


Customs officials expect the Certificate of Origin to be a separate document from the commercial invoice or packing list.


In some countries you can apply online via eCO for a Certificate of Origin that has been electronically signed by a Chamber of Commerce, in less than a day, or get an expedited paper certificate overnight.


In other countries you fill in a standard certificate of origin form and submit it to your local chamber of commerce to be stamped and approved.


Since applying for a certificate of origin can be complicated, to save time you can get a representative, such as a freight forwarder, to apply for you.


The service will take around 5-7 business days after your request has been submitted and payment received, and bear in mind that some countries require the certificate to be legally approved by an embassy or ministry of foreign affairs, which can take more time.


Certificates of Origin are precise documents and have a strict compliance.

Any errors or tampering of the form will result in your application being rejected.

Intentional false information can lead to penalties.


For guidance on how to fill a UK Certificate of Origin Form click here






Useful Links


https://ec.europa.eu/taxation_customs/customs-4/international-affairs/origin-goods/non-preferential-origin_en


https://ec.europa.eu/taxation_customs/system/files/2018-12/guidance-on-non-preferential-rules-of-origin_en.pdf


Check your goods meet the rules of origin - GOV.UK (www.gov.uk)

guidelines-on-certification.pdf (wcoomd.org)


https://blogs.sussex.ac.uk/uktpo/publications/certificates-and-rules-of-origin-the-experience-of-uk-firms/


Rules of Origin Facilitator (findrulesoforigin.org)


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